New Trade: Intel (INTC) Naked Puts

On Friday before the close with Intel trading at ~24.85 I entered into the following transaction:

08/24/12   STO 5 INTC Oct 20 2012 23 Puts @.35    161.20

This is essentially a one strike down, double down of my trade of a few days ago. I was able to take advantage of weakness/fear in Intel due to the Buffett hangover and weak results from Hewlett-Packard and Dell. If put to us our yield on cost will be right under 4% and we're just one roll away from a yield on cost above 4%. I feel pretty good that a 4% yield will buoy the stock price. In addition, we have strong support at the 25 price level.

This is a 57 day which uses ~$1800 in margin maintenance. If the puts expire worthless we will earn ~8.95% or 57.3% annual return on maintenance. If the stock drops I feel confident we can roll out and/or down for a net credit. As such, an exit strategy is in place.

Patiently Waiting for Fear

With the market gains lately we've closed out several positions and taken profits. We have much powder in the keg. Years of experience through trial and error has taught me to not enter into positions too early. Don't trade for the sake of trading. How many times did I want to kick myself for not waiting until the inevitable swing down? Moving in cycles the market will inevitably hit a point where stocks one follows sink to OMG levels. If one is patient they can shoot fish in a barrel.

I'm having to be patient. Recently the sell off in precious metals provided an opportunity. They are back on the rise and when I've drained the lion's share of the profits from these trades I will close them out.

Where is the next opportunity going to come from? Not knowing is part of the fun. Is it possible for the market to keep lifting without a downturn? Probably not. In any event, successful trades are the name of the game. Don't lose money. Swing at the fat pitch. Be greedy when others are fearful and fearful when others are greedy. ~ Warren Buffett

Like Buffett we sit on cash and wait for opportunities :)

Bear Trap?

Well the world isn't coming to an end so futures are pointing to a higher open. Is this a short term market bottom? Should we use the upswing to close out positions for a profit and move to cash? I get the feeling that once again when doom, gloom and fear are the news of the day that it's time to open new income positions. It ain't easy swimming against the current but it is probably the most profitable. Be greedy when others are fearful, be fearful when others are greedy says Mr. Buffett.

Trade Continuation: Exxon Mobil (XOM) Covered Call

Today with the DOW up 250 points and XOM at 79.40 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

In addition to these amounts we will be receiving a $47 dividend on December 9th. As such our out of pocket investment is down to  $70.89/share. At $70.89 our yield on cost is up to 2.65%. If we get called away on December 17th we will make ~$401 or 5.4% which equates to 25.6% annual. That ain't bad for a deep in the money call written on a rock solid Dividend Champion.

Interesting note: One of the complaints about covered calls is that it limits one's upside. In this instance I would be up $100 more if I hadn't written any calls. I like it better the way I am, however, because I've get less capital invested and, as such, have much more downside protection. In addition, I don't fancy myself a stock picker but I do feel confident in my ability to trade a great stock through the collection of option premium to put myself in situation where I can't lose money. The top three rules of investing? 1) Don't lose money; 2 & 3) See rule number 1. ~ Warren Buffett