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Trade adjustment – Carlyle Group (CG)

Trade adjustment - Carlyle Group (CG)

On 8/22/2014 I opened a put selling trade against Carlyle Group (CG). I sold 2 put contracts to collect premiums. Here is the trade detail:

STO 1 CG Dec14 30 put @ 1.10 LIMIT GTC

Later, after opening the trade it turned against me. I wasn’t panicking and continued sitting tight to see the outcome. Will the stock recover or will it continue down and endanger my strike price?

The stock price continued getting closer to the support level and my strike price.

The stock may reverse, bump off of the support line, but thanks to the nervousness in the stock market, where investors expect the Fed raising interest rates, all income producing assets continued to be on sale.

The stock may also breach my strike, fall below it, and I may have troubles to manage the trade.

I have the following options:

 

  1. Sit tight as the stock may reverse. There is a plenty of time until December
  2. Roll the trade down to the next lower strike, but the same month – December. This would create a cushion for our trade but it will increase our margin requirements by circa $370 because we will have to sell more new contracts.
  3. Roll the trade down and further away in time into March 2015. This will also create a cushion to our trade, but increase time we have to wait for this trade to end. On the other hand, this option will not increase our margin requirements. We will also sell more new contracts to keep the trade a credit one.
  4. You like the stock and want to own it. At this case you may decide sitting tight and let it exercise in December. In that case you will own 100 shares of CG at $30 minus received premium.

 
 

I chose option #3 to roll down and further away in time.

I entered the trade with my broker as one trade (a custom vertical spread), but in reality, the trade will however look like this:

BTC 1 CG Dec14 30 put @ 1.65 LIMIT GTC

STO 2 CG Mar15 27.5 put @ 1.50 LIMIT GTC

By rolling this trade I collected additional $154 in premiums (CREDIT trade)

New delta 29% (probability ITM)

Probability OTM 61.24%

 
This trade adjustment lowered my strike price below the current support line which should give me a plenty of room to overcome and sustain the general stocks selloff of the dividend stocks. If the stock doesn’t breach the $30 support, bounces, and continues up, I may expect the option losing value faster and be able to close the trade earlier than in March 2015.

See the chart below for the existing strike (and support) as a solid line at $30 a share, and a new strike as a dashed line at $27.5 a share.

CG

And again, if the trade continues going against me, I will roll it down and further away in time. If the trade expires worthless, I will keep the entire premium (the original one and the new one).
 
 




All Dividend Investing,  Options Trading,  Personal Finance
Posted by Martin September 19, 2014
1 Comment



 
penny stocks

Volatile week offered opportunities again

Volatile week offered opportunities again

Another trading week is over and we can review our accounts and see how we were doing and how our investments performed.

The last week was volatile as many investors were nervous about the Fed and its policy. On Wednesday we were expecting what Janet Yellen would come up with in regards to interest rates and that created nervousness among investors.

That nervousness had a long track into a previous week where we could see many good quality stocks falling apart. But not all of them lost ground. Majority of the losing stocks were in energy sector, REIT, BDC, and MLPs.

You may ask, why were those stocks falling hard? Why other regular dividend stocks were not following them? If you check other stocks such as Johnson & Johnson (JNJ), Abbot (ABT), Apple (AAPL), and others you will notice no selloff during last two weeks. Especially, JNJ performed excellently last two weeks creating new highs after a selloff in August.

Interest Rates Effect

As I wrote in my previous post, the reason for a selloff was interest rates and that many stocks in REIT, MLP, and BDC are influenced by them. Some more, some less. Therefore, all income producing assets in this category sold hard.

That offered a great opportunity adding some of those stocks into your portfolio.
I believe, the expectation of rising rates is already priced in. The market knows this, it is considered inevitable. However, there will be an impact on stocks if Fed raises the rates and the stocks may start drifting down or slow in growth. Also dividends may not look attractive for some investors anymore and that would be a reason for them to sell stocks and create a hard sell off, a panic.

But as long term investors who know the power of compounding and growing dividends we know, that compounding dividend will overcome the short term effect of rising rates and end up as a winning strategy.

Look at the interest rate this way, if the Fed wants to slow economy down, they increase interest rates. If the Fed wants to speed economy up, they lower the rates. It’s that simple.

And now answer yourself a question. Is the US economy speeding up so much that we need Fed jumping on brakes?

I don’t think so.

And answer yourself another question. The US has 17 trillion debt, for which it pays around 2% interest. If the Fed raises rates, the interest will go up too. It might be 3%, or 4%, or even more normal 5%. Can we afford paying such interest without increasing taxes? Or can the US economy growth offset the debt interest so much that it offsets a higher interest on our debt?

I also do not think so.

That means, in my opinion, that Fed is trapped in a situation of keeping the interest rates at zero forever.

Unfortunately, they cannot do it forever. One day, our economy speeds up and Fed will be forced to raise the rates involuntarily.

On Wednesday, we have heard about a “Considerable time” rhetoric. The investors could feel the tone of Yellen’s message and today, they are again returning back to complacency. The beaten stocks started recovering and rising again. Mostly this Friday.

Stocks Which Are Still a Good Buy

Some of the stocks I listed in my previous post recovered and I wouldn’t be buying them at this time. Instead, I would wait for the next panic and fear. Yet there are a few stocks left, which are good candidates for addition into our portfolios.
 

Realty Income (O)

This stock recovered on Friday a bit, but is still significantly down and in a buy zone.

 
Realty Income
 

O pays $2.20 annual dividend
yield: 5.10%
Its projected 10YOC is 15.15%,
payout ratio 235% (note, this is a REIT, the ratio will be at or higher than 100%)
5 yr average growth: 5.33%
paid dividend since: 1994
# of years of consecutive dividend increases: 16 years
 

American Capital Agency (AGNC)

AGNC also recovered a bit on Friday, but not enough to escape the buy zone. This stock can still be a good addition to your portfolio.

