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Perpetual Covered Call Year End Results

For the year 2012, we had some impressive investment returns.  The Monthly Income Perpetual Covered Call Portfolio easily surpassed both the S&P 500 and PowerShares S&P 500 BuyWrite Portfolio (PBP).  The table below displays the investment returns for each of the Perpetual Covered Call positions.  The average monthly return was 6.2%!  We had exceptional returns on HFC, CVS and JCI (see table).

Get Rich Investments - Perpetual Covered Call Trades

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In January, we kicked off the perpetual covered call strategy. We have started adding new perpetual covered call trades each month to keep the trades fresh with market conditions and opportunities.  For those who are new to this concept, let me share the rationale of this income investment. This strategy was created to produce monthly income with stock dividends and covered call premium.  In addition, there is a protective, blanket put, to ensure the volatility in the market does not affect your return of capital.

CVS has Blockbuster Quarterly Earnings – Subscribers up 55% YTD

CVS Caremark Corp.’s (NYSE: CVS) third-quarter profit rose 16% on a strong performance for the company’s pharmacy-benefits-management business, while the drugstore chain also struck a bullish tone about clients it gained after a dispute between two rivals.  Overall, CVS Caremark reported a third-quarter profit of $1.01 billion, or 79 cents a share, up from $868 million, or 65 cents a share, a year earlier. Excluding tax adjustments and other items, earnings rose to 85 cents from 70 cents. Revenue increased 13% to $30.23 billion.

Revenue in the larger pharmacy-services business soared 22% to $18.1 billion, aided by new clients added to the network during the 2012 PBM selling season, higher drug costs and growth in the Medicare Part D program.

CVS has an equity summary score of 9.8 out of 10 for a VERY Bullish outlook.  CVS has a dividend yield of 1.39%.

In the past 52 weeks, CVS shares are up 22.6%.  Subscribers to the Monthly Income Plan have a total return of 55% year to date by using a perpetual covered call strategy on CVS shares.

During the third quarter, CVS opened 45 new retail drugstores, closed 3 retail drugstores. Additionally, the company relocated 18 retail drugstores. At the end of the quarter, CVS operated 7,500 locations, which include 7,423 retail drugstores, 28 onsite pharmacies, 31 retail specialty pharmacy stores, 12 specialty mail order pharmacies and 6 mail order pharmacies in 44 states, as well as the District of Columbia and Puerto Rico.

Anticipating a benefit from the company’s accelerated share repurchase program (announced in September 2012) and its expectation about retaining at least 60% of the prescriptions gained from the Walgreen and Express Scripts impasse, the company is raising and narrowing its guidance for 2012. The company now expects adjusted EPS of $3.38−$3.41 (earlier guidance being $3.32−$3.38).

In comparison, shares of Express Scripts Holding Co. (NASDAQ: ESRX) were hit hard Tuesday in the wake of the pharmacy benefit manager calling analysts’ fiscal 2013 earnings projections “overly aggressive.”

Express Scripts dropped more than 12% to $55.15.

Late Monday, the company said a weak business climate and unemployment outlook would likely result in loss of some members, low use rates and higher demands from clients. Express Scripts didn’t offer a 2013 profit projection, saying only that it saw growth in two measures: earnings per share and earnings before interest, taxes, debt and amortization.

The company reported third-quarter results that came in slightly ahead of estimates on earnings, but fell below projections on sales. Net income for the period was $391.4 million, or 47 cents a share, compared with $324.7 million, or 66 cents a share, for the same period a year ago. Sales were $27 billion against last year’s $11.6 billion, due to its acquisition of Medco Health Solutions.

How to Make Monthly Income in a Sideway Moving Market

Expectations for the third quarter earnings were dismal, with forecasts for a decline in profits from a year ago.  But a recent flurry of high-profile reports has investors scowling at the weak revenue numbers, adding to worries about the state of the U.S. economy and the outlook for corporate America.

IBM, General Electric and Microsoft fell short of revenue expectations, creating a sour mood early in the third-quarter reporting period.  This has led to a market that is moving nowhere too soon.  For the last month (Sept 24 – Oct 19), the benchmark S&P 500 Index is only up 0.4% while the PowerShares S&P 500 BuyWrite Portfolio (PBP) is down 0.95%.

Where can income investors go for monthly income in a sideway moving market?

