Get Rich - Stay Rich - Investing for Monthly Income

Posts Tagged ‘covered call trade’

How to Get 50% of Your Stock Purchase in Monthly Income Installments

A covered call trade is a very simple instrument to increase your monthly income. The basic idea is to sell a call option for every 100 shares of stock you own.  By selling the call option, the investor receives a premium which is what our investors call monthly income or monthly dividend payments.  We sell new call options each month to create new income – month after month.  This is in addition to the current dividend paid by stocks on a quarterly basis.

Here is an example of what subscribers to the Get Rich Monthly Income Plan achieved in 2013:

Subscribers purchased Holly Frontier in January 2013 for $46.35 per share. So purchasing 100 share of stock will cost a total of $4,635 plus commission costs.  At this time, HFC was paying a $0.30 per quarter dividend for a dividend yield of 2.59%.  This is a nice yield on a fairly stable stock but it gets even better.  In addition to the $1.20 in quarterly dividends, HFC paid $2.00 more per share in special dividends.  This increases the total dividends to $3.20 per share in 2013.  The addition of special dividends increases the stocks annual dividend yield to 6.9%.  Wow, a 6.9% dividend yield is great in this low yielding stock market!

But it gets even better for Get Rich Monthly Income Plan subscribers.  They sold a call option on each 100 shares of HFC stock they owned each month of 2013.  Based on our results, this created a total of $1,985 for the entire year.  This created an average monthly income of $165.42 by selling the call option which created the covered call trade.  The total premium income of $1,985 is about 40% of the total cost of entering the trade – $4635 at the beginning of the year.  Therefore, investors received nearly half of their initial investment in HFC back during the year through a simple monthly covered call trade.

Now, subscribers can add the three sources of income – quarterly dividend, special dividends and covered call income together to create a Monthly Income Plan.  In total, subscribers received $2,305 in additional income from owning 100 shares of HFC stock in 2013.  This is an average of $192 in additional income each month of 2013. And, the $2305 in income is 50% of the total amount of the initial investment in 100 share of HFC!

Covered Call Trades of the Month

Investors have been bracing for anything that could reverse at the last minute the market’s year-long rally, which saw the Dow and S&P 500 hit record highs again this week. The S&P 500 is up 26 percent this year and registered a sixth week of gains on Friday.  However, income investors seeking to trade covered call investments have been performing well too.

Below are two successful trades from the past month listed in the Monthly Income Plan at getrichinvestments.com .  Each month, income investors are creating income streams from selling covered call options against high quality stocks.  Here are some winning trades from the current newsletter:

Covered Call on USG Corp (USG)

STRATEGY: Look at the Nov 27 covered call. For each 100 shares of USG stock you buy, sell one Nov 27 covered call option for a $25.50 ($26.65 – $1.15) debit or better.

Actions: USG is currently trading at $27.66 at the close on 11/15 so the 27 call we sold is ITM.  These shares and call options will be called away.

This is a 5.88% return for one month and an estimated 70% annualized return.

 

Covered Call on Flour Corp (FLR)

 

STRATEGY: Look at the November 2013 77.5 covered call. For each 100 shares of FLR stock you buy, sell one Nov 2013 77.5 covered call option for a $74.89 (77.19 – 2.30) debit or better.  That’s potentially a 3.49% assigned return.

Actions: FLR is currently trading at $79.36 so the 77.5 call we sold is ITM.  These shares and call options will be called away on Friday (11/15).

This is a 3.49% return for one month and an estimated 42% annualized return.

Covered Call of Month – October Expiration

For subscribers to the Get Rich Monthly Income Plan, the monthly covered call trades all provided positive income from the selling of call option.  One of the better trades was FedEx (FDR) as the setup is shown below.  The covered call trade used a strike price of 120 as the stock closed well above this price on 10/18.  The trade provided a one month gain of 3.9% for covered call traders.

 

Covered Call on FedEx (FDX)

STRATEGY: Look at the Oct 120 covered call. For each 100 shares of FDX stock you buy, sell one Oct 120 covered call option for a $114.53 (116.83 – 1.30) debit or better. That’s potentially a 3.87% assigned return.

TREND:   The technicals for FDX are bullish with a strong upward trend. The stock has support at $107 and is above resistance. The company reported earnings today, Wednesday, September 18. S&P rates this stock 4 STARS (out of five) – buy.

BLANKET PUT: As a protective option to the covered call, you can buy the Jan 2013 110 Put for $3.20 to limit your stock downside to $110.00 per share. This put is not required for the covered call trade but serves as additional protection for those seeking to limit downside. You should sell the put when you exit the covered call position.