 
AGNC
 

AGNC pays $2.75 annual dividend
yield: 11.80%
Its projected 10YOC is 11.80%,
payout ratio 129% (note, this is a REIT, the ratio will be at or higher than 100%)
5 yr average growth: -6.88%
paid dividend since: 2008
# of years of consecutive dividend increases: 0 years
 

McDonalds (MCD)

I didn’t list this stock in my previous post, but I believe it offers a good entry too. In the past few months McDonalds was beaten down by investors. They punished the company for bad results, or slow growth and for the risk of being forced to pay $15 per hour for hamburger flippers recently rioting on the streets.

But yesterday MCD announced dividend increase. Dividend investors already know that dividends could be used as an indicator of a company’s health. The dividend is paid from the company’s cash. If there is no cash, then there is no dividend. If a company is losing, the dividend is cut.

If MCD is as bad as we could hear in media lately and it is going to sluggish or even die, why they increased the dividend yesterday? Did they do it to speed up their suffering?

Maybe they did it because there is no suffering at all and it is all a hype.

 
MCD
 

MCD pays $3.40 annual dividend
yield: 3.60%
Its projected 10YOC is 6.64%,
payout ratio 59%
5 yr average growth: 10.17%
paid dividend since: 1976
# of years of consecutive dividend increases: 37 years
 

Prospect Capital Corporation (PSEC)

PSEC is still hovering around $10 a share which is a good price entry. You will enjoy stable, almost 13% annual dividend while waiting for appreciation to $11.50 a share or more.

 
PSEC
 

PSEC pays $1.33 annual dividend
yield: 12.90%
Its projected 10YOC is 19.47%,
payout ratio 171% (note, this is a BDC, the ratio will be at or higher than 100%)
5 yr average growth: -3.43%
paid dividend since: 2004
# of years of consecutive dividend increases: 2 years
 

Vanguard Natural Resources (VNR)

This MLP didn’t recover and it continued down. At the end of the trading day, it paired some losses, but ended the day in red. It still offers a good entry. It pays monthly dividends. Today, the company announced increased distribution at a new annual rate of $2.52 per unit. It is a slight increase from $2.51.

 
VNR
 

VNR pays $2.52 annual dividend
yield: 8.70%
Its projected 10YOC is 8.70%,
payout ratio N/A
5 yr average growth: 4.77%
paid dividend since: 2008
# of years of consecutive dividend increases: 0 years
 

Goldcorp Inc (GG)

Goldcorp continued in a harsh selloff today. It is offering an even better entry point than a week ago. But to entry into this stock I would use a contingency order. It means, that I wouldn’t buy outright, but track the stock down and buy at reversal. For example, I calculated my next entry point to be at $24.33 a share. A contingency order means, that you place a conditional order, which activates your buy order if conditions are met, (if you do not know how to place such order, contact your broker and ask them how you can achieve it).

Then, the order would look like this:

If GG is at or above 24.33 activate a buy limit order at or below 24.33 a share. If on Monday the stock continues lower, the activation price at 24.33 will not be hit and nothing happens. You just lower your price lower for the next day. If however the stock continues higher and hits the 24.33 the limit order will become active, but you would buy the stock only if the price stays or drops below 24.33 a share. That will protect you from the price jumping way over the limit. I will write about this type of order in my next post.

 
Goldcorp
 

GG pays $0.60 annual dividend
yield: 2.40%
Its projected 10YOC is 4.01%,
payout ratio 31%
5 yr average growth: 30.18%
paid dividend since: 2001
# of years of consecutive dividend increases: 4 years
 

HCP (HCP), Ventas (VTR), Omega Healthcare invest (OHI)

These are the stocks I didn’t list in my previous review. They were brought to my attention by Keith from DivHut blog.

All three candidates are in REIT sector, but they invest solely in a healthcare industry. I knew about OHI for example, and I even have it in my watch list as a good candidate for addition, but that’s where my knowledge about these kind of REITs ends.

I reviewed the price action of all three stocks and they all copied the other REIT price patterns. From that perspective they look like a good addition to portfolio along with other REITs I mentioned above. If you want to be exposed to healthcare REITs (and as our nation will be aging the healthcare industry will prosper more and more, so the REITs involved in that industry), it makes a perfect sense investing in them.

But are they good dividend stocks?

Let’s take a look.

HCP pays $2.18 annual dividend
yield: 5.50%
Its projected 10YOC is 8.45%,
payout ratio 99%
5 yr average growth: 3.32%
paid dividend since: 1990
# of years of consecutive dividend increases: 19 years

The dividend growth is quite low, so I would use this stock as a money making machine to generate cash which can be later used to purchase more shares of another dividend growth stock. It is a good dividend payer with excellent history of consecutive dividend increases.

My calculated fair value is at $36.5 a share (based on DCF). Morningstar estimates its fair value at $51 a share. With that said, I am OK purchasing this stock around 36 – 39 level (as close to 36 as possible). To buy in I would again use a contingency order.

 
HCP
 

VTR pays $2.90 annual dividend
yield: 4.80%
Its projected 10YOC is 12.76%,
payout ratio 176%
5 yr average growth: 7.21%
paid dividend since: 1999
# of years of consecutive dividend increases: 4 years

This stock has a nice dividend growth as well as current yield. The history of consecutive increases is short, so investing into this stock would require caution. It is, in my opinion, a good candidate to buy. The stock price still has a tendency to fall lower, so to buy in I would use a contingency order, too.

Morningstar estimates its fair value at $76 a share (as of 09/15/2014). The median price for this stock (5 year time frame) is at $63 a share. To me, the actual price at $61.12 looks acceptable.

 
VTR
 

OHI pays $2.04 annual dividend
yield: 5.90%
Its projected 10YOC is 14.76%,
payout ratio 256%
5 yr average growth: 10.58%
paid dividend since: 1992
# of years of consecutive dividend increases: 10 years

As I mentioned above, I had this stock in my watch list but wasn’t aware of its performance. From the numbers above, it is a very good candidate for addition, too. It has a nice history, good dividend growth and superior yield. Morningstar doesn’t follow this stock and my DCF didn’t return anything due to lack of data needed to calculate a fair value. The median price is at $30 a share, so it may be worth to wait if the stock drops lower.

It may not happen, so to get in, I would split my cash dedicated for this stock in three parts and leg into positions in a sequence using contingency order. That way you could buy a third of your future position now and see if the stock continues falling. If so, you buy a second third using a contingency order and average down. You do it as long as you get into your target position.