One option is to look at a covered call strategy for monthly income.  A covered call strategy provides income from the premium received when a call option is sold against 100 shares of a stock.  In general, a covered call makes money when the stock price goes nowhere (like today’s market), when the stock price increases and provides downside protection when a stock slightly declines in price.

Subscribers to the Monthly Income Plan had exceptional returns from the monthly covered call trades.  We enter 4 monthly covered call trades on September 24 2012 for trades to expire on October 19 2012.  This is a total of 26 calendar days for these covered call trades.

The results included:

a 6.75% monthly return on the United Rentals, Inc. NYSE: URI covered call;

6.57% on the USG Corporation NYSE: USG covered call;

5.09% on the Royal Caribbean Cruises NYSE:RCL covered call;

and a 5.4% return on the SanDisk Corporation NASDAQ: SNDK covered call.

This is an average return of 5.95% in one month on these 4 covered call trades.  For comparison purposes, this is an annualized return of 83.6%.

These trades significantly beat the S&P 500 and PBP Buy-Write for the last month.  For income investors, they made $595 for every $10,000 invested in these 4 combined covered call trades.

Click here to subscribe to the Monthly Income Plan to get new covered call trades each month for only $19.95 per month.

 

August 2012 Monthly Income Plan Update

As we approach the end of the August option expiration cycle, the Get Rich Monthly Income Plan had a great month for investors.

In January, we kicked off the perpetual covered call strategy. For those who are new to this concept, let me share the rationale of this income investment. This strategy was created to produce monthly income with stock dividends and covered call premium.  In addition, there is a protective, blanket put, to ensure the volatility in the market does not affect your return of capital.  We will follow the progress of the perpetual covered calls each month throughout 2012 and I will email premium members with trading directions when an action is required.  Here are some of the results for 2012:

Perpetual Covered Call Returns:

Stock 1 – Oil Company has a YTD total return of 96.1% including dividends and special dividends.

Stock 2 – Drug Store Company with a YTD total return of 36.4% including dividends.

Stock 3 – Technology Company with a YTD total return of 25% including dividends.

We also provide a list of stocks for monthly covered calls.  Here we change the list each month based on investing in the right stock for monthly income.  For the August option cycle, this was a great month for our Monthly covered call trades.  We made monthly returns of 7.55% on UA, 4.33% on LVS, 4.0% on HP, 3.73% on VIAB and 3.58% on CERN.

We have added the covered put trades as an additional way to sell premium and to enter stock positions.  I frequently sell puts to enter a new stock position because (1) I get the stock at a lower price than it is trading at the market. (2) I get to produce income from the premium I receive when selling the puts.  If the stock is above the put strike price at expiration, I keep the premium and have the opportunity to sell more outs or just purchase the stock cheaper because I have the put premium to cover partial costs.  I have used this technique for several months on the same stock before I get the stock put to me.  This creates enough income to really lower the total cost of the stock.  Then, when the stock is put to me, I sell calls (covered) to earn more income until the stock is called away.  Then – rinse and repeat.

For August options, the covered put trades were great this month as all recommendations were winners.  Returns ranged from 2.2% to 3.93% in one month.

For investors wanting to create monthly income, the Get Rich Monthly Income Plan is right for you.  Click here to learn more.

Chevron Is Right For This Option Strategy

Chevron Corporation, through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream.  CVX has an equity score of 9.6 (VERY BULLISH) out of a 10.  This is a covered call position on Chevron Corp (CVX),

OPTION STRATEGY:

Look at the June 95 covered call. For each 100 shares of Chevron Corporation (CVX) stock you buy, sell one June 95 covered call option for an 96.70 (100.30 – 3.60) debit or better. That’s potentially a 3.4% assigned return.

STOCK TREND:

The technicals for CVX are bullish with a weak downward trend.  The stock is under distribution with support at 101.95.  S&P rates this stock 5 STARS (out of five) – strong buy.

RESEARCH NOTES:

S&P maintains strong buy recommendation on shares of Chevron Corp. (CVX) . CVX sees ’12 capex at $32.7B, up from $28B, before acquisition, expected in ’11.  Upstream is slated at $28B (87%), with major capex at LNG and deepwater projects.  We think it will comfortably fund this plan, and possibly boost dividends and buybacks via projected cash flow.  We see CVX thriving from a smaller refining footprint, where Asian exposure will help future results.  About 69% of production is higher-margin oil.  Shares have outperformed peers and benchmarks in ’11, but discounted valuations and solid near/long-term growth visibility remain highly attractive, in our view.

