New Trade: McDonald's (MCD) Naked Puts

Yesterday with the market down a bit and MCD trading at 87.90 I entered into the following transaction:

08/13/12   STO 2 MCD Sep 22 2012 85 Puts @.72    132.50

McDonald's is a Dividend Aristocrat/Champion/Achiever that really needs no introduction. There has been a bit of weakness in the stock as of late due to July same store sales declining a miniscule percentage. I almost pulled the trigger on the 82.5's a few days ago when MCD was at 86.10 but decided against it because I thought the market and the stock still had room to drop. Opportunity missed.

This trade at the 85's is still pretty good as 85 is a strong support line for MCD. If the stock drops I will roll out and/or down for a net credit. As such, an exit strategy is in place.

If put to us our yield on cost will be ~3.3% and MCD is set to raise it's dividend in November. This dividend rise should buoy the stock. If these puts expire worthless we will earn 4.3% on margin maintenance of $3078.25 in 40 days which equates to 39.23% annual return on maintenance.

I didn't see any fat pitches to swing at so I entered into this one trade to take advantage of time decay in what I see as a fairly safe play.

New Trade: SLV Naked Puts

Today I entered into the following short term trade:

04/24/2012   STO 3 Apr 27 2012 29.5 Puts @.22     53.71

This is a tiny 3 day trade that is attempting to take advantage of SLV falling below 30, of precious metals consolidating their lows and of some wicked time decay. Margin maintenance on the trade is $1745. The return on maintenance is 3.08% or 374% annual. If silver drops we have many options to roll down and out for a net credit. As such an exit strategy is in place.

Trade Continuation: GDX Naked Puts

Today on options expiration Friday I continued the following transaction:


03/20/2012    STO 3 GDX Apr 21 2012 47.0 Put @ .53                146.75
04/20/2012    BTC 3 GDX Apr 21 2012 47.0 Put @.63                -201.24
04/20/2012    STO 3 GDX May 19 2012 45 Put @.97                    288.70

GDX has trended downward and was at ~46.40 when I continued this transaction. After draining every drop of time value I rolled out one month and down two strikes for a net credit. Margin maintenance on this trade is ~$2800. If these puts expire worthless we will earn $234.21 in 61 days which is an 8.36% return on maintenance or 50% annual. At the close GDX dropped down to 46.10. The precious metals miners have not been able to get much of a bid. Sentiment is very low and most of  the weak hands have had to have been scared away. In the event GDX continues its downward descent I will look to roll out and down again for a net credit. If put to us our cost basis will be $44.21 so we still have some breathing room in this trade. We will have time decay over the weekend and I won't look to roll down and out until I've wrung every drop of time value out of this trade.

Note: when these puts went into the money, margin maintenance increased to ~$3200 which will lower the returns

Thoughts on GDX Trade...

I've always wanted online authors to reveal their thought patterns when a trade seemingly goes against them. Alas, there head is usually in the sand. I'm bucking the trend with this post.

Well GDX has fallen below support and seems to be consolidating at ~46. I sold the April 47 puts @.53 in one account. There is still some time decay to be had and I'm going to gobble it all up before deciding what to do next. Next Friday at expiry I'm looking to roll out and down to the May 45's but only if I can get a worthwhile credit. Otherwise I will roll out and down to the May 46's or July 44's.

Either way I expect a floor to be in place soon. The Fed saying they aren't going to engage in quantative easing for a while is hogwash IMO. Our debt is rising as I type. In any event there are many more strikes that I can roll out and down for a credit. My undefeated streak ain't ending on the gold miners!  :)

Any thoughts?

New Trade: GDX Naked Puts

Today at the close I entered into the following transaction in a taxable account:

03/20/2012    STO 3 GDX Apr 21 2012 47.0 Put @ 0.53                146.75

As stated in my prior post I believe that GDX has reached it's support level of $50/share. I sold these while GDX was trading at ~$49.60/share. If these puts expire worthless we will earn $146.75 in 32 days on margin maintenance of $2,350.00. This equates to a return on maintenance of 6.24% or 71.17%f annual. If this precious metal miners ETF drops we should be able to roll out and down for a net credit. As such, an exit strategy is in place. As long as there is not an immediate drop in price we have time decay working in our favor and our prospects for rolling increase each day.

Note: ITM the maintenance increased to ~$3,000.

New Trade: Sold SLV Naked Puts

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

01/30/2012    STO 7 SLV Feb 18 2012 30 Puts @.23                        145.70

It looks like the precious metals bottomed ~ three weeks ago. SLV has been north of 30 and rising for some time. If it drops SLV has provided good opportunities to roll out to the next month and down a strike for a net credit. As such, we have an additional exit strategy in place. If I hadn't been dealing with a family emergency I probably would have been a tad more patient and waited for SLV to drop a bit and written the less risky 29's for a little less return. I didn't have that luxury but I wanted to put time decay to work while I was out of town. If these puts expire worthless we will earn $145.70 in 18 days on $2800 margin maintenance (which is free BTW). This equates to a 5.2% return or 105.44% annual.

Profitable Trade: SLV Naked Puts

 Yesterday in a taxable account I closed the following transaction:

12/22/2011    STO 8 SLV Dec 30 2011 26 Puts @.09                     55.94
12/29/2011    BTC 8 SLV Dec 30 2011 26 Puts @.38                  -320.05
12/29/2011    STO 8 SLV Jan 21 2012 25 Puts @.7                    +553.88
01/11/2012    BTC 8 SLV Jan 21 2012 25 Puts @.04                    -32.10

This trade netted $257.67 in 19 days on ~ $2200 in margin. That is a return on margin of 11.71% or 224.95%. It also allowed me to exceed my goal of making 2 - 3% a month by writing naked puts on margin in this little account. I didn't milk the last $32 of the trade so I could possibly take advantage of the new weekly options that come out today. If one can enter into weekly option trade on Thursday or Friday, studies have shown that over the weekend there is ~ 30% drop due to time decay.

I should note that with the money I've made in this account through recent trades I am able to add to my holdings in my core dividend growth portfolio. Every time I earn $1000 I add to my holdings. Today I added 14 shares of Conoco-Phillips at 71.62. The yield is 3.67% and they are set to raise the dividend next time around. I like the idea of the company splitting and spinning off shares my way. I look at this as another little boat set to sail that will compound over time and bring me passive income.

New Trade: SLV Naked Puts

Yesterday in a taxable account with SLV at ~ 26.30  I entered into the following transaction:

12/28/2011   STO   7 SLV  Dec 30 2011 25 Puts@.12                               68.66

This is a 2 day trade on $2900 in margin maintenance. Time decay is a great ally here.  If they expire worthless it will earn 2.36% or 430.7% annual. If silver continues to collapse I will probably roll this position.

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: 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.

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.