Trade Continuation: Pepsico (PEP) Naked Puts

A couple of days ago in a taxable account I continued the following transaction:

02/09/2012    STO 2 PEP Mar 17 2012 62.5 Puts @.7                      128.51
03/06/2012    BTC 2 PEP Mar 17 2012 62.5 Puts @.63                   -137.48
03/06/2012    STO 2 PEP July 21 2012 60 Puts @1.58                     314.36

With a drop in PEP price below 62.5, I rolled this position for a unique reason. I'm too busy right now with my business to monitor these trades and I'm going on vacation next week during option expiration and won't have good computer access. I rolled out and down for a net credit. If put to me my cost basis will be ~58.50/share and Pepsico is set for another dividend raise so the yield on cost will be a juicy 3.75% or so. In my opinion, that ain't gonna happen. If it does I feel great about this becoming a great enhanced income, double dividend candidate. In other words I'll start writing covered calls on the position collecting option premium and dividends. BTW for this trade we are using $2257.77 in margin maintenance. If they expire worthless we will earn $305.39 in 171 days which equates to 13.53% or 28.87% 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.

New Trade: Century Link (CTL) Covered Calls

Today with CTL down over 2% I entered into the following trade in a traditional IRA:

02/02/2012    Bought 200 CTL @36.81                                  7371.71
02/02/2012    STO 2 CTL Feb 18 2012 37 Calls @.8                 -148.47

This particular account is for a retiree family member. Century Link was a Dividend Achiever and a Dividend Champion before it froze it's dividend at .725/share. The yield is a whopping 7.73%. CTL goes ex-dividend February 16th and has an earnings report February 15th. I didn't shy away from buying before an earnings report because this is a stock we want to hold long term in this particular portfolio and this increased the income on the calls we wrote since we get paid for volatility.

Our out of pocket is $7223.24 or $36.11 per share. Assuming we don't get called away we will also receive the dividend of $145 which will lower our out of pocket to $7078.24 or $35.39/share. We can also write new calls in two and a half weeks to lower our out of pocket even more. If we do get called away (and don't roll the position) it is still a nice return. I like the setup on this one very much for an enhanced income strategy.

Dogs of the Dow look very tradeable for 2012

The 2012 Dogs of the Dow look like strong candidates for enhanced income strategies. They are these stocks. When one combines their yields with covered calls or out of the money put selling the returns can easily be double digit %'s for the year. With the volatility in the market we would recommend writing in the money or at the money covered calls and out of the money put writing. One should be aware of the ex-dividend date as well as when earnings are to be reported. Try to enter positions that capture the dividend and consider avoiding entering new positions before earnings are released or you may experience a gap down.

Profitable Trade: Exxon Mobil (XOM) Covered Call

Today I took profits in XOM in a traditional IRA. The transaction looks like this:

09/30/2011  13:44:08 Bought 100 XOM @ 74.3982                                     -7,449.81 

09/30/2011  13:44:50 Sold 1 XOM Oct 7 2011 75.0 Call @ 1.19                       108.23

10/07/2011  10:15:56 Bought 1 XOM Oct 7 2011 75.0 Call @ 0.05                     -5.02

10/07/2011  10:16:25 Sold 1 XOM Oct 14 2011 75.0 Call @ 0.76                       65.23

10/13/2011  09:59:16 Bought 1 XOM Oct 14 2011 75.0 Call @ 1.62               -172.76

10/13/2011  09:59:48 Sold 1 XOM Nov 19 2011 75.0 Call @ 3.35                    324.23

11/11/2011  15:11:53 Bought 1 XOM Nov 19 2011 75.0 Call @ 4.6                -470.76

11/11/2011  15:12:58 Sold 1 XOM Dec 17 2011 75.0 Call @ 5.45                    534.22

12/09/2011  Dividend                                                                                    +47.00
12/12/2011  BTC 1 XOM Dec 17 @ 4.6                                                           -470.76
12/12/2011  STO 1 XOM Jan 21 2012 @ 5.6                                                   +549.22
12/22/2011  BTC 1 XOM Jan 21 2012 @ 9.35                                                  -945.76
12/22/2011  Sold 100 XOM @ 84.19                                                              +8408.94

We made $452.64 on this transaction in 13 weeks. Our average out of pocket in this trade was ~$7200. This equates to ~6.3% return or 25.14% annual.