 
OHI
 

That’s my review of stocks which were beaten down last two weeks and which could offer a good opportunity to buy REITs, BDC, or MLP stocks cheaper. When investing into these stocks be sure you understand risk involved with these stocks. A risk I can see is the interest rates hike as that may send these stocks even lower than they are today. If you are eager to invest and have your money working for you, invest now only a portion of the entire amount you plan to invest.

You can also use put options to buy these stocks, although not all of the stocks mentioned above are optionable.

What do you think about these stocks and which of them would you invest in?
 




All Dividend Investing,  Options Trading,  Personal Finance
Posted by Martin September 12, 2014
2 Comments



 
penny stocks

Mr. Market offers a good entry point into dividend stocks

Mr. Market offers a good entry point into dividend stocks

Today trading started promising in the morning, but afternoon turned sour. Once again we see panic and nervousness returning to the pit. Today, markets lost ground and sold off. Nothing dramatic yet, but we could see an easement.

What pushed stocks down? Among those companies which were dragging S&P 500 down were energy stocks (and as some media told us it was due to Russian sanctions) and surprisingly some dividend stocks were on the sale as well.

Not all dividend stocks were on sale today. If you however hold MLPs, and REITs you probably have noticed a sell off around or even exceeding 3% drop. Some stocks are even back to a point where it makes sense to watch them closely and potentially buy more shares.

Here are some of the stocks I believe are in a good level to consider buying:

Chevron (CVX)

An energy stock dragged down for several days was Chevron (CVX). It currently sits at its support level at $122 a share. It went down from its 5 year high at $135 at the end of July this year and sold off hard on heavy volume on Russian / Ukraine tension. We saw a little break throughout August and in September the selloff gained its strength. It is in its full swing and at the beginning of it trend wave.

(I believe the market moves in waves. Each wave has its own depth and length. CVX just started a new wave down and if you look at the chart below, it is already in a downtrend! What does it mean? It means that most likely the selloff will continue for some time.)

The CVX median number is $120 a share and I believe we will see the stock to get to that point. I believe it will be a perfect point to either buy new shares or add to existing position. The DCF (discount cash flow) calculated fair value is at $134.84 thus buying at $120 a share will provide enough margin of safety.

And just quick data I like to watch:

CVX pays $4.28 annual dividend
yield: 3.50%
Its projected 10YOC is 9.08%,
payout ratio 40%
5 yr average growth: 9.53%
paid dividend since: 1912
# of years of consecutive dividend increases: 19 years

 
Chevron
 

What others say about Chevron:
orporation: Is a Cash Flow Boom on the Way?
Chevron and ExxonMobil
Billionaire Ken Fisher’s Top Dividend Stocks
Chevron Corporation (CVX) Dividend Stock Analysis

 


 

PPL Corporation (PPL)

PPL is another energy stock (MLP) which is offering a good entry point. It’s not as good as Chevron, the stock would have to drop $30 a share (from today’s $32.64) to match Chevron’s path, but even at today’s level it is a fair entry point. As an energy stock the stock’s price action is the same as Chevron’s.

The first sell off started at the beginning of July this year and with a small break in August we saw a renewed sell off in September. Last two years PPL had declining revenues due to acquisitions, but it increased dividends this year in February so I believe, it still is a good buy if the stock goes lower to $30 a share. The calculated fair value is at $37 a share so there will be good margin of safety at this price.

If I was buying the stock, I would trace it down and I would use my contingency order strategy to buy the stock only at reversal. The stock is also starting a new down wave in the middle of a sell off, so I am expecting further price decline.

PPL pays $1.49 annual dividend
yield: 4.50%
Its projected 10YOC is 5.43%,
payout ratio 113% (note, this is MLP, the ratio will be at or higher than 100%)
5 yr average growth: 1.63%
paid dividend since: 1946
# of years of consecutive dividend increases: 14 years

 
PPL
 

What others say about PPL:
9 High-Yielding Utilities With A Growing Dividends
Top-Yielding Dividend Stocks to Combat Low Interest Rates
Compilation of all Dividend Stocks Per Sector for 2014
4 High-yield, Safety Stocks for Retirees
What Should PPL Corp. Shareholders Do With A 65% Stake In Talen Energy?

 


 

Realty Income (O)

Realty Income (O) a monthly dividend company which pays dividends every month and tend to increase it every quarter increased dividends yesterday by 0.13%. It is nothing much, but I like monthly dividends which can be reinvested.

Today the stock was under fire. The reason for REITs being under sell off today was most likely renewed fears that FED would increase interest rates sooner than what the investors anticipated.

As some on the market consider this the end of the world, it offers a great opportunity to buy more shares. The stock has been range bound in $40 – $45 since June 2013 with a few exceptions at the end of 2013 year when the stock fell below $40 and touched $38 a share.

Some people say the stock is still expensive and it will be expensive even at $40 a share, but I believe this stock will always be expensive. The reason is that this is a reliable company in the REIT industry which prides itself being a monthly dividend company for all seniors who rely on their regular monthly income. As our population is aging, more and more people will want to buy this stock which will be pushing its price higher although the valuation doesn’t justify it.

So you have two options – you can wait for the proper price, or you can take TA (technical analysis) help to find the best possible entry. If you have waited for the good price entry, you have been probably waiting for more than 5 years already and the price still didn’t get closer to you to entry. And most likely it will never get back down to you.

I believe that any price around $40 a share (+/- dollar) is a good entry. If get below $40 a share – even better, take it as a cherry on top of the cake.

Today the stock sold off by 3% and again, we are at the beginning of a down wave, so the selloff may continue next week. If I was buying today (or next week) I would use contingency order to track the stock on its way down and buy at reversal.

Calculating fair value is tricky for this stock. My own DCF calculation reveals a fair value to be at $11.95 a share, Morningstar estimates the value at $44 a share. You choose which one you want to use.

