New Trade: Lowe's (LOW) Naked Puts

Today with the weakness in Dividend Champion/Aristocrat LOW and weakness in the retail spending numbers I entered into the following transaction:

7/16/12  STO 4 LOW Aug 18 '12 24 Puts @.34   $122.97

At the time of this trade LOW was down ~3% to $25.90. If put to me the cost basis will be ~23.70. The yield on cost will be 2.7% which is high for LOW.

This is a 33 day trade with initial margin maintenance of $1500. If they expire worthless I will earn 8.2% return on maintenance or 90.7% annual. In the event the stock continues to drop I will look to roll down and/or out for a net credit. As such, I have an exit strategy in place.

I think that if I can trade my way to a yield on cost of 3% that I will be golden. I could have done that right away by selling the October 21's but I didn't want to commit to that much time.

Profitable trade: Walgreen's (WAG) Naked Puts

On Friday I closed the following transaction for a profit:

5/30/12   STO  3 WAG Jul 21 2012 28 Puts @.41   $110.75
7/13/12   BTC  3 WAG Jul 21 2012 28 Puts @.03       -9.04

I was able to close the trade without paying commissions so I pulled the trigger. In this trade we made $101.71 in 44 days on ~$1200 in margin maintenance. This equates to a return on maintenance of 8.47% or 70.26% annual. I would have rolled out and/or down but with the recent rise of WAG above 30 I decided to wait. If and when WAG drops to 29 and change I will look to sell the 27 or 28's.

Profitable Trade: Proctor & Gamble (PG) Naked Puts

Today I closed the following transaction for a profit:

06/18/2012  STO 2 PG Jul 21 2012 60 Puts @.61   $110.49
07/13/2012  BTC 2 PG Jul 21 2012 60 Puts @.04   $    8.03

This is a 25 day trade that has used ~$2500 in margin maintenance. We earned $102.46. This equates to a 4.1% return on maintenance or 60% annual. Thank you Bill Ackman!

I would have liked to have rolled the 60's each month but the stock's sudden rise made me want to take a wait and see approach.

New Trade: Intel (INTC) Naked Puts

Today with INTC down to about $25.90 I entered into the following trade:

07/09/12   STO 4 INTC Jul 21 2012 25 Puts @.26     90.99

This is a 12 day trade on a stock I'd like to own long term. It will soon be a member of the Dividend Achiever family. In fact, I expect the news of a dividend raise in the near future.

If these puts expire worthless we will earn 5.3% or 161.21% annual on $1713 in margin maintenance. The returns are inflated due to an earnings release set for July 17. If the stock drops we have many options to roll out and/or down for a net credit. As such, an exit strategy is in place.

Even if the stock doesn't drop I will probably look to roll on a weekly basis, if possible. INTC has weekly options.

Profitable Trade: Johnson & Johnson (JNJ) Naked Puts

Today I closed out the following transaction for a profit:

03/28/2012   STO 2 JNJ Jul 21 2012 62.5 Puts @.95      178.51
06/20/2012   BTC 2 JNJ Jul 21 2012 62.5 Puts @.05      -10.03

We earned $168.48 in 84 days on an average of ~$2400 in margin maintenance. This equates to a 7% return or 30.4% annual. We were able to close out the transaction today with no commission. I now have more powder in the keg for future trades which I feel will present themselves shortly (see WAG and PG).

New Trade: Proctor & Gamble (PG) Naked Puts

Today with PG trading down at ~61.80 I entered into the following transaction:

06/18/2012  STO 2 PG Jul 21 2012 60 Puts @.61   $110.49

This is a 33 day trade that starts out using ~$2000 in margin maintenance. If they expire worthless we will earn 5.52% return on maintenance in 33 days or 61.05% annual.

PG, a tried and true Dividend Champion/Aristrocrat, has shown a lot of support at the 60 level. If put to us our yield on cost will be 3.78% which is much higher than the historical average. If the price sinks we should be able to roll out and down for a net credit, therefore, an exit strategy is in place.

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Trade Continuation: GDX Naked Puts

Yesterday I continued the following transaction:

03/19/2012   STO 3 GDX Jun 16 2012 45 Puts@.99   284.71
06/07/2012   BTC 3 GDX Jun 16 2012 45 Puts@.68  -216.28
06/07/2012   STO 3 GDX Jul 21 2012 42 Puts@.99    284.71

I took the opportunity with the recent strength in GDX to roll out and down 3 strikes for a net credit of $68.43. We have now collected $353.14 in option premium. If put to us at the new strike our cost basis will be $40.82. Not bad considering GDX was trading at 50 at the time we entered into this trade.

If these puts expire worthless we will earn $353.14 in 4 months on an average of ~$2300 in margin maintenance. This equates to a 15.35% return on maintenance or ~46% annual.