With the run up in the price we pretty much drained all the time decay out of this trade. By closing out early we have more powder in the keg for the next downturn.

Trade Continuation AT&T (T) Covered Call

Today in a traditional IRA I continued the following transaction:

06/27/2011    Bought 200 T @ 30.889                                      -6187.79
06/27/2011    STO 2 Aug 20 2011 31 Calls @.53                     +94.50
08/01/2011    Dividend                                                           +86.00
08/03/2011    BTC 2 Aug 20 2011 31 Calls@.05                      -10.00
08/03/2011    STO 2 Jan 21 2012 31 Calls@.66                      +120.50
11/01/2011    Dividend                                                           +86.00
11/22/2011    BTC 2 Jan 21 2012 31 Calls@.05                       -10.00
12/02/2011    STO 2 Dec 17 2011 29 Calls@.38                      +64.47
12/19/2011    STO 2 Feb 18 2012 29 Calls@.59                     +106.47

With this latest transaction we have lowered our out of pocket to $5649.85 or $28.24/share. AT&T goes ex-dividend on January 6 with their raised dividend of .44/share. We might get called out but I doubt it since our expiration date is 6 weeks later.

We are recovering nicely in this trade after arguably paying too much for the stock to start. I wasn't religiously following the charts and only entering an investment at the bottom of the trade cycle when I entered this trade. Nevertheless if we collect the dividend our amount out of pocket will drop to $5561.85 or $27.81/share.

If we get called away in February and don't roll the position our profit will be $218.15 which equates to 3.5% or 5.3% annual. This is not great but it is still a profit on a stock that dropped in price from the time we bought it. I like the stock at cheaper entry points and have written some out of the money puts at the 27.5 strike price in other accounts.

Trade Continuation - Microsoft (MSFT) Covered Call

Today I continued a MSFT investment in a traditional IRA as follows:

 

11/01/2011  13:29:58 Bought 200 MSFT @ 26.029                                      -5,215.79

11/01/2011  13:31:11 Sold 2 MSFT Nov 4 2011 26.0 Call @ 0.36                        60.47

11/04/2011  14:52:03 Bought 2 MSFT Nov 04 2011 26.0 Call @ 0.25                 -61.52

11/04/2011  14:52:44 Sold 2 MSFT Dec 17 2011 26.0 Call @ 0.88                     164.45

12/08/2011  Dividend                                                                                     40.00

12/16/2011  BTC 2 MSFT Dec 17 2011 26 Calls @ .05                                       -10.03

12/16/2011  STO 2 MSFT Jan 21 2011 26 Calls @.67                                       112.47

This roll lowered our amount invested to $4899.53 or $24.50/share. We are successfully collecting monthly income in addition to the dividend. If we get called away we will make ~280.00 after commissions. This equates to a return of ~5.4% on our initial investment or 25.54% annual.

Trade Continuation: Exxon Mobil (XOM) Covered Call

Today with the DOW down 218 points to 11965 and XOM at ~79.60 I continued the following transaction:

09/30/2011  13:44:08 Bought 100 XOM @ 74.3982                                     -7,449.81 

09/30/2011  13:44:50 Sold 1 XOM Oct 7 2011 75.0 Call @ 1.19                       108.23

10/07/2011  10:15:56 Bought 1 XOM Oct 7 2011 75.0 Call @ 0.05                     -5.02

10/07/2011  10:16:25 Sold 1 XOM Oct 14 2011 75.0 Call @ 0.76                       65.23

10/13/2011  09:59:16 Bought 1 XOM Oct 14 2011 75.0 Call @ 1.62               -172.76

10/13/2011  09:59:48 Sold 1 XOM Nov 19 2011 75.0 Call @ 3.35                    324.23

11/11/2011  15:11:53 Bought 1 XOM Nov 19 2011 75.0 Call @ 4.6                -470.76