O pays $2.20 annual dividend
yield: 5.10%
Its projected 10YOC is 15.15%,
payout ratio 235% (note, this is a REIT, the ratio will be at or higher than 100%)
5 yr average growth: 5.33%
paid dividend since: 1994
# of years of consecutive dividend increases: 16 years

 
O
 

What others say about Realty Income:
Realty Income: This REIT Should Be Part Of Every Dividend Investor’s Portfolio
Realty Income Not Cheap, But Still Good
Realty Income Corp (O) Dividend Stock Analysis
Realty Income (O) Dividend Increase

 


 

American Capital Agency (AGNC)

AGNC is a company involved in mortgage back securities and unlike Realty Income, it is sensitive to interest rates. Generally investors do not understand the difference and when they assumed that FED may increase interest rates they start selling everything what has “realty” in its description. So although Realty Income is not exposed to interest rates, it still will be sold off.

AGNC is however exposed to interest rates, mainly to fast changes of the rates between long term and short term papers. AGNC makes money on a wide spread between those two. If the spread is open wide and changing slowly over time, AGNC can easily adjust its portfolio to those changes. Fast moves can however kill it.

We have seen this in the past when the stock crashed from 30+ levels to current 20-ish levels within two months.

Although we have heard talks about interest rates since July 2013 and AGNC is well aware of the future implications and adjusted its portfolio, investors yet continue panicking any time they hear about changes in the rates. Today’s slide in price is yet another example of ignorance. For educated dividend investors this slide is yet another great opportunity to buy more shares of one of the high quality mREIT stocks.

A high quality mREIT doesn’t mean safe however. If you plan on buying this stock, you will be rewarded with a nice dividend payout, but be aware that this stock is one of the riskier dividend stocks. I own shares of this stock, I have owned it for years and believe this stock will perform well. I was buying when the stock was selling at 30, 31 and even 33 a share and yet dividends and a few purchases at $20 a share lowered my cost basis down to 24 a share. My overall loss on capital is only -5%. When the stock recovers back to its 30s (and it is slowly rising) I will be positive, enjoying dividends on the road.

The company had to cut dividends several times. The last cut happened in December 2013. Since then the dividend rate holds and the company is poised for increasing it once again. Time will show.

If you are okay on adding a bit aggressive and risky stock to pepper up your portfolio, AGNC can be a good candidate.

AGNC pays $2.75 annual dividend
yield: 11.80%
Its projected 10YOC is 11.80%,
payout ratio 129% (note, this is a REIT, the ratio will be at or higher than 100%)
5 yr average growth: -6.88%
paid dividend since: 2008
# of years of consecutive dividend increases: 0 years

 
AGNC
 

What others say about AGNC:
American Capital Agency Corp – When The Dividend Yield is Bigger Than My Understanding of the Company
American Capital Agency: Let’s Face Facts
I Recently Increased My American Capital Position, Should It Be In Your Portfolio?

 


 

Prospect Capital Corporation (PSEC)

PSEC is a BDC (Business Development Company) which makes money investing into other businesses. This stock is considered by other investors as one of the best in this industry. It is not a true dividend growth company but it pays hefty dividend monthly. I use this stock as an income generating machine where the received dividends are used to buy other dividend growth stocks.

I do not expect any growth, but it paid its dividend consistently since 2004 and it even increased it for two consecutive years.

If played correctly you can make money and collect nice dividends. The stock has been range bound for years between $9.5 – $11.50 range. Whenever the stock approaches the lower level I usually add more shares to this stock. We have been there in June this year when the stock sold off, today we are slowly approaching to these levels once again. I consider everything around $10 a share (+/- 0.5 c) a good entry point.

My calculated fair value is at $15.93 a share, thus buying at the current levels can be a good opportunity.

PSEC pays $1.33 annual dividend
yield: 12.90%
Its projected 10YOC is 19.47%,
payout ratio 171% (note, this is a BDC, the ratio will be at or higher than 100%)
5 yr average growth: -3.43%
paid dividend since: 2004
# of years of consecutive dividend increases: 2 years

 
PSEC
 

What others say about PSEC:
Prospect Capital: Insiders Are Taking Advantage Of The Buying Opportunity In This 13% Yielder
This Is One Slick Dividend Stock
High Yield Dividend Stocks It’s Always a Good Pick When The Market is Bullish
Prospect Capital Corporation Redux
A Brief Primer on Business Development Companies (BDC) Part 1: What are BDCs and why should you invest in them?

 


 

Vanguard Natural Resources (VNR)

VNR is another MLP involved in oil and natural gas extraction. Although it is in Basic Materials sector, due to exposure oil and gas prices and recent Russia tension it is affected by sanctions and therefore the stock experienced the same sell off as energy stocks. It is yet another stock similar to PSEC above – my money making machine which helps me buying more quality stocks than VNR. It is not a true dividend growth stock though. It doesn’t increase dividends much. Dividend increases in the past are offset by dividend cuts. What to expect from this stock then? Nice dividend.

Once again, if played well you can make money and collect dividends. The median price for this stock is $28 a share. Today the stock fell to that level. Adding at the current price or waiting for $28 a share or bellow could be a good strategy to add this stock if you want a hefty dividend which can be reused for buying other high quality stocks. It depends on your strategy.

This stock is already at the end of a downward wave, so I do not expect this stock to continue falling further. It may continue sideway, maybe slightly drifting down or slightly drifting up.

VNR pays $2.52 annual dividend
yield: 8.70%
Its projected 10YOC is 8.70%,
payout ratio N/A
5 yr average growth: 4.77%
paid dividend since: 2008
# of years of consecutive dividend increases: 0 years

 
VNR
 

What others say about VNR:
Upstream E&P MLPs I’m buying
Vanguard Natural Resources: Is The Recent Weakness A Buying Opportunity?
9 Dividend Stocks Providing An Inflation Hedge With Increased Dividends
Vanguard Natural Resources Is On Track To Grow

 


 

Goldcorp Inc (GG)

Goldcorp is a mining company involved in precious metals, mainly gold. It moves in waves and it can be an interesting capital gain play stock with a decent dividend. It is not a true dividend growth stock, but it does well so far and can be a good addition to the dividend portfolio if you want exposure to mining companies. It experienced its up & downs on the way during the last 5 year history of this stock and thus you have to play it that way. To make money, you want to be buying at the bottom of those waves. Although I am not advocating bottom fishing here, when you look at the chart you could see nice waves with lows at $22 a share in December 2013, $24.50 a share in April 2014, $22.50 in June 2014 and today we are approaching to those levels once again.

