The End of Fear?

For sure the answer is no...but for now there doesn't seem like there's much fear out there. The risk on trades are happening. Folks are moving money out of bonds and into stocks. We've got money to spend but are patiently waiting for a correction or at least a healthy dose of fear. I'd like to write out of the money puts on Proctor & Gamble and Johnson & Johnson as they will be announcing dividend hikes soon. I also think Pepsico has stabilized and will begin rising to get it's PE more in line with Coca-Cola.

There's a chance the market will keep rising but I definitely won't enter into any trades until we have a day in the red. In the meantime patience is a virtue.

FYI other stocks I'm looking to trade are Altria, AT&T, Chevron, General Dynamics and Microsoft.

Profitable Trade: Coca Cola (KO) Puts

Yesterday the following puts expired worthless in a taxable account:

01/11/2011    STO 4 KO Feb 18 2012 65 Puts @ .51                +190.95

Coca  Cola was trading at ~69 at options expiry. The margin maintenance on this trade was $4400. We earned $190.95 in 39 days. This equates to a return on margin of 4.34% or 40.61% annual.

Dividend Growth Portfolio Additions

Last week in my Dividend Growth Portfolio I made the following purchases: Century Link (CTL), Coca-Cola (KO) and Realty Income Corp. (O). Unlike many dividend growth investors I choose to reinvest the shares back into the stock that paid the dividend.

Century Link hasn't raised their dividend for over a year so they drop from the Dividend Achievers and Dividend Champions list. I'm not concerned, however, as they recently made some strategic acquisitions including the acquisition of Qwest. The dividend payout ratio is only 50% and the yield is ~7.75%. My money is on a return to dividend growth sometime in 2012 or 2013.

Coca-Cola needs no introduction. I might have bought in on the high end of price but it is due to raise it's dividend next quarter. I will look to add more on dips.

Realty Income is "The Monthly Dividend Company." I've been trading this stock for some time and love it as an enhanced income or double dividend candidate. I also love the monthly dividend and look forward to the compounding effect of that. I will likewise look to buy more on dips.

My Dividend Growth Portfolio is separate and distinct from my income trading accounts. These are my buy and hold retirement accounts. Like many dividend investors I am looking to increase my monthly passive income so that said passive income may fund my retirement years.

Recent Trade Thoughts

I usually enter into new investments when the market is down and investors are fearful. For the last couple of weeks those times have been rare. I'm a patient person and I've learned to let the market come to me. There are some traders who I respect greatly, i.e., Bill Cara, who are bullish on the markets.

So why did I enter some trades when the market has been bullish? I didn't want to have the train leave the station with me standing on the platform. In any event, I only entered into some conservative out of the money put plays on stocks I would love to own. These were Coca-Cola, Proctor & Gamble and Johnson & Johnson. If put to me the yield on cost would be well above average. In addition, some of these are set to raise their dividends. I also entered into a covered call transaction on Conoco-Phillips. I like this one as they are going to spin off shares and are set to raise the dividend. It also diversifies us into oil and gas.

I've also been trading the precious metals which bottomed a couple of weeks ago. Now that they are back in their bullish trend I'm losing a bit of interest going forward. I'm looking for dips preferably large ones where folks are talking about precious metals cratering.

I think that GOOG may be providing a good opportunity for out of the money put writing, especially 30 or 40 points below where it's trading right now. I probably won't participate, however, as it violates my rule of only trading something I really want to own.

Other than these trades I think it's time to wait for a correction. Obvious opportunities should appear. I've got a ton of cash and margin to work with. With my recent trades I just took a little nibble in case we are off to new highs.

New Trade: Sold Coca-Cola (KO) Puts

Yesterday I entered into the following transaction in a taxable account:

01/11/2011    STO 4 KO Feb 18 2012 65 Puts @ .51                +190.95

Due to some fungus in orange juice, Coca-Cola was very weak yesterday. I took advantage of the opportunity to enter into a trade on this blue chip, dividend champion stock that needs no introduction. The margin maintenance on this trade is $4400. If they expire worthless we will earn $190.95 in 39 days. This equates to a return on margin of 4.34% or 40.61% annual. There is money in this account to purchase the shares if put to us but we'd probably roll for a net credit before we'd allow that to happen. Buying KO at 64.50 ain't a bad thing though.

Profitable Trade - Coca-Cola (KO) Puts

Today our KO puts expired worthless. The transaction was as follows:

Sold 2 KO Dec 17 2011 62.5 Puts@.71                  +130.47

We earned 1.04% in 26 days or 14.65% annual. If one were to calculate return on margin (ROM) our return with an initial margin requirement of 1794.99, comes to 7.26% or 102% annual.

Sold Coca Cola (KO) Puts

With the DOW down ~300 to ~11500 and Coca-Cola down to ~65.58 I entered into the following transaction in a taxable account:

Sold 2 KO Dec 17 2011 62.5 Puts@.71                  +130.47

We'd be happy to own KO at ~62. Our yield on cost will exceed 3%. In addition, KO is set to raise the dividend next quarter. If the puts expire worthless we will earn 1.04% in 26 days or 14.65% annual. If one were to calculate return on margin (ROM) our return if the puts expire worthless, with an initial margin requirement of 1794.99, comes to 7.26% or 102% annual.