Get Rich - Stay Rich - Investing for Monthly Income

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Now You Can Sell Puts for Income in the New ETF

One of the recent trends in the income investment newsletters is the concept of writing (selling) puts for income.  You had to know that it would only be a matter of time before an ETF would be launched using this concept.  Investors sell put options to collect the premium income as an option strategy to generate investment income.  It is interesting to have an ETF to do the heavy lifting but prudent investors should monitor this new put writing ETF for positive results before buying shares.

Are you ready to sell puts on Netflix (NFLX), Green Mountain Coffee Roasters (CMCR) or Salesforce (CRM)?   If Yes, then this ETF is for you.  These and other stocks with current put writes is shown below.

ALPS just launched the U.S. Equity High Volatility Put Write Index Fund (HVPW) . The Fund seeks investment results that correspond generally to the performance, before the Fund’s fees and expenses, of an index called the NYSE Arca U.S. Equity High Volatility Put Write Index. The Index reflects the performance of a portfolio of exchange-traded put options on highly volatile stocks.

The ALPS HVPW Fund is designed for investors who seek to obtain income through selling put options, selling 60-day listed put options every 2 months (6 times per year) on 20 stocks. The Fund intends to distribute, at the end of each 60-day period out of net investment income and/or short-term capital gains, an amount of cash equal to 1.5% of the Fund’s net assets at the end of such 60-day period. If the Fund’s net investment income is insufficient to support a 1.5% distribution in any 60-day period, the distribution will be reduced by the amount of the shortfall. Also note while the Fund only intends to make such distributions out of net investment income and/or short-term capital gains, it is possible that in certain circumstances, a portion of a distribution may result in a return of capital (which is a return of the shareholder’s investment in the Fund).

Put options are a type of financial instrument used to provide the owner the right, but not the obligation, to sell the security at a set price, or “strike” price, on or before an expiration date.  Traders who write put options have essentially sold the right to another investor to sell shares at an agreed-upon price. On the other hand, the buyer has the purchased the chance to sell stock to the put writer.

HVPW offers diversification by holding a portfolio of 20 names rolling every 2 months (i.e.120 puts per year).  This is one advantage to the ETF investor who doesn’t have the time or resources to diversify across multiple investments.

At the end of the two month period following expiration of the options the index is decreased by 1.5% to represent the 60 day period distribution, then the new set of 20 stocks are chosen for the new period’s option positions.

 

Here is a list of the initial 20 stocks with put writes:  HPQ ALXN, TRIP, CRM, NU, CTRX, ONXX, NVDA, DISH, MGM, BBY, MNST, CHK, GMCR, NTAP, CIE, NFLX, SHLD, VRTX, STZ

 

HPQ US 04/20/13 P14 -0.01%
ALXN US 04/20/13 P70 -0.01%
TRIP US 04/20/13 P37 -0.02%
CRM US 04/20/13 P150 -0.02%
NU US 04/20/13 P35 -0.02%
CTRX US 04/20/13 P45 -0.04%
ONXX US 04/20/13 P65 -0.04%
NVDA US 04/20/13 P11 -0.04%
DISH US 04/20/13 P31 -0.07%
MGM US 04/20/13 P11 -0.08%
BBY US 04/20/13 P15 -0.08%
MNST US 04/20/13 P42.5 -0.09%
CHK US 04/20/13 P17 -0.09%
GMCR US 04/20/13 P39 -0.10%
NTAP US 04/20/13 P31 -0.11%
CIE US 04/20/13 P22.5 -0.17%
NFLX US 04/20/13 P165 -0.19%
SHLD US 04/20/13 P41 -0.21%
VRTX US 04/20/13 P40 -0.21%
STZ US 04/20/13 P37.5 -0.26%

Covered Call Trades for July 2011

Last week the major equity indexes looked oversold and the chances looked good for a short-term rally. Surprisingly the only rally attempt came last Thursday and it was feeble at best. Most indicators are now even more oversold so chances are greater for an oversold bounce this week but still uncertainity in the month.

With the current market pullback and more uncertainity, I am looking at writing calls below the stock price for a 5% or so downside protection.  Below is the covered call trades for the July 2011 call options.  You purchase 100 shares of stock and sell 1 call for the covered call trade.  You can sell the at-the-money call (ATM) or you can sell one strike price below market price for a more conservative covered call.  The table provides the prices and volatility for the ATM strike prices.

Click to enlarge

 

Whole Foods Market, Inc. (WFM) is a natural and organic foods supermarket. The Company has one operating segment, natural and organic foods supermarkets. As of September 26, 2010, the Company operated 299 stores in the United States, Canada and the United Kingdom. Its stores average 37,600 square feet in size and nine years in age, and are supported by its Austin headquarters, regional offices, distribution centers, bakehouse facilities, commissary kitchens, seafood-processing facilities, meat and produce procurement centers, and a specialty coffee, tea procurement and brewing operation. As of September 26, 2010, the Company operated 299 stores, of which 288 stores operated in 38 United States, states and the District of Columbia; six stores in Canada, and five stores in the United Kingdom. It owns 11 stores, two distribution facilities and land for one store in development, including the adjacent property.