The stock is in the middle of its downward wave, so I am expecting further decline. The best play to buy into this stock would be using the contingency order by tracking the stock on its way down and buy a reversal. If you enter in, you will be receiving a decent dividend while riding the new wave up to 30-ish levels. There you may sell or stay in (hold) and wait for the next down-wave to add more shares.

Morningstar estimates its fair value at $27 a share, so if they are right, you will have some margin of safety at these levels.

VNR pays $0.60 annual dividend
yield: 2.40%
Its projected 10YOC is 4.01%,
payout ratio 31%
5 yr average growth: 30.18%
paid dividend since: 2001
# of years of consecutive dividend increases: 4 years

 
GG
 

What others say about Goldcorp:
Goldcorp: This Gold Miner Hasn’t Run Out Of Steam Yet
Profit from Global Growth with the Natural Resources Sector
Best Dividend Paying Stocks – Recap January 2014
Investments That Pay Monthly Dividends

 


 

These were a few stocks from MLP, REIT, and BDC industries which were recently beaten down and which caught my attention as good candidates to enter a new position or add more shares. Except Chevron & Goldcorp I own them all in my portfolios (either TD or ROTH) and next week I may take advantage of this decline to add either of them to my portfolio. I am not decided yet which one would be the best stock to add, if opening a new position in Chevron or Goldcorp or just add more shares to the existing companies. I will make my decision on Monday next week.

What about you? Are you planning on taking advantage of the decline in these stocks?

 
 




All Dividend Investing,  Options Trading,  Personal Finance
Posted by Martin September 02, 2014
5 Comments



 
penny stocks

Breaking trading rules can be costly

Breaking trading rules can be costly

I just lost my whole year gains.

Everything, I was slowly building up over the course of 2014 year went down the toilet.

Why?

Because I broke my own rule which I try to tell everybody interested in options trading – stay small, do not overtrade.

I didn’t do it, pushed my luck forward and today a few trades went against me and I wasn’t able to deal with it and roll it, because I didn’t have enough cash in my account.

So I had to close with a loss which wiped out all my gains.

Will this lesson teach me something? I hope so.

What happened?

I had my strangle against TASR which today breached my call leg the way that my account got into a margin call (I told you (myself) stay small) and because I was over-extended on this trade, I was forced to close the trade. When the position was making me almost 4,000 dollars last week, I was greedy and wanted more. Today, the position turned against me and wiped out everything.

Time to start over and this time, stay small idiot (note: that idiot was to myself dear readers as you can imagine I am pretty much pissed off).

 




All Dividend Investing,  Options Trading,  Personal Finance

August 2014 results

August 2014 results

Another month passed and it is time to write a report how my chase for financial freedom progressed.

I am so desperate to get there as quickly as possible that I study other traders, and keep my account fully invested. I envy some of my fellow investors such as Jason Dividend Mantra and his ability to save around 50% of his income to build his Freedom Fund. And a few months ago Jason even quit his job and went semi-retired, working his passion as a freelance writer, blogging and continues saving to his freedom fund.

Or recently, FerdiS from DivGro blog who started investing in 2013 and his portfolio already includes 34 top rated dividend stocks.

Many times when reading blogs like those above I ask myself, how do you do it guys?
 

Although I tried hard to find resources to save more than I currently do, which is roughly 22% saving rate, I wasn’t able to save more than what I currently do.

This was the reason for searching other methods to make more money to invest. This was the reason for learning hard and adopting options trading. It helped me a lot to generate an incredible income so far.

 
Options
 

With a lot smaller money available I generate more cash than my dividend paying stocks.

 
I trade on margin, so all my options are actually generated on other people’s money and my hard cash is located in dividend stocks.

But that doesn’t mean that I will no longer invest in dividend stocks. No, dividend stocks are still a core of my portfolio and options is to generate cash, which at the end of each year will be reallocated into dividend paying stocks.

My idea is, that options should generate enough to help me with living expenses (thus semi-retire or retire) and invest into dividend paying stocks. I still consider dividends a passive income. Income, which will flow into your account without working. As I get older, I may not be able to trade options and I will have to rely on dividends (you know when I grow 99 years old or so).

As of today, my desperation to create a trading company is so huge, that I basically have only one goal – retire in 5 years.

All steps, investments, trading, and risk management will do anything to get me to that goal.

This month, was another good month. Although my income actually dropped, my net-liq (net liquidation value) of the account recovered from the previous month.

The reason for such value volatility was my trading with Taser Int. (TASR), which was my biggest adventure this month. In one of my next posts (maybe when the trade ends), I will write about this trade and describe it in details.

Almost the whole month I was working hard with TASR to adjust the trade. At first, when the stock was falling hard, I was lowering my puts down, later when the stock was skyrocketing on a hype influenced by Ferguson, MO events, I was rolling up my calls. Now, my short strangle is wide range and the stock should be safe.

Let’s see my monthly results of my trading and dividend income:

 

January 2014 premiums: $156.10 (1.55%)
February 2014 premiums: $139.26 (1.38%)
March 2014 premiums: $746.62 (7.41%)
April 2014 premiums: $421.63 (4.19%)
May 2014 premiums: $803.32 (7.98%)
June 2014 premiums: $230.21 (2.29%)
July 2014 premiums: $4,602.44 (45.69%)
August 2014 premiums: -$172.58 (-1.71%)
   
January 2014 dividends: $25.87 (0.26%)
February 2014 dividends: $167.02 (1.66%)
March 2014 dividends: $68.77 (0.68%)
April 2014 dividends: $25.91 (0.26%)
May 2014 dividends: $168.51 (1.67%)
June 2014 dividends: $68.81 (0.68%)
July 2014 dividends: $25.96 (0.26%)
August 2014 dividends: $150.49 (1.49%)
   
Total 2014 income: $8,283.15 (82.24%)
2014 unrealized premiums: $4,857.62 (48.23%)
   
Account Equity: $28,927.29 (00.00%)
Account Net-Liq: $21,053.54 (13.80%)
December 2013 balance: $10,072.25

You can see my dividend and options income on My Trades & Income page.