Trade Continuation: GDX Naked Puts

Today I took advantage of the strength in GDX to continue this trade as follows:

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
05/14/2012    BTC 3 GDX May 19 2012 45 Put @3.46                   1050.24
05/14/2012    STO 3 GDX Jun 16 2012 45 Put @3.99                    1194.68
06/01/2012    BTC 3 GDX Jun 16 2012 45 Put @1.20                   - 372.25
06/01/2012    STO 3 GDX Jul 21 2012 43 Put @1.60                      467.74

We were able to roll out and down two strikes for a  net credit of $95.49. This increases  the amount of option premium collected on this trade to $474.14. If put to us our cost basis will be down to $41.42. This ETF is presently trading at $45.84. Although GDX is volatile this is a nice cushion and we have multiple rolling opportunities available to us if need be. If these puts expire worthless we will earn $467.74 in 4 months on ~$3000 in margin maintenance. This equates to a return of 15.6% or 49.8% annual.

This trade demonstrates the power of put selling. When I entered this trade GDX was just below 50 which I incorrectly thought was a strong support level. At one point during this transaction GDX had fallen below 40. Weak hands were flushed but I stuck to my guns. Some would say I was foolish, however, there were so many strikes to roll out and down to I was not going to be a weak hand who bought high and sold low.

I'm not out of the woods on this trade yet, however, I am feeling like I'm in the driver's seat. I'm learning that when a stock tanks, the volatility and the premiums increase thereby creating opportunities for enhanced returns. It seems odd that some of my greatest returns are on trades that initially went against me. Many seasoned traders would have been "prudently" stopped out.

Note: Why didn't I hold the June puts to expiration and drain all the time value and take advantage of the great time decay in the last two weeks? Two reasons: 1) when the opportunity presented I wanted to roll down and out 2 strikes and get paid ~$100 to do it; and 2) I'm going to be on vacation options expiration week and I don't want to have any trading concerns on my mind. Silly reason? Obviously I don't think so. :)

New Trade: Walgreen's (WAG) Naked Puts

Today with the markets in the red and Walgreen's trading down at $30.80 I entered into the following transaction:

5/30/12   STO  3 WAG Jul 21 2012 28 Puts @.41   $110.75

The margin maintenance is ~$1,000 for this 52 day trade. This equates to ~11% return on margin in 52 days or 77.21% annual if they expire worthless.

WAG has had great support at the 31 level and these puts are a full 10% below that. If put to us the yield on cost will be 3.25% which is way above historical highs for this Dividend Champion.

Patience me boy...patience

It looks like we're heading to a higher open so I doubt I will enter into any new positions today. The stocks I am looking at right now are Sysco, Intel, Microsoft, Southern Company, Proctor & Gamble, Lowe's and Johnson & Johnson. Rising dividends for all.  I also have one eye on Exxon Mobil.

I am waiting for some fear and/or panic selling to kick in. I would be looking at the June strike but I will be on vacation during that expiration and frankly I don't want the concern. As such, I'm looking at the July and August strikes.

With the recent pullback, out of the money puts with adequate premiums have become more in line with support levels. One or more large days in the red ought to provide more than enough "Oh my God" type opportunities. Swing at the fat pitch. Patience me boy....patience.

Re my GDX trades: If I can roll down and out my GDX June 45's to July 43's and get a net credit of greater than $100 I will probably take it. If I do, I feel I'm in the driver's seat for these to end up as profitable trades. BTW past experience made it clear not to bail on GDX when it was tanking as I felt they were flushing out the weak hands. In addition there were so many strikes to roll out to there were multiple continuation strategies. Finally, the fundamentals are/have been in place for rising precious metals.

Opportunity Alert: Lowe's (LOW)

I see that Lowe's is getting hammered due to it's latest quarterly report. Don't catch a falling knife today, however, watch when it seems to have bottomed and write short term out of the money naked puts. I see that the July 22's are really juicy, for example. Lowe's is set to raise it's dividend next quarter and they have been increasing at a greater than 10% rate so this should buoy the stock.

5/29 note: this would've been a goodie...

Trade Continuation: GDX Naked Puts

Well this one has been a wild ride. :) GDX is trading at ~41.50/share at the time of this writing. I continued the transaction as follows:

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
05/14/2012    BTC 3 GDX May 19 2012 45 Put @3.46                    1050.24
05/14/2012    STO 3 GDX Jun 16 2012 45 Put @3.99                    1194.68

We rolled out for a net credit of $144.44. We have now brought in $378.65 in option premium. Our cost basis @ the 45 put strike is now $43.73. I considered rolling out and down for a net credit to the September 43 puts but I didn't want to commit to that much time.

There are plenty of strikes to roll out and down to if need be. Whatever we do it will only be for a net credit. Are we near the bottom? If not we will deal with it after all the time value has been drained from this continuation trade. The maintenance on this trade has increased to ~$3500.

We might want to roll down and out for a credit while lowering the number of contracts to 2 when the opportunity presents itself.

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.