Salesforce.com, Inc. (CRM) is a provider of enterprise cloud computing applications. The Company provides a customer and collaboration relationship management (CRM), service to businesses of all sizes and industries worldwide and provides a technology platform for customers and developers to build and run business applications. Cloud computing refers to the use of Internet-based computing, storage and connectivity technology for a variety of different services. The Company designed and developed its offering, which can be deployed, customized and integrated with other software applications. The Company delivers its service through the Web browsers. It markets its service to businesses on a subscription basis, primarily through its direct sales efforts and indirectly through partners. In May 2010, the Company acquired Jigsaw Data Corporation, a cloud provider of crowd-sourced data services in the cloud. In January 2011, it acquired Heroku, Inc. and Dimdim, Inc.
National Oilwell Varco, Inc. (NOV) is a provider of equipment and components used in oil and gas drilling and production operations, oilfield services and supply chain integration services to the upstream oil and gas industry. It operates in three business segments: Rig Technology, Petroleum Services & Supplies and Distribution Services. The Rig Technology segment designs, manufactures, sells and services systems for the drilling, completion and servicing of oil and gas wells. The Petroleum Services & Supplies segment provides consumable goods and services used to drill, complete, remediate and workover oil and gas wells, service pipelines, flowlines and other oilfield tubular goods. The Distribution Services segment provides maintenance, repair and operating supplies, and spare parts to drill site and production locations worldwide. It acquired Advanced Production and Loading PLC in December 2010. In January 2010, it acquired Ambar Lone Star Fluid Services, LLC.
Anadarko Petroleum Corporation (APC) is an independent oil and natural gas exploration and production company. As of December 31, 2010, it had 2.4 billion barrels of oil equivalent of proved reserves. Anadarko’s portfolio of assets includes positions in onshore resource plays in the Rocky Mountains region, the southern United States and the Appalachian basin. Anadarko operates in three operating segments: oil and gas exploration and production, midstream, and marketing. Oil and gas exploration and production segment explores for and produces natural gas, crude oil, condensate and natural gas liquids (NGLs). Midstream segment provides gathering, processing, treating and transportation services to Anadarko and third-party oil and gas producers. It owns and operates natural gas gathering, processing, treating and transportation systems in the United States. Marketing segment sells much of Anadarko’s production, as well as hydrocarbons purchased from third parties.

 

Avnet, Inc. (AVT), along with its subsidiaries, is an industrial distributor of electronic components, enterprise computer and storage products and embedded subsystems. It distributes electronic components, computer products and software as received from its suppliers or with assembly or other value added by Avnet. It also provides engineering design, materials management and logistics services, system integration and configuration, and supply chain services that can be customized to meet the requirements of both customers and suppliers. It has two primary operating groups: Electronics Marketing, which markets and sells semiconductors and interconnect, passive and electromechanical devices and embedded products for more than 300 electronic component manufacturers; and Technology Solutions, which markets and sells mid- to high-end servers, data storage, software and the services required to implement these products and solutions to the value-added reseller channel.

 

Plains Exploration & Production Company (PXP) is an independent oil and gas company engaged in the upstream oil and gas business. The upstream business acquires, develops, explores for and produces oil and gas. Its upstream activities are located in the United States. The Company owns oil and gas properties with principal operations in Onshore California, Offshore California, the Gulf Coast Region, the Mid-Continent Region and the Rocky Mountains. As of December 31, 2010, it had proved reserves of 416.1 million barrels of oil equivalent, of which 54% consisted of oil and 57% was proved developed.

 

Chevron Corporation (CVX) manages its investments in subsidiaries and affiliates and provides administrative, financial, management and technology support to the United States and international subsidiaries that engage in petroleum operations, chemicals operations, mining operations, power generation and energy services. Upstream operations consist of exploring for, developing and producing crude oil and natural gas; transporting crude oil by international oil export pipelines; transporting, storage and marketing of natural gas, and a gas-to-liquids project. Downstream operations consist of refining of crude oil into petroleum products marketing of crude oil and refined products. In September 2010, the Company completed acquisition of operating interests in three deepwater exploration blocks in the South China Sea’s Pearl River Mouth Basin. In February 2011, Chevron completed the acquisition of Atlas Energy, Inc.

 

Covered Calls for April 2011

It is time to begin looking at the next month (April) covered calls at this time.  I have already started a short list of potential trades.  This list is most at-the-money and slightly out-of-money calls.  I have included the S&P Ranking as well as the volatility measures on the chart.  Here is the list. with company profiles below (click image to enlarge).