What about you? How was your August 2014 and the entire year so far? Post a link to your website or write down your results to encourage other investors!

Have a great September 2014!!
 
 




All Dividend Investing,  Options Trading,  Personal Finance
Posted by Martin August 23, 2014
13 Comments



 
penny stocks

Back alive and Liebster Award nomination


Liebster AwardI am finally back home from a hospital. Still in pain and on drugs but getting alive again. Although, sometimes I am thinking I would like to stay back in the hospital doing nothing and enjoying it.

A week ago I broke my ankle so bad that I needed a surgery and now I have 6 screws in it. I think, now when flying somewhere I will always sound the alarm at those TSA frames.

Being in the hospital had a few positive outcomes, besides fixing my ankle. I could watch TV almost the whole day, so I was watching CNBC and I was in awe what nonsense they speak about in there. I was shocked that they had absolutely no clue why markets where rising or falling or what was going on.

Not that I had any clue myself, but I do not speak about it publicly trying to explain anybody, why the market, or stock, is up or down. And then it came to recommendations of “what you should do with your money in your 401k account in this market.”

I am truly sorry for those people who invest upon advice from CNBC.

The second good thing was that I was watching my investments over the mobile applications so I learned using them. Now I no longer need a laptop with me. I can make my trades using my phone or Kindle.

Liebster Award

In the meantime, I was also nominated to a Liebster Award by Scott from Two investing blog.

What is Liebster Award? Just in case you haven’t heard about it, a Liebster Award is an online award given by bloggers to other bloggers so you can discover and learn about other blogs out there. A blogger who nominates you gives you a set of questions. You answer the questions and then select five new bloggers who will follow. You ask them another set of five questions and they should answer them. It is like a chain letter you may have heard about.

So, thank you Scott for nominating my blog and here are the answers to your questions:

1) Favorite investment book? Non-investment book?

I have read many investment books so it is hard to choose which one is the winner. It also depends on my investment strategy. So as a dividend investor I would select “The Single Best Investment” by Lowell Miller. If you want to learn about dividend growth strategy and how to implement it to create a great portfolio full of high quality dividend growth stocks which will lead to ever growing sustainable and secure income, this is the right book for you.

As an option trader I would recommend “Generate Thousands in Cash on your Stocks Before Buying or Selling Them” by Samir Elias. If you ever wondered how you can utilize options to boost your dividend income on stocks you own, or even plan on buying this is a book to you. The principle of the book is basically to use options to generate enough cash to buy a stock of your interest using other peoples money and once you acquire the stock, use options to generate more income on that stock.

A simplified version of that book describing details and procedures of put selling strategy is a book by Jerry Lee “Selling Put Options My Way

I told you it wouldn’t be easy to select the best investment book.

Since lately I only read technical, history, or investment books it is hard to say which of non-investment books to choose. I would choose books by Jules Verne a 19 century author who wrote sci-fi books such as “Twenty Thousand Leagues under the Sea, The Mysterious Island, Around the World in 80 Days, Journey to the Center of the Earth,” and many others.

2) If you had all the free time in the world, what would you be doing?

Traveling. I hope that my investments and options trading get me into a situation that I will be able to quit my job, buy a double decked coach and a sailing boat, and I would be able to travel around the world. With my family. And if that ever happen, I will write about it in my blog, so you will find out.

3) Why did you start your investing blog?

As many of the bloggers in the investing niche, I started my blog as a record of my trading and investing endeavor and to entertain and educate. I wanted to share my investment success with others and show how great and skilled investor I was. Well, it showed up as an ambitious dream. Very little I knew how to write to express myself so someone would care reading it. Also this blog opened my eyes as it became obvious that I was not a brilliant investor or trader at all.

It actually showed up that I was a loser. I was a sucker losing money but had a high thinking about myself. The blog helped me a lot to find out who I was and what I wanted.

Now I would like to pay it back and help all those, who look for being successful in trading or investing.

4) What was your best and worst investment?

My best investment was an option trade against GME stock when I sold puts and made full 100% profit overnight as the option expired the next day. I made 3% gain overnight. I would already be retired if all my trades would look like that one. You can read a brief report about that trade here. Please read it and let me know what you think.

My worst investment ever happened at the beginning of my investment career when I was sold to trading commodities. As my broker made killing on fees and commissions, I lost all my account. You can read the story in my post “The curious history of a sucker

5) Favorite job you’ve had so far?

Actually I haven’t held any other job than engineering so I can only choose between mechanical engineer and a professional full time trader.

I like mechanical engineering a lot, but my pick would definitely be a full time trader. I am not there yet, but I hope that in the next five years (if not earlier) I will become a full time trader.

Scott, thank you for nominating me and describing my blog in a nice manner. I appreciate it.

My Liebster Award Nominees

And now it is time to pick my Liebster Award nominees and ask them my five questions.

My fist nominee is Michael from Dividenden-Sammler (The dividend collector). Michael lives in Germany and he is a dividend investor. Investing in Europe is different from the US and I noticed that people in Europe have a very different view, understanding, and access to private investing. It is not much common for people in Europe to invest into individual dividend stocks. Therefore Michael’s insight into dividend investing is very valuable and it is great seeing him going the same path as investors in the US do.

My second nominee is Alex from My Trader’s Journal. Alex is a full time financial adviser and trader. He primarily trades options using straddles and naked calls and puts strategies. His money management is very similar to mine, to what I want to do in my account. His blog, trades and experience is a great inspiration to me.

My third nominee is Ben from A Wealth of Common Sense. Ben’s insights to investing, savings, and trading psychology is something I enjoy reading. Many times when reading Ben’s posts I realize that he was writing about my own thinking that I behaved the same way. It is your own mirror. Many things are obvious behavior of investors and thus mine or yours, many other you just discover your own “aha” moment.

And here are my questions to the nominees:


1) When did you realize managing your own portfolio and personal finance is something what makes you happy and what you want to do actively or even as a professional?