11/11/2011  15:12:58 Sold 1 XOM Dec 17 2011 75.0 Call @ 5.45                    534.22

12/09/2011  Dividend                                                                                    +47.00

12/12/2011  BTC 1 XOM Dec 17 @ 4.6                                                           -470.76

12/12/2011  STO 1 XOM Jan 21 2012 @ 5.6                                                   +549.22

We wrung out all the time decay on this one so I rolled the deep in the money call for a net credit of $78.46. This lowers our amount invested to $7010.54 or $70.10/share. We have been able to roll in the money calls on a monthly basis for a nice double dividend. These series of transactions illustrate the enhanced income strategy we have come to know and love.

Swing Low Sweet Sentiment

We've got cash at the ready.  We just need the herd to swing the pendulum back toward fear. Downright Damien Omen, Exorcist panic and horror would be this gal's preference. Trade the Psychology, Ride the Lightning...ha.

World economies are in the position of relying on government to set things right. May I have some examples of when that has ultimately worked in the past? Politicians are short sighted. Short sightedness put the world economies in the situation we're in. A doctor with broken arms flapping in the wind can't perform surgery on the gasping patient.

When the market heads back south I will be at the ready to sell naked and covered puts below the support levels of Dividend Champions. I will be rolling my existing covered call positions to keep the premiums and dividends pouring in. I love my Double D's! (that's double dividends fellas..). I also love to trade precious metals ETF's with options. I believe we are in the midst of a long term secular bull in precious metals. If you'll search under GDX, GLD and SLV on this blog you'll find several examples of "have your cake and eat it" trades.

On covered calls we will look closely at in the money and at the money strikes first. I'm a believer that we now live in a world where we are witnessing the end of growth. I'll give up capital appreciation for boring double digit income returns.

As for now, I'm licking my lips...and waiting...

Teetering?

Well we had a nice little rally. It feels long in the tooth now. I've taken profit and moved several income positions to cash so I can have powder in the keg when the media starts screaming that the economic world is about to collapse...again.

I recently posted an article called Trading a Bipolar Market which I believe sets forth a good way to profit in volatile markets such as this. Swim against the school of fish, stampede against the herd. Buy low, sell high...yada yada. Easier said then done...that is until you calculate your returns. Happy Hunting!

Profitable Trade (SO) Southern Company

I recently closed out the following position in Southern Company in a traditional IRA account. I closed this position as it was basically dead money with most of the time decay drained from the transaction.  This series of trades illustrates how using my enhanced income or double dividend strategy one can achieve double dividend returns, even on utility stocks.

1. 7/19/11           Bought 100 SO @ 39.94                                                 -4003.98
2. 7/19/11           STO 1 Jan 21 2012 40 @ 1.22                                          +111.25
3. 9/6/11             Dividend                                                                          +47.25
4. 11/30/11         BTC 1 Jan 21 2012 40 @ 4.10                                           -420.76
5. 11/30/11         Sold 100 SO @ 43.82                                                      +4372.10
6. 12/6/11           Dividend                                                                           +47.25

We earned $153.11 on our initial investment of $3892.73 in ~14 weeks. This is a return of 3.9% or 14.6% annual. We have been selling when others are taking on risk and entering new positions when others are fearfully selling.

Profitable Trade: Altria Group (MO) Covered Call

1. 9/6/11  Bought 200 MO @ 26.57                                               -5323.63
2. 9/6/11  STO 2 MO Oct 22 27's @ .54                                            +96.50
3. 10/11   Dividend                                                                           +82.00
4. 10/21  BTC 2 MO Oct 22 27's @.50                                             -111.52
5. 10/21  STO 2 MO Nov 19 27's @.95                                           +178.47
6. 11/17  BTC 2 MO Nov 19 27's @.72                                            -155.52
7. 11/17  STO 2 MO Jan 21 27's @1.15                                           +218.47
8. 11/30  BTC 2 MO Jan 21 27's @1.64                                           -339.56
9. 11/30 Sold 200 MO @ 28.41                                                      +5672.26

Today with the market in the throes of irrational exuberance..ha..I closed out this position in a taxable account. It was basically dead money at this point. We made $318.70 in ~11 weeks which is a profit of 6.1% which equates to ~28.8% annually. Not bad for a widow and orphan, blue chip, high and rising dividend stock. This is a bread and butter enhanced income, double dividend transaction.