Covered Write on American Tower (AMT)

American Tower Corporation (AMT) is a holding company. It is a wireless and broadcast communications infrastructure company that owns, operates and develops  communications sites. Its primary business includes leasing antenna space on multi-tenant communications sites to wireless service providers and radio and  television broadcast companies. This business is its rental and management operations. The Company also offers tower-related services domestically,  including site acquisition, zoning and permitting services and structural analysis services, which primarily support its site leasing business and the addition of new tenants and equipment on its sites. On August 6, 2010, the Company’s, Transcend Infrastructure Limited, acquired Essar Telecom Infrastructure Private  Limited (ETIPL). On June 29, 2010, it acquired 113 towers from Telefonica Chile S.A. As of December 31, 2010, the Company acquired 475 towers from  Telefonica del Peru S.A.A.

This is a covered call trade for monthly income using AMT as the underlying stock.  AMT has a neutral equity score of 5.8 in a 10 point scalle by analyst covering the stock.

OPTION STRATEGY:

Look at the January 2012 59.65 covered call. For each 100 shares of American Tower Corp (AMT) stock you buy, sell one January 59.65 covered call option for a 57.19 (58.69 – 1.50) debit or better.  That’s potentially a 4.3% assigned return.

STOCK TECHNICALS:

The technicals for AMT are bullish with a weak upward trend.  The stock is under accumulation with support at 57.67.  S&P rates this stock 5 STARS (out of five) – strong buy.

RESEARCH NOTES:
S&P maintains strong buy opinion on shares of American Tower (AMT) .  AMT announced it plans to acquire roughly 2,500 towers from Telefonica’s (TEF) subsidiary inMexico, Pegasos PCS, for roughly $500M.  We view the planned deal as a positive as it roughly doubles AMT’s exposure to Mexico and these towers should benefit from the recent spectrum auctions and the launch of new technologies.  We believe this also demonstrates AMT’s desire to remain in a growth mode while also looking to achieve REIT status. We maintain our 12-month target price of $74, based on 24X our ’12 free cash flow estimate, a slight premium to peers.

 

Covered Call Trade on Deere and Company (DE)

This is a covered write on Deere and Company (DE) for the December 2012 expiration.  Deere & Company provides products and services primarily for agriculture and forestry worldwide. The company operates in three segments: Agriculture and Turf, Construction and Forestry, and Credit.

OPTION STRATEGY:

Look at the December 72.5 covered call. For each 100 shares of Deere and Co (DE) stock you buy, sell one December 72.5 covered call option for a 70.14 (73.64 – 3.50) debit or better. That’s potentially a 3.36% assigned return in 19 days.   That is a 63.66% anualized gain (comparable purposes only) on this short trade.

TRADE TECHICALS:

The technicals for DE are bullish with a weak upward trend.  The stock is under accumulation with support at 74.06. S&P rates this stock 4 STARS (out of five) – buy.

RESEARCH NOTES:

S&P maintains buy opinion on shares of Deere (DE) .  Oct-Q EPS of$1.62, vs. $1.07, beats our est. by $0.23.  Revenue gain of 20% was in line with our est., on strong equipment demand, but costs were controlled better than we expected.  Most encouraging, in our view, is DE’s equipment outlook, with its guidance of 15% growth in FY 12 (Oct.) equipment sales, well in excess of our prior 10% est.  Our long-term view also stays positive, on growing needs for food and infrastructure.  We raise our FY 12 EPS estimate by$1.00 to $8.60, and initiate FY 13’s at $9.60.  We keep our target price at $99, in line with historical relative metrics.

Covered Call Write on Advanced Auto Parts

Covered Call trade on Advanced Auto Parts (AAP).

OPTIONS STRATEGY:

Look at the December 2011 70 covered call.  For each 100 shares of Advance Auto Parts (AAP) stock you buy, sell one December 2011 70 covered call option for a 67.06 (69.31 – 2.25) debit or better. That’s potentially a 4.38% assigned return.  This stock also pays a dividend which may add another 0.1% to the return. The stocks last ex-dividend date was 9/21/2011.

