Tuesday, May 13, 2014

Cisco Systems (CSCO) Earnings Play

Cisco Systems (CSCO) announces earnings / quarterly report Wednesday May 14 after the markets close.

Today CSCO traded as low as $22.76.

With CSCO at $22.87 I sold -1 CSCO May $22.5 Put (3 days to expiration) for a net credit of $31.05. If CSCO closes above $$22.50 on Friday I get to keep the credit. If below, I can either roll the put out to Jun for more credit, or take CSCO stock (currently yielding 3%).

Preview of CSCO Quarterly Report
Sales $11.36 B $11.24-11.48 B
EPS $0.48

Position Adjustments for week of 5/12/2014


ABX : Barrick Gold : $17.23 Friday close

-1 May $18 put
-1 May $19 put; "roll" to GDX $23 puts?

F : Ford Motor Co : $15.77 Friday close

-1 May $17 put;

SIL : Global X Silver Miners ETF : $12.03 Friday close

-5 May $13 puts;

SLV : iShares Silver Trust : $18.42 Friday close

-1 May $18.5 put;


Monday, May 12, 2014

Watchlist Week of 5/12/2014

Maybe the markets have worked off some of the froth? Time for more Put Selling?

The charts for these ETFs look interesting:

KRE

UNG

VIX

Tuesday, May 06, 2014

Long the Housing Sector (put-selling on XHB)

Today I sold puts against the SPDR S&P Homebuilders ETF (XHB)

I checked out XHB after reading a CNBC / Yahoo Finance Talking Numbers article, Buffett is worried about housing. Should you be too?

Some reasons for going long home builders:

I believe that over the next 5 to 10 years the housing market will be in a long term cautious recovery.

2013 Q4 Household Mortgage Debt Service Ratio near 30 year low

Household Mortgage Debt Service Payments and Financial Obligations as a Percentage Of Disposable Personal Income; Seasonally Adjusted

Technically, XHB may be Oversold

6-month chart for XHB showing Bollinger Bands and MACD, source stockcharts.com

Tuesday, April 29, 2014

Earnings Play on Aflac (AFL)

Aflac (AFL) quarterly report drops today (Tuesday 4/29/2014) after the markets close.

IV (Implied Volatility or Uncertainty Premium) is high in the front month (May, with 17 days to go).

With AFL trading at $62.36 I sold (paper trading) a May $62.5 straddle (-1 $62.5 call, -1 $62.5 put) and simultaneously bought the June $62.5 straddle (+1 $62.5 call, +1 $62.5 put).

(I actually ordered these as a long Call Calendar Spread order and a long  Put Calendar Spread order, but maybe ordering as straddles would get a slightly better price from the market, since it may be simpler to hedge against straddles.)

The idea is that because of the earnings announcement the prices are a bit skewed so that I am selling an overpriced straddle and buying a fairly priced straddle. Theoretically, tomorrow I should be able to close all these positions at a profit, because the IV in the May options will decrease a lot (no more uncertainty about earnings numbers) while the IV in the June options will decrease a little but not as much.


Monday, April 21, 2014

US Mint Loses 80% on every Penny and Nickel

US Mint Annual Report 2013 [pdf]

Unit Cost of Producing and Distributing Coins By Denomination
2013PennyNickelDimeQuarter
Cost of Goods Sold$ 0.0156$ 0.0805$ 0.0391$ 0.0903
Selling, General &
Administrative
$ 0.0025$ 0.0131$ 0.0061$ 0.0135
Distribution to FRB$ 0.0002$ 0.0005$ 0.0004$ 0.0012
Total Unit Cost$ 0.0183$ 0.0941$ 0.0456$ 0.1050
% Loss/Profit-83.00%-88.20%54.40%58.00%

Wednesday, March 19, 2014

March Expiration

March expiration week has been fun and interesting: many of my short puts are at the money (ATM). This means "rolling for dollars" brings the highest possible profits.

Here are my notes on the remaining short options:

ABX (around $20, short the $20 put)
Roll it. I like ABX, my thesis is that Gold will rise, I'm not worried about the strike price.

EWA (around $25, short the $25 call)
Hard one. EWA yields 4.5%, so I want to hold on to my 100 shares. EWA is in an uptrend (bad for my short call) after being beaten down by global growth fears. Maybe it will pin at 25 by Friday.
Put in a GTC order to close for .05 (bid/ask $5/$25, size 13x825 on 3/19).

EWW (around $60.50, short the $60 put)
I want exposure to Mexico, so do I roll this or let it expire and get long on the next correction? I think EWW has found a bottom, so maybe I roll out and up to the $61 put?
Roll out to 60 or 61 strike. Wait and see where it pins Friday.

EWZ (around $40, short the $39 put)
OTM with EWZ around 40.60 today.
Let it expire.

