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

Friday, January 31, 2014

17 Stocks With High Dividend And Earnings Growth Poised For Growth

I am still compiling a wish list for 2014, and this SeekingAlpha.com article provides one good starting point:

17 Stocks With High Dividend And Earnings Growth Poised For Growth

The List:
  • (AAPL) Apple Inc.
  • (ADI) Analog Devices Inc.
  • (BAX) Baxter International Inc.
  • (COV) Covidien PLC
  • (CSX) CSX Corp.
  • (F) Ford Motor Company
  • (GIS) General Mills Inc.
  • (HP) Helmrich & Payne Inc.
  • (IP) International Paper Co.
  • (LLL) L-3 Communications Holdings
  • (LMT) Lockheed Martin
  • (MAT) Mattel Inc.
  • (NSC) Northfolk Southern Corp.
  • (ROK) Rockwell Automation
  • (SJM) J.M. Smuckers Co.
  • (TRV) The Travelers Co.
  • (UNP) Union Pacific Corp.

Sunday, January 19, 2014

Options Trading (particularly Rolling Naked Puts) and Taxes

There are two differing sets of IRS reporting requirements:

  1. For brokers: how wash sales should be reported on Form 1099.
  2. For taxpayers: how wash sales must be reported on Form 1040.


Gainskeeper may be the best resource.


Friday, January 17, 2014

Economic Calendar at econoday.com

I am finding the Economic Calendar at econoday.com to be a good aggregator of business and financial reports.

Steps To Successful Put Selling in 2014 : fullyinformed.com

Teddi Knight of fullyinformed.com included the following rules for successful put selling in a recent post:

In the present market the steps to successful put selling can be summed up this way:
  1. Look at the support levels in the stock. Are they solid?
  2. If the return is huge, what are the risks?
  3. Is there a safer trade elsewhere that still meets the goal of 1% return for the month?
  4. What rescue or repair strategy would you apply in the event the trade does not work out?
  5. Do you want to own the stock if assigned? If not but you still want to do the trade sell out of the money puts only.
  6. Would a put credit spread provide better safety and still meet the goal of 1% for the month?
Once all the above have been considered, then place the trade and not before.

Thursday, November 21, 2013

Strategy Review

I need to cultivate patience.

Looking at my Gold Miners ETF (GDX) trades since April 2013, I see that I am all too prone to chase a falling stock.

Gold had been in a 6 month decline when I started selling GDX puts. On April 9, with GDX at 35.64 I sold the $36 put. A month later with GDX at 29.11 I "averaged down" selling the $29.5 put. On May 15 GDX crossed below $28 and I jumped at the opportunity to sell $28, $27 an $25 puts.

On June 20, as GDX fell from $24.98 to $24.24 I sold $25, $24, $23 and $22 puts.

And so on. On September 26 GDX was around  $25 and I sold $23, $22, $21 and $20 puts.

Today GDX is trading around $22.50.

Every time I sold puts, thus going long GDX, the 10 day Simple Moving Average was below the 20 day SMA, which was below the 50 day SMA, which was below the 100 day SMA, which was below the 200 day SMA. This is an extremely negative indication, and the intelligent thing would be to go short.

The only thing that has saved me greater losses is the very high put premiums. Today the one month $28 strike (Dec) put options are trading at parity, yet they can be rolled out to Jan for $32, or over 1% (over 12% annualized)!

Thus although I am short 10 puts at strikes as high as $30, I am running a paper loss of only $585 vs. total strike value of $25,800. So far I have collected over $3,000 in premium and can probably roll forward every month for around $200 net of commissions. Currently I am tying up $10,000 in margin on GDX puts. Thus I can earn 2% on margin by rolling each month.