 

RESEARCH NOTES:  S&P maintains buy opinion on shares of Federal Express (FDX). We keep our FY 14 and FY 15 EPS estimates at $7.04 and $8.66. We raise our 12-month target price by $10 to $127, 18X our FY 14 estimate and towards the middle of its 10-year historical range of 9X-34X reported EPS. Q1 EPS of $1.53, vs. $1.45, is $0.02 below our estimate but $0.03 better than the Capital IQ consensus. FDX reaffirms FY 14 guidance of EPS growth of 7%-13%. We expect FDX to benefit from an improving global economy and its ongoing restructuring plan, and anticipate continued investor rotation into logistics stocks on good economic news.

New Covered Call on this Vice Stock

Constellation Brands (STZ), together with its subsidiaries, produces and markets beverage alcohol.  The stock was reiterated with a Buy rating by analysts at Stifel Nicolaus. The firm raised its price target on the stock to $69 from $64.  STZ Thursday posted better-than-expected Q2 results and said for FY 2014 it expects EPS of $2.80 to $3.10 per share. The Street is at $2.83 per share.  STZ is up 2.3% at $61.55, near the stock’s 52-week high of $62.15.

Here is a Covered Call Strategy:

STRATEGY: Look at the January 2014 60 covered call. For each 100 shares of Constellation Brands (STZ

) stock you buy, sell one January 2014 60 covered call option for a $57.38 (61.58 – 4.20) debit or better. That’s potentially a 4.6% assigned return.

COMMENT: The technicals for STZ are bullish with a strong upward trend. The stock has had support recently around 56.50. S&P rates this stock 4 STARS (out of five) – buy.

RISK: The stock has to drop 6.8% to threaten the break even point. This trade rates 3 keys out of 5 – moderate relative risk.

RESEARCH: S&P maintains Buy recommendation on shares of STZ. On revised forward multiple analysis, we lift our target price by $2 to $66 and our FY 14 (Feb.) and FY 15 EPS estimates by $0.12 and $0.07 to $2.90 and $3.55, respectively. Adjusted Aug-Q EPS of $0.96, vs. $0.71 exceeded our estimate of $0.85 on a significantly lower tax rate and expenses than our forecast. Crown depletions rose 7% on a strong summer selling season driven by healthy growth in Corona as well as expanded distribution for Modelo Especial. As production ramps in the Piedras Negras facility, we look for margins to improve in the beer segment.

 

Covered Call Trade of the Month

Investors seeking income in this volatile market can still sell covered call trades for both income and downside protection.  In the past month, the S&P 500 produced a return of 0.73%.  However, subscribers to the Get Rich Monthly Income Plan made off with a 4.7% return by trading a covered call on United Rentals (URI).  Here is the trade posted in July:

Covered Call on United Rentals (URI)

STRATEGY: Look at the August 55 covered call. For each 100 shares of United Rentals (URI) stock you buy, sell one August 55 covered call option for a $52.53 (55.63 – 3.10) debit or better.

Actions: URI is currently trading at $55.01 so the 55 call we sold is ATM.  These shares and call options should be closed on Friday (08/16) for a 4.70% assigned return.

 

Learn more here:

http://getrichinvestments.com/monthly-income-newsletter/

A New IPO – Gold Stocks with a 7% Dividend Yield

If you are looking for income and have an interest in gold as an investment, then a new IPO might be what you are looking for to combine the two needs.  Faircourt Gold Income Corp. (FRCGF) is a new closed-end fund that invests in gold stocks and sells covered calls and puts for income.  With the current market flux, gold is a good play until we get more definite information where the fiscal policy and taxes end under the new negotiations.  Why not let professional managers sell covered calls and pay you monthly dividends.  Here are the details.

Faircourt Gold Income Corp., a closed-end investment fund established as a mutual fund corporation under the laws of the Province of Ontario, is offering upon the terms and subject to the conditions specified in this short form prospectus, to issue up to 4,733,740 Class A shares of the Company at a price per Offered Share of $8.45.  The initial IPO was November 9, 2012.

The shares are currently trading at $8.24, a 2.5% discount to the IPO price.  Faircourt Gold Income pays monthly distributions with an annual yield of 7.0%.

 

Click to enlarge

 

 

 

 

 

 

The Company will not make any investment that would result in holdings of gold companies comprising less than 60% of the NAV of the Portfolio of the Company at the time of such investment. The Company will not make any investments that would result in holdings of gold bullion comprising greater than 30% of the NAV of the Portfolio of the Company at the time of such investment.

In order to generate additional returns and to reduce risk, the Company has engaged the Manager to employ an option strategy whereby it writes covered call options on securities held in the Portfolio and cash secured put options on securities desired to be held in the Portfolio. It is the Manager’s belief that utilizing the option strategy will assist in providing Shareholders with lower volatility and potentially enhanced returns as compared to owning the individual securities in the Portfolio directly.