TECHNICALs:

The technicals for AAP are bullish with a possible trend reversal.   The stock is under distribution with support at 64.38. S&P rates this stock 5 STARS (out of five) – strong buy.

RISK:

For those wanting downside protection, buy the March 2012 65 put for 3.50.  Sell the put when you exit the covered call.  This is optional for the covered call to protect the downside of AAP at 65.

RESEARCH NOTES:
S&P reiterates strong buy recommendation on shares of Advance Auto Parts (AAP) .   For the 12-weeks ended October 8, EPS of $1.41, vs. $1.03, is $0.22 above our estimate.   While comp-store sales rose just 2.2%, this quarter lapped an exceptional 9.9% increase in the year-ago period, providing a challenging hurdle.   We continue to favor industry fundamentals, and expect global sourcing efforts and supply chain investments to drive improved gross margins over the medium term.  As a result, we are increasing our ’11 and ’12 EPS estimates to $4.96 and $5.71 from $4.72 and $5.47, and are also raising our DCF-based target price by $5 to $85.
EARNINGS HIGHLIGHTS:
  • On 11/09/11, the company announced quarterly earnings of 1.41 per share, a positive surprise of 19.4% above the consensus 1.18.  Over the past 4 quarters, the company has reported 3 positive (>2%), 1 negative(<-2%), and 0 in-line (within 2%) surprises.  The average surprise for this time period has been 5.0%.
  • AAP’s current quarter consensus estimate has remained relatively unchanged over the past 90 days at 0.68.  Estimates within its Subsector have moved an average of 0.0% during the same time period.
  • During the past four weeks, analysts covering AAP have made 1 upward and 0 downward EPS estimate revisions for the current quarter.

Free Covered Call Trade on Yahoo (YHOO)

Covered Call Recommendation on Yahoo (YHOO)

STRATEGY:

Look at the November 2011 14 covered call.  For each 100 shares of Yahoo (YHOO) stock you buy, sell one November 2011 14 covered call option for a $12.30
(13.50 – 1.20) debit or better.  This is potentially a 13.8% assigned return.  Yahoo does not pay a dividend.

Blanket Put:  If you are looking for a blanket put for protection, look to buy the Apr 2012 13 Put for $2.00.  You will sell the Blanket Put when the covered call position is closed.
RISK  The technicals for YHOO are bullish with a weak downward trend.  The stock is under accumulation with support at 11.29. S&P rates this stock 4 STARS (out of five) – buy.

S&P research notes:

S&P reiterates Buy opinion on shares of Yahoo (YHOO) .  According to unconfirmed reports from Bloomberg and others, at a scheduled talk and Q&A session held late last week at Stanford University’s graduate business school, Jack Ma, the founder, Chairman and CEO of Alibaba Group, expressed an interest in buying YHOO. He referenced discussions with the company and other interested parties. We think that YHOO is considering strategic alternatives, and believe its 43% stake in Alibaba is perhaps its most valuable single asset.  Ma and Alibaba have been interested in repurchasing all or some of YHOO’s stake for some time.

Covered Call Recommendation on Berkshire Hathaway B Shares

Covered Call Recommendation on Berkshire Hathaway B (BRK.B) trading at $72.09

Strategy: Look to sell one October 2011 72.5 call for wach 100 shares of Berkshire Hathaway (BRK.B).  The net debit will be $69.89 (72.09-2.20) for an assigned return of 3.73% in 24 days or 56.8% annualized.

Research Notes:  This is the first time Berkshire has bought back its own shares.  It tells us that the world’s best investor, Warren Buffett, thinks his own business is dirt-cheap.

Berkshire has plenty of cash to commit to this program – $48 billion of it. And the company announced it was willing to pay up to 1.1 times book value for its own stock… which means it’s willing to pay nearly $109,000 per “A” share or roughly $72.50 per “B” share. (These numbers are not exact, just close and easy to remember.)

This creates a “floor” in the stock price.   Any time the stock falls much below that, Berkshire will buy it… or investors will buy it thinking that Berkshire will. As I write, both share classes are below those prices.

I like it… Your downside is limited thanks to the new buyback creating a “floor.”  Meanwhile, Warren Buffett, the world’s greatest investor, is managing your money.  This is a trade that can be updated each month so that the call premium recieved is monthly income.  WOW!  I like getting monthly income from Warren Buffett.

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