Rising Dividend Gold Stocks

This article is an interesting read for us who like precious metal stocks and rising dividends. I wasn't aware that the two intersected. Newmont Mining and Goldcorp are two gold stalwarts with rising dividends. Happy Thanksgiving.

Trade Continuation: Altria Group (MO) Covered Call

Today in a taxable account with MO at 27.65 and the DOW down 16 I continued the following transaction:

1. 9/6/11  Bought 200 MO @ 26.57                                               -5323.63
2. 9/6/11  STO 2 MO Oct 22 27's @ .54                                            +96.50
3. 10/11   Dividend                                                                           +82.00
4. 10/21  BTC 2 MO Oct 22 27's @.50                                             -111.52
5. 10/21  STO 2 MO Nov 19 27's @.95                                           +178.47
6. 11/17  BTC 2 MO Nov 19 27's @.72                                            -155.52
7. 11/17  STO 2 MO Jan 21 27's @1.15                                           +218.47

With these transactions I have the amount invested down to $5015.23 or $25.07/share. Altria goes ex-dividend December 23rd. If we don't get called out we will receive an additional $82 and we will lower our amount invested to $4933.23 or $24.66/share.  I'm happy if we do get called out as that will make $364 in  15 weeks or ~6.9% which equates to ~23.9% annually. That's a nice return for such a conservative investment. I'm just as happy not getting called out, collecting the dividend and writing new calls sometime in the future.

Altria Group is a great stock for enhanced income, double dividend investment strategies. I would wait to enter a new position, however, until the stock is in the bottom one quarter to one third of it's trading cycle.

Trade Continuation: Altria Group (MO) Covered Call

In a Roth IRA with the DOW up 230 and MO at 27.80 I continued this investment as follows:

09/01/2011  10:28:40 Bought 200 MO @ 27.2695                                        -5,463.89

09/01/2011  10:30:16 Sold 2 MO Oct 22 2011 27.0 Call @ 0.8                          148.50

10/11/2011  03:58:13 QUALIFIED DIVIDEND (MO)                                            82.00

10/18/2011  13:42:00 Bought 2 MO Oct 22 2011 27.0 Call @ 0.67                  -145.52

10/18/2011  13:42:54 Sold 2 MO Nov 19 2011 27.0 Call @ 1.05                        198.47

11/11/2011  15:39:19 Bought 2 MO Nov 19 2011 27.0 Call @ 0.87                  -185.53 

11/11/2011  15:40:38 Sold 2 MO Jan 21 2012 27.0 Call @ 1.28                        244.47

Our cost basis/downside protection is $25.60/share. In addition we are set up to collect another $82 dividend which will lower our amount invested to $25.21. If we get assigned it will probably happen the 3rd week of December so the option buyer can collect the dividend. The called return will earn ~$260 or 4.8% which equates to ~22.69% annually. If the shares drop below 27 we will collect another $82 dividend and we'll write a fresh call. Our yield on cost is 6.4%. The assigned return on this high yield Dividend Champion is yummy especially on such a conservative in the money investment.

Great Strategy Article

This article from our friends at Double Dividend stocks does a really nice job of setting forth my main investment strategies. Double digit returns on stocks that are fit for orphans and widows? Count this gal in!

New Trade: Intel (INTC) Covered Call

This morning I entered into the following transaction:

11/02/2011  10:27:54 Bought 200 INTC @ 23.8875                                     -4,787.49  

11/02/2011  10:28:23 Sold 2 INTC Nov 19 2011 24.0 Call @ 0.42                       72.47

Tomorrow is ex-dividend so unless we get assigned today we will capture the $42 dividend. I love my Double-D's! (double dividends, silly)... The second "dividend" is the short call premium we've collected. Our cost basis/downside protection in this trade is $23.57. Intel has weekly options so there are a variety of ways to manage this trade.