The Manager believes that option writing has potential to add value in some sectors more than others. Option writing programs in the past have relied on the volatility of a security as a source of long term capital gains distributions. All other things being equal, sustained volatility in the price of a security results in higher option premiums in respect of such security. The Manager believes gold stocks, which have historically maintained a high degree of volatility, are well suited for a covered call writing strategy. This higher degree of volatility is reflected in the S&P/TSX Global Gold Index which has an historic 10 year average volatility is 36% as measured by standard deviation, between September 2002 and September 2012, while the S&P/TSX Composite Index has exhibited a volatility of 16% during the same period.

Covered call options and cash secured put options may be written from time to time in respect of part of the Portfolio.  The extent to which any of the individual securities in the Portfolio are subject to options and the terms of such options will vary from time to time based on the Manager’s assessment of the market.

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.

Covered Call Options Strategy for United Parcel Services (UPS)

Today’s covered call trade is on United Parcel Services (UPS) that reported better than expected earnings on 10/24/2011.

United Parcel Service Inc. (UPS) reported a 5.1% increase in third-quarter earnings Tuesday that topped Wall Street’s profit forecast, although overall package volume was stagnant due to a downturn in Asian exports and slack U.S. demand.  Executives of the Atlanta-based shipping giant voiced cautious optimism for the fourth quarter nonetheless, saying that the U.S. economy appears to have stabilized and noting that Asian imports could increase in the weeks leading up to the holidays if U.S. consumer confidence improves.

OPTION STRATEGY:

Look at the December 2011 70 covered call. For each 100 shares of United Parcel Service (UPS) stock you buy, sell one December 2011 70  covered call option for a 67.72 (69.57 – 1.85) debit or better.  That’s potentially a 3.37% assigned return in 52 days for an anualized return of 23.7%.  This stock also pays a dividend which may add another 0.8% to the return. The stocks next ex-dividend date is 11/08/2011.

TECHNICALS:

The technicals for UPS are bullish with a weak upward trend.  The stock is under accumulation with support at 67.61.  S&P rates this stock 4 STARS (out of five) – buy.

STOCK RISK PROTECTION:  For those wishing to add more downside protection, buy the April 2012 67.5 put for 4.40.  Sell the put when you exit the covered call trade.

S&P RESEARCH NOTES:

S&P reiterates buy opinion on shares of United Parcel Service (UPS) . Q3 EPS of $1.06, vs. $0.93, misses our $1.10 estimate, but is $0.01 above the Capital IQ consensus forecast.  UPS saw slowing international volumes and flat U.S. volumes, but offset this with higher yields and fixed cost leverage.  UPS reaffirms prior ’11 EPS guidance of $4.15-$4.40.  We trim our ’11 and ’12 EPS estimates to $4.30 and $4.90, from $4.35 and $5.00.  We keep our 12-month target price at $95, 19X our ’12 EPS estimate, and in the middle of UPS’ 5-year historical P/E range.  We still think UPS is well positioned for an eventual rebound in the global economy.

UPS Option strategy

Click to enlarge

Covered Call Trade on AT&T (Video)

Brian Stutland lays out a covered call trade for income on AT&T (T)

Covered Call Trade on AT&T

 

Get more covered call trades by subscribing to the Monthly Income Plan.

Covered Call Trade Recommendation on Celgene (CELG)

This is a covered call trade for monthly income on Celgene (CELG) using stock and call option with optional protective put.

Covered Call TRADE: Look at the November 2011 65 covered call.  For each 100 shares of Celgene (CELG) stock you buy, sell one November 2011 65 covered call option for a $61.05 (63.35 – 2.30) debit or better.  This is potentially a 6.5% assigned return.

Blanket Put:  If you are looking for a blanket put for protection, look to buy the Apr 2012 60 Put for $5.00.  You will sell the Blanket Put when the covered call position is closed.
Stock Trend: The technicals for CELG are bullish with a weak upward trend.  The stock is under accumulation with support at 61.63. S&P rates this stock 5 STARS (out of five) – strong buy.

S&P research notes:

S&P maintains strong buy opinion on shares of Celgene (CELG) . CELG updates information related to Article 20 European review of Revlimid that resulted in a positive risk/benefit ruling in September. CELG cites secondary malignancy rate of 3.98 per 100 patient years (vs. 1.38 in control group) in prior treated multiple myeloma patients, and 7% rate in newly diagnosed patients (vs 1.8% in control). While higher than we anticipated, we expect drug’s label to reflect these risks, and still see the positive bias on Revlimid’s survival benefits positioning the drug for approval in earlier treatment stages, which we view as a key share catalyst.

Get more trades by subscribing to Get Rich Monthly Income Plan.

Subscribe for FREE Trades

Subscribe for FREE Trades

* indicates required
/ ( mm / dd )
Archives