GDX (around $26, short the $24 put)
GDX is in a secular uptrend (my thesis) but it's down 7% so far this week, from 27.70 Friday to 25.70 today. If it should be near 24 Friday I will roll. Otherwise,
Let it expire.

GM (around $34.50, short the $34 put)
I don't like GM. This was a special situation "story stock" (panic selling on legal threats).
Let it expire.

UNG (aound $25, short the $24 put)
Let it expire. (Get long stock when at 100-day line.)

Tuesday, February 18, 2014

Stock Screen 5 : Put-Selling Candidates

First I should say that I am not happy with the results of this screen. I think the characteristics I chose are excellent, but the list is not diversified well. If you try this screen, I suggest finding the best stocks in each Industry or Sector.
The purpose of this screen is to identify a handful of dividend-paying stocks I wouldn't mind owning (or that I would willingly take assignment of) for put-selling strategy.

Starting with David Fish's U.S. Dividend Champions spreadsheet from Jan 31, 2014 (488 stocks):

Suitability for Put Selling

Liquidity (narrow bid/ask spread and quick fills): How liquid a market there is for options on a particular stock? Fish does not tabulate options volume (a very good proxy for liquidity) but a pretty good proxy is Market Capitalization: Stocks with low market cap are unlikely to have listed options with liquid markets.

Premiums that outweigh commissions. Put selling relies on many small gains, so trading fees can significantly reduce put-selling returns. Choosing a low-fee broker is important, but stock price matters too. All other things being equal, the premium for selling a put on a $100 stock will be five times the premium for selling a put on a $20 stock. Therefore it can be better to trade options on higher-priced stocks, with their correspondingly higher option premiums.
  • Market Capitalization (Column AI on the Fish spreadsheet): Drop stocks with Market Cap below roughly $6B
  • Price (Column H): Drop stocks trading (on 2014/1/31) under roughly $50

Fundamentals

Dividends

Annualized Dividend Yield Annual dividend yield ranges from 10.02% to 0.23%, average 2.84%, median 2.51%. Since the put-selling strategy seeks income not only through dividends received but also through premium received from put-selling, we can relax our standards and include stocks that pay at least 1.5% (2.5% is the cut-off for many dividend stock screens).
Dividend Growth Rate (DGR) should be positive and accelerating
  • Drop the lower-yielding stocks (Column I) from each Sector
  • Drop stocks whose 10-year (Column AQ), 5-year (Column AP) or 3-year DGR (Column AO) is under 2%
  • Choose top stocks in each sector for accelerating Dividend Growth Rate (5-year DGR > 10-year DGR, Column AM)
Here is the resulting list:
IndustryCompany NameTicker SymbPrice 1/31/14 TTM P/EDiv% YieldEPS% PayoutFCF% Payout5/10 A/D*
Aerospace/DefenseGeneral DynamicsGD101.3114.432.2131.9138.011.949
Aerospace/DefenseL-3 CommsLLL111.0712.841.9825.4327.161.235
Aerospace/DefenseNorthrop GrummanNOC115.5513.822.1129.1937.670.824
Aerospace/DefenseRaytheon Co.RTN95.0716.092.3137.2357.690.484
Business ServicesAccenture plcACN79.8815.912.3337.0557.511.754
Farm EquipmentDeere & Co.DE85.969.472.3722.4757.361.145
Industrial EquipCaterpillar Inc.CAT93.9117.892.5645.7143.70n/a
Industrial EquipParker-HannifinPH113.3716.801.6928.4432.550.862
InsuranceACE LimitedACE93.819.152.6924.5928.340.778
InsuranceAFLAC Inc.AFL62.789.602.3622.636.860.777
InsuranceTravelers Co.TRV81.288.342.4620.5323.281.080
MachineryCummins Inc.CMI126.9816.821.9733.1150.111.023
MachineryDover Corp.DOV86.5615.771.7327.3231.02n/a
MachineryIllinois Tool WorksITW78.8716.362.1334.8554.761.390
Medical DevicesMedtronic Inc.MDT56.5615.121.9829.9535.490.489
PackagingRock-Tenn Cos.RKT101.4810.201.3814.0719.590.729
Retail-DiscountTarget Corp.TGT56.6415.183.0446.1154.721.054
Telecomm EquipHarris Corp.HRS69.3416.632.4240.2932.561.356
Telecomm EquipQualcomm Inc.QCOM74.2218.981.8935.8142.050.667
TelecommsVerizon CommsVZ48.0212.014.4153.0038.720.593

Dividend Growth Investor's Monthly Screen on Dividend Stocks

Dividend Growth Investor's Monthly Screen on Dividend Stocks:
  1. raised distributions for at least ten years in a row
  2. removing companies which trade at a price/earnings ratio of over 20
  3. removing all stocks whose dividend payout ratio is higher than 60%
  4. Yield at least 2.50%. I prefer to focus on companies in the sweet spot , which not only provide decent yields of 2.50% - 4% today, but also target dividend growth at least in the high single digits