2) What or who inspired you the most in your financial career?

3) If you had three wishes what would they be?

4) What was the greatest investment or financial achievement in your life so far?

5) What is your favorite movie from investment or trading world?
 
 




All Dividend Investing,  Options Trading,  Personal Finance
Posted by Martin August 10, 2014
1 Comment



 
penny stocks

To Catch A Trader


Running a business in the Wall Street is a great adventure. It can also attract people who will play dirty games. It will happen. Manipulation and cheating will be part of the business environment. Greed will push those people and they will go for it.

You as a participant must adapt to it and be aware of it.

 

 




All Dividend Investing,  Options Trading,  Personal Finance
Posted by Martin August 07, 2014
3 Comments



 
penny stocks

S&P 500 futures dropped below 1900 for the fist time in 3 months

S&P 500 futures dropped below 1900 for the fist time in 3 months

Politically incorrect post.

It seemed today, in the morning, that the stock market finally found some ground and started consolidating. To cool down bulls’ enthusiasm, afternoon trading renewed selling due to the renewed worries about Russian aggression against Ukraine.

I do not understand much how Russian tension can affect global markets so much that investors should be fleeing to dollar or Treasuries. I am not a global economist, but it seems irrational and crazy that the local problem on the other side of the world can spur such a sell off. Will Apple (AAPL) stop manufacturing iPhones and transform into a hand grenades?

Russians do not produce anything besides oil. Any bipartisan embargo will hurt the Russian economy, not the world or US economy (we have Obama and Yellen to do that job for us). Russia needs trading with the world, EU, or the US not vice versa. During the cold war, West didn’t trade with the USSR at all (or very little) and yet it survived. Isolate Russia for a year and it will back off.

The world is in chaos which proves how weak our leadership in WH is. The recent unsolved problems in Iraq got Obama’s approval for an airstrike attack (a Peace Nobel prize winner attacking “innocent” Iraqis?) which sent the e-mini futures to abyss right after his announcement. I wonder if he announced it from a golf course or he managed to get back to WH from his vacation to do the announcement.

The S&P 500 broke above 1900 in May 23, 2014 in a historic all time high move and stayed there since then. Today we dropped back below to this level to $1891.50 (-0.52% for the first time in three months.

Another metric I like to watch is AUD/JPY (Aussie dollar – Japanese Yen) which also would tell you about the trading mood at markets. Usually when institutional investors load up on Aussie dollar, the markets would go up. And on the other hand, when they dump Aussie dollar, market will follow the suit. As of now, the Aussie dollar is down to $93.96 (-0.56%) down from $94.60.

It is still early to say what tomorrow trading would look like, but as of now, we are looking an yet another selling day.

On the bright side, I could see a small improvement in implied volatility in the stocks I hold. I could see some relief and time decay eating up some value of the options I hold. That bumped up my net-lig by 2.18%.

Hold your breath for tomorrow. We will have yet another slide down this roller coaster!

Happy Trading!
 
 




All Dividend Investing,  Options Trading,  Personal Finance

Transforming my personal trading to a business

Transforming my personal trading to a business

You probably have heard many times that we should treat our investing / trading as a business, right?

Hobbies cost money – businesses make money.

I always wanted to treat my trading as a business but never knew how exactly to do that, so I always referred to my investing as a hobby. Whenever anybody asked me “what are your hobbies” my answer always was: “I collect historical military stuff such as uniforms from WWII era, do re-enactment, collect movies, read books, camping, traveling, and investing in stocks.”

Well, not anymore.

If you follow my blog for some time you may have noticed that I was planning on starting business of trading. There are two reasons for trading as a business. One is psychological, the second is financial, more precisely the tax implication reason.

So what is the psychological aspect?

Running trading as a business requires a lot of discipline in order to make money. By separating trading from my personal accounts to a business gives me the right mental statue. Now I have a bigger responsibility in order to make money. The responsibility goes towards the right cash flow management. The business must make money. It is no longer a hobby or just saving money for a distant future as a traditional passive saving in 401k (for example) is.

In order to survive, I must strive to keep my cash flow positive and grow my business every day, week, month, and year.

The idea of trading as a business always inspired my entrepreneurial spirit in me and inspired me to always take my trading more than seriously. My dream of trading as a business is slowly becoming true.

Research in the past performed by Trader’s Accounting has shown that 75% – 90% of new traders fail within the first 16 – 24 months due to lack of discipline approach (treating their trading as a hobby), lack of resources, and bad tax treatment.

Only 10% – 25% of traders break through and continue successfully further. They start growing their accounts consistently over time.

Although I do not expect my business to provide me with money for a living due to a very small starting capital, I have an ambitious plan to reach that milestone in five years.

What is the financial aspect?

The second and important aspect of trading as a business is taxes. If you take a look at my income results at My Trades & Income page, I am poised to have $8,884.25 income ($7,825.55 from options and thus short term capital gain), see below:

Dividend & Options Income

If I have to add this income to my personal taxes as a short term capital gain, I will end up paying 25 – 30% more in taxes. As a business my taxation will be a lot more favorable under the 60/40 rule. Under the current law (which, by the way, Obama tried to repeal in 2011) a trader can treat 60% of his income from day-to-day trading of options, futures, and forex as a long term capital gain and 40% as a short term capital gain.

Also as a business, trader can deduct all of his losses and expenses which are not allowed for individual investors. Tax savings can be substantial and can easily reach 50% in average.

And the last?

Trading as a business can provide me with my dreamed financial freedom now. Not 20 or 30 years later, after I save enough for retirement.

Trading for a living can be exciting, dramatic, stressful, and fulfilling. It can ruin you or make you happy and free. It took me 8 years to get to this point of converting my personal accounts into business accounts. Eight years of learning, trials and errors, substantial losses, (yes I lost a lot of money) and finally last three years – a success.

If you want inspiration and think of getting yourself to this path, watch the following video below from a Wall Street Warriors, episode 1, Season 1. I recommend you watching all episodes. They are very interesting and inspiring.

 

 

What would it take for you to start trading as a business and would it be something you would want to pursue?

Happy Trading!
 
