Profitable Trade: Caterpillar (CAT) Naked Puts

Today I closed the following transaction for a profit:

09/04/12   STO 2 CAT Sep22 2012 77.5 Puts @.57   102.46
09/14/12   BTC 2 CAT Sep 22 2012 77.5 Puts @.01    -2.04

I was able to close this trade for a penny and without commissions so I did. When I originally sold the puts CAT was down to $82.20. Ten days later it was over $93/share. Due to the steady rise in the stock, margin maintenance averaged down to ~$1700. As such, we earned $100.42 in 10 days on $1700 in margin maintenance. This equates to a 5.9% return on maintenance or 215% annual.

That's another thing I love about put selling. If the price of the stock skyrockets, you can close out your trade early. Each day the stock rises the amount of margin maintenance needed decreases thereby freeing capital for other trades. I remember when I exclusively traded covered calls that it would not be beneficial if the stock rose too much or too quickly. Buying back the calls when volatility was in an uptrend was not very profitable.

I'm smelling opportunity in PG *sniff*

Proctor & Gamble is slowly sinking following an unexciting quarterly report. Today it is at 63 and change. There are the usual pundits out there calling for big trouble. My take? Like we just saw with Pepsico, one quarterly report does not a blue chip make. Like Pepsico I think that once PG consolidates and finds a bottom a great put selling opportunity will be in place. With the recent dividend rise PG's yield above 3.5% should buoy the stock. I'm waiting for the consolidation and then I'm looking at the 60's or if worthwhile the 57.5's. Strong support is at the 57.5 level. For you thrill seekers the 62.5's might be interesting. You can always roll down and out for a credit if you don't go out too far on the strike date.

On a side note the recent bribery allegations make Wal-Mart another interesting blue chip dividend stock to watch.

Profitable Trade: Intel (INTC) Covered Calls

 In a traditional IRA we were assigned our Intel covered calls. This trade went down as follows:

11/02/2011   Bought 200 INTC @ 23.8875                                                  -4,787.49

11/02/2011   STO 2 INTC Nov 19 2011 24.0 Call @ 0.42                                     72.47
11/14/2011   BTC 2 INTC Nov 19 2011 24 Calls @ .89                                     -189.52
11/14/2011   STO 2 INTC Jan 21 2012 24 Calls @ 1.70                                   +328.47
12/01/2011   Dividend                                                                                  +42.00
01/21/2012   Sold 200 INTC @ 24                                                                +4779.91

In this trade we made $245.84 in 81 days on an average of ~$4600 invested. This equates to a return of 5.3% or 23.88% annual. As always we include our commissions paid in the calculations. We allowed ourselves to get assigned because we didn't see any attractive opportunities to roll for a credit. I only roll options for a credit, no exceptions. We really like INTC and will probably write out of the money covered puts in this account to buy it back at a price of our choosing. Of course we will be paid for our efforts.

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: Conoco-Phillips (COP) Put

Today I closed out the following transaction in a taxable account:

11/25/2011  STO 1 COP Jan 21 2012 60 Put @ 1.30                                 +119.23
12/27/2011  BTC 1 COP Jan 21 2012 60 Put @ .05                                       -5.02

We didn't fight for that last nickel and we reached the point where we could close without commissions. We made $114.21 in 31 days. This is a return of 1.9% or 22.37% annual. If one were to calculate return on margin which was $781.84 then we have a return of 14.6% or 171.9% annual. The latter returns are sought to be exploited in the book I recommended called Selling Put Options My Way.

We continue to close positions when fear is at a minimum and we await the fear to return, loaded up with cash, so we can enter new positions.

Recommended Book: Selling Put Options My Way

I finished reading Selling Put Options My Way by Jerry Lee. The author has had great success with a simple trading formula. Basically, he uses his margin maintenance to sell puts on solid stocks 20% below  there present price. He only sells near month strikes so the stock would have to collapse for him to lose. If one were to follow his criteria it is credible that one could make 2-3% per month. Yes, you read that correctly. There are other criteria and he sets forth exit strategies. I've been doing this a long time so new insights are harder and harder to come by. I did find this book to be interesting and I've stirred it's contents into the soup that is my trading strategy. Happy New Year, Chester

Sold GDX Puts

Today with the DOW down 168 points to just over 12000 and GDX, the gold miners ETF, down to~ $55.50 I entered into the following transaction in a taxable account:

STO 2 GDX Jan 21 2012 52 Puts @ 1.47                    +282.45

GDX has bounced off $52.50 for a year now. We are bullish precious metals and will be happy to own GDX at 50 and change. This might not be the absolute bottom but I anticipate that GDX, like the South, will rise again.

If the puts expire worthless this is a 2.7% return for 40 days or 24.7% annual. For those that give merit to return on margin (ROM) the return is a whopping 21.26% or 194% annual.

Trading a Bipolar Market

Today the futures are up big, building on Monday's momentum. Last week the world economy was headed toward sure collapse. China is in a bubble...no wait....China's government is taking action to support banks. The end of the Euro...no wait...world bankers are getting together to support the whole world economy. Back and forth it goes...

So what's a gal to do in this mad, mad, man's world? Read the charts baby, that's what. I'm selling out of the money puts at or below a stocks lows during the last year. I'm only entering new income positions when the bipolar meter is set to doom, gloom, dog and cats living together.