Get Rich Covered Calls 2011

 
 
 
 
 
 
F5 Networks, Inc. (F5 Networks) is a provider of technology that optimizes the delivery of network-based applications and the security, performance and availability of servers, data storage devices and other network resources. Its technology is hardware and software for application delivery networking, including application security, secure remote access, policy management, wide area network (WAN) optimization and file virtualization. Its principal products are systems that integrate its software with purpose-built hardware that incorporates commodity components. In addition, it introduced a virtual (software only) version of BIG-IP called BIG-IP LTM (VE) that is designed to run on servers and work in conjunction with its systems to provide management of virtual servers and applications. Its BIG-IP product family, which represents the bulk of its sales, supports a growing number of features and functions available as software modules, standalone appliances, or both.
Salesforce.com, Inc. is a provider of enterprise cloud computing applications. It provides a customer and collaboration relationship management (CRM), service to businesses of all sizes and industries worldwide and provides a technology platform for customers and developers to build and run business applications. Cloud computing refers to the use of Internet-based computing, storage and connectivity technology for a variety of different services. The Company designed and developed its offering, which can be deployed, customized and integrated with other software applications. It markets its service to businesses on a subscription basis, primarily through the direct sales efforts and indirectly through partners. In May 2010, the Company acquired Jigsaw. In January 2011, the Company acquired Heroku, the cloud platform for writing Ruby-based applications. In January 2011, the Company acquired Dimdim.
Alpha Natural Resources, Inc. (Alpha) is a coal supplier in the United States. The Company is a supplier and exporter of metallurgical coal for use in the steel-making process, and a supplier of thermal coal to electric utilities and manufacturing industries. It operates 66 mines and 13 coal preparation plants in Northern and Central Appalachia and the Powder River Basin. The Company operates in two segments: Eastern Coal Operations and Western Coal Operations. Eastern Coal Operations consists of the mines in Northern and Central Appalachia, its coal brokerage activities and the Company’s road construction business. Western Coal Operations consists of two Powder River Basin mines in Wyoming. During the year ended December 31, 2010, steam coal and metallurgical coal accounted for approximately 86% and 14% of its coal sales volume. During 2010, Alpha sold a total of 84.8 million tons of steam and metallurgical coal.
Medco Health Solutions, Inc. (Medco) is a healthcare company. It provides clinically-driven pharmacy services designed for private and public employers, health plans, labor unions and government agencies of all sizes, and for individuals served by Medicare Part D Prescription Drug Plans. The Company opertates in two segments: Pharmacy Benefit Management (PBM) and Specialty Pharmacy. Medco’s advanced pharmacy and clinical research are part of Medco making medicine for more than 65 million members. It offers clinically-based programs that identify drug waste. Pharmacy management includes mail-order service, retail pharmacy networks, specialty pharmacy management, call center pharmacies and reimbursement services. Its Internet-based services offer sites for clients and retail pharmacists that provide interactive tools. On January 29, 2010, the Company completed the acquisition of DNA Direct Inc. On September 16, 2010, Medco acquired United BioSource Corporation (UBC).
Newfield Exploration Company (Newfield) is an independent oil and gas company engaged in the exploration, development and acquisition of oil and gas properties. The Company’s domestic areas of operation include the Mid-Continent, the Rocky Mountains, onshore Texas, Appalachia and the Gulf of Mexico. Internationally, the Company operates in Malaysia and China. Mid-Continent division is focused primarily in the Anadarko and Arkoma basins. Its Greater Monument Butte is the Greater Monument Butte field area, located in the Uinta Basin of Utah. During the year ended December 31, 2010, approximately 82% of its proved reserves and 90% of its probable reserves were located in resource plays, primarily in the Mid-Continent and the Rocky Mountains. As of December 31, 2010, Newfield had proved reserves of 3.7 one trillion cubic feet equivalent. On February 11, 2010, the Company acquired some of TXCO Resources Inc. (TXCO’s) assets in the Maverick Basin of southwest Texas.
Holly Corporation is an independent petroleum refiner that produces light products, such as gasoline, diesel fuel, jet fuel, specialty lubricant products, and specialty and modified asphalt. The Company’s operations are organized into two reportable segments: Refining and Holly Energy Partners, L.P. (HEP). As of December 31, 2009, it owned and operated three refineries consisting of a petroleum refinery in Artesia, New Mexico that is operated in conjunction with crude oil distillation and vacuum distillation and other facilities situated 65 miles away in Lovington, New Mexico (collectively, the Navajo Refinery), a refinery in Woods Cross, Utah (the Woods Cross Refinery) and the Tulsa Refinery; owned and operated Holly Asphalt Company, which manufactures and markets asphalt products from various terminals in Arizona, New Mexico and Texas; owned a 75% interest in a 12-inch refined products pipeline project from Salt Lake City, Utah to Las Vegas, Nevada, and owned a 34% interest in HEP.
Vertex Pharmaceuticals Incorporated (Vertex) is engaged in the business of discovering, developing and commercializing small molecule drugs for the treatment of diseases. The Company is engaged in phase-I clinical trials and/or nonclinical activities with respect to a range of additional drug candidates, including compounds intended for the treatment of hepatitis C virus (HCV) infection, cystic fibrosis (CF) and influenza. In November 2010, the Company submitted a new drug application (NDA), requesting approval to market telaprevir in the United States for the treatment of patients with chronic HCV infection.

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