 




All Dividend Investing,  Options Trading,  Personal Finance

July 2014 results brought the highest income ever, but net-liq got hammered hard

July 2014 results brought the highest income ever, but net-liq got hammered hard

This month was one of my best months so far. My options trading delivered the highest income in my relatively short options trading history. But I cannot have it yet.

The entire month was going well, all my accounts were growing nicely and my trading account was growing bigger every day. Until two days ago. On Thursday at the end of this month, markets suffered a big sell off. Dow lost more than 300 points that day and SPX lost 35 points.

Let’s take a look at the chart:

SPX monthly

From the chart above you can clearly see how deep and dramatic the move was. Investors are panicking out there. That is typically a good opportunity to be buying stocks (and I may open a new dividend stock position or add to existing using some of my proceeds from options trading).

But when looking at the chart, there are two question coming to my mind. Is this a game changer and we start seeing the end of the bull trend? And the second question is, is this a good time to start buying depressed stocks?

It is too early to answer those question, so I will wait for now and see, how the market develops. I can always jump in when it reverses.

There is another interesting thing to look at. I like to watch the Fear & Greed index on CNN Money website. So lets take a look at a picture of that index:

Fear & Greed
Fear & Greed

I do not remember seeing this index that low. Note that last lower numbers occurred in 2011. Since then the depths were not that low and dramatic.

So this again brings up the question: Is this a game changer?

How these last days of market selloff affected my account?

Terribly.

My net-liq (net liquidation) value dropped badly. I lost almost $3000 within those two days. But it is unrealized loss. I closed a few trades with gains and rolled others to safer strikes. Yet increasing volatility keeps those trades in red numbers although they are safely away from strikes and OTM. Rising implied volatility increases the value of my options causing my net-liq going south hard.

Is this unrealized loss something I should be worried about? I believe not. Options are not stocks and when your stock position goes against you, I think you should close quickly as you may end up sitting on a losing position forever. Options on the other hand have expiration day and as long as your stock stays below or above strike (depends whether you are short puts or calls), it will potentially expire worthless and your net-liq value will go up again.

So far I only have one stock, which is giving me a hard time, and that is Amazon (AMZN) which is currently in the money. I was able to roll it down a bit and further away in time. My expectation is that as soon as the stock takes a break from selling, I should be able to get out break even or with a small profit. I just hope we will not see a huge sell off continuation next week, which would drag AMZN down with it.

The trade above reminds me the importance of trading options small and not overdo it. Also trading it against indexes rather than stocks. There is only one big reason why indexes are better: no earnings.

But small accounts and small traders have one big disadvantage. Trading options against indexes requires a lot of cash. Margin requirements in many cases exceed their account (and in many cases mine too). I still cannot afford trading indexes and have to stick with stocks and be vulnerable to earnings and craziness of the crowd who decides one day heavily buying a stock and heavily sell it the other day.

Like TASR, for example. Jumped up one day, sold off the other:

TASR

From the chart above, you can see I hold a short straddle. I have naked call at 14 strike and naked put at 10 strike. If the stock ends in between these two levels by expiration, both options expire worthless and I will keep a nice profit.

The next stock which almost killed me was Corning (GLW). After the stock reported earnings, it tanked huge.

GLW

Originally, I had 1 put contract at 21 strike. The selloff sent the price thru my strike and I had to act fast. I rolled the 21 strike put contract down and opened a new short call with 22 strike. I collected premium on the vertical roll and I collected premium on the naked call. Now I have a short straddle and again, the goal is that the stock price stays in between those two strikes.

If the stock moves either way attacking any of the straddle’s leg, I will simply roll that leg, let the other expire worthless (or buy it back), and open a new leg in its place.

I had this process in place already with another stock Cliffs Natural Resources (CLF).

CLF

The first arrow indicates where I sold my original naked calls with 17 strike. Then a new board selected by an activist investor Casablanca was elected. Investors took it as a great deal (I don’t, since fundamentals of the company didn’t change and the new board will not be able to change it), and the stock shot up thru the 17 strike.

So I rolled to 18 strike (and collected some cash). The second arrow then indicates when I decided to roll again to 19 strike to run away from the euphoria of retail investors cheering the new board. Then the stock started fading away and I believe, it will continue lower.

When the stock shot up I also opened a short put side at 14 strike creating a straddle of this trade and collected another premium. Now the stock needs to stay in between these two legs. I will be rolling any leg which will be attacked by a price action.

By doing this I collected a whopping $4,602.44 in premiums. Unfortunately I cannot use them or withdraw them, as they are now blocked by those same trades, which are losing value due to increasing volatility (the option is gaining value, I am losing value). All I can do now is wait when the panic ends and the options mature and time decay eats them all away.

Although my net-liq value got hammered hard this month, I didn’t close any trade with a loss and I am optimistic that I will be able to navigate remaining trades successfully towards the end. Then I will be able to call the premium mine.

Here are the month results:

 

January 2014 premiums: $156.10 (1.55%)
February 2014 premiums: $139.26 (1.38%)
March 2014 premiums: $746.62 (7.41%)
April 2014 premiums: $421.63 (4.19%)
May 2014 premiums: $803.32 (7.98%)
June 2014 premiums: $230.21 (2.29%)
July 2014 premiums: $4,602.44 (45.69%)
   
January 2014 dividends: $25.87 (0.26%)
February 2014 dividends: $167.02 (1.66%)
March 2014 dividends: $68.77 (0.68%)
April 2014 dividends: $25.91 (0.26%)
May 2014 dividends: $168.51 (1.67%)
June 2014 dividends: $68.81 (0.68%)
July 2014 dividends: $25.96 (0.26%)
   
Total 2014 income: $8,376.40 (83.16%)
2014 unrealized premiums: $4,759.01 (47.25%)
   
Account Equity: $28,451.04 (00.00%)
Account Net-Liq: $18,525.92 (-23.97%)
December 2013 balance: $10,072.25

You can see my dividend and options income on My Trades & Income page.

What about you? How was your July 2014 and the entire year so far? Post a link to your website or write down your results to encourage other investors!

Have a great August 2014!!
 
 




All Dividend Investing,  Options Trading,  Personal Finance


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