With such high volatility there are above average premiums to be collected out there. Even deep in the money covered calls are providing double digit annual returns. Lovin' it! Yumsicle!...*clears throat*...where was I? Oh yeah..

And all this money to be made on widow and orphan blue chip Dividend Champions. If one wants to get a little racy they can trade the precious metals etf's like GLD, SLV and GDX. They don't pay dividends but the option premiums are juicy and this gal loves long term secular bulls.

Be greedy when others are fearful. Be fearful when others are greedy. Buy low, sell high. Only invest in those stocks that you are happy to own for the long haul. Only roll options for a credit. Don't stand under a tree holding a golf club when it's lightning. And finally: What's sexier then a hot babe who can trade the average guy under the table? :)

Sold Conoco Phillips (COP) Put

Today with the market up a smidgen and COP trading at ~66.95 I entered into the following transaction in a taxable account:

STO 1 COP Jan 21 2012 60 Put @ 1.30                                 +119.23

Conoco Phillips has a rising dividend and is a stock I'm interested in holding long term. It is a Buffett favorite. In reading the charts, like a psychic reads tea leaves...ha, it is revealed to me that every time COP has hit 60 in the last year it immediately found support and jumped up like a prairie dog sittin' on a cactus. If assigned to us we'll take COP at ~ 59 which will at that price yield 4.5%. In addition, COP will probably raise it's dividend next quarter. If the put expires worthless we will earn 2% in 57 days which equates to 12.8% annual. If one were to believe in return on margin (ROM) the return on a $781.84 margin requirement is 15.2% or 98% annual.

All the puts I've sold lately are at the very bottom of the last year's trading range. At this point in my trading experience that's about the best I can do. If these stocks fall below the strike prices, we can: 1) accept the stocks and collect dividends and write calls; or 2) roll them out for a credit. Either way they won't have heard the last from this gal! ha!

Sold General Electric (GE) Puts

Today with the Dow down 50 to ~11500 and GE down to 15.02 I entered into the following transaction in a traditional IRA:

Sold 3 GE Jan 2012 15 Puts @ .9                              +257.71

These puts are cash secured. If they expire worthless they return 5.7% which equates to 34.67% annually. If these are put to me (and I don't decide to roll them) then we are happy to own GE at 14 and change. Yield on cost at that point will be ~4.2%. GE has shown great support at the 14 level.

I've been pretty active over the last couple of days. The fear and uncertainty in the markets seem to have created attractive income opportunities. Buy low, sell high. Get greedy when the masses are fearful, get fearful when the masses are greedy. Happy Holidays.

Sold Microsoft (MSFT) Puts

Today in a taxable account and during amateur hour (ha!) I entered into the following transaction:

STO 4 MSFT Dec 17 2011 24 Puts@.38               +138.95

Microsoft is a cash cow and is now steadily raising it's dividend. It is also extremely heavily traded and, therefore, very liquid. It is a holding we are happy to own long term. If put to us we will have a cost basis after commissions of ~23.70/share. There has been strong support for MSFT at this level. At $23.70 our yield on cost is ~3.4%.

If the puts expire worthless our return is 1.45% for 25 days which equates to 21.17% annual. If one were to calculate return on margin (ROM) our return on a margin requirement of $1744.91 is 8% which equates to 115% annual.

I've entered into several transactions during this time of fear and uncertainty. I'll probably chill for a little while and see how things play out. My feeling is that we are oversold, however, as seems to be the norm these days a crash is always a possibility.

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.

Sold AT&T (T) Puts

Today with the DOW down 293 to 11503 and T down to 28.22 I entered into the following transaction in a taxable account.

STO 2 T Jan 21 27.5 Puts @.9              +168.45

I like to enter my income investments on down days. Check. For the recent past AT&T has found solid support at the 27 levels. If put to me our cost basis will be ~26.76 after commissions. At that price our dividend yield on cost is 6.4%. In addition, AT&T will probably announce a dividend increase in December with an ex-dividend date before our puts expire. Therefore, I expect our yield on cost to increase.

If these puts expire worthless our return is 3.1% which is 18.54% annual. For those who figure return on margin (ROM) the return on the margin requirement of $1059.61 is 15.9% or 95.14% annual.

AT&T is a stock we are interested in holding long term. If put to us (and we don't decide to roll the position) we will look forward to collecting the dividends and writing calls to lower our amount invested and increase our yield on cost.

New Trade: Sold General Electric (GE) Puts

This afternoon with GE down to $15.60 and the DOW down 170 points to 11736.21 I entered into the following transaction:

11/17/11  Sold 3 GE Jan 21 14 Puts@.49             +134.75

I'm happy to own GE at 14. In fact, if put to me my cost basis will be ~13.75 after commissions. The dividend yield on $13.75 is 4.4%. GE's dividend is back on the rise. If the puts expire worthless this is a 3.2% return in 5 weeks which equates to ~32% annual. The maintenance requirement to begin with is only $533.24 and for those that calculate return on margin (ROM) the return is a ridiculous 25.27% or ~250% annual. In the recent past GE only fell to 14 once and then bounced right back up so I'll be surprised if the shares are put to me.

I have to admit it is nice to only pay one commission to enter into this trade as opposed to paying twice to enter a covered call 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!

Put Selling or Covered Calls?

In this article the author makes some good points as to why put selling is superior to covered calls. I found the double commission one pays on covered calls to be an excellent point.