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New Trade – Bull Put Spreads against Twitter (TWTR)

New Trade - Bull Put Spreads against Twitter (TWTR)

Twitter (TWTR) – a stock I have always looked at with disrespect, because it does nothing, it creates nothing, it delivers nothing. It is worthless. It only allows people to waste their time online.

That was what I thought about this stock and many times I told myself that I would never invest in a company like this.

Although everything I said about Twitter above hold water in my opinion, I changed my mind about investing into this stock. Why?

This stock showed resilience in today’s market and continues growing. It is considered one of the strong, bullish stocks. Although it fluctuates, it continues trending up.

How is that possible? Let’s take a look at a few things – business model and expectations.

How Twitter Makes Money?

How Twitter makes money when it makes nothing, builds nothing and the only thing it does is allowing users to waste their time online messaging about everything and nothing? Advertising.

Yes, that is the only income stream this social media giant can offer to investors.

I still feel disrespect to this stock, what about you?

What Makes Twitter a strong stock in this market?

It is expectations of investors and a massive growth of the company. Yes you have heard me correctly – a massive growth. It will not last forever, but until it ends, let’s take advantage of it.

Let’s take a look at a few numbers. When Twitter started in 2006 it hosted approx. 20,000 tweets per day. In 2010 it was 50 million tweets per day, and today, just FIFA World Cup caused users to send more than 650 million tweets. Enormous growth in user base and a revenue potential.

This growth in user base and revenue potential paid off itself. In the second quarter of 2014 Twitter reported $277 million in revenue – a 129% increase in growth.

Twitter is becoming a more international company than domestic. 77% of all users reside outside the United States. Recently Twitter announced that it had doubled their advertising in Europe itself.

All these news and efforts are pushing the stock resiliently higher in today’s market. I still wouldn’t invest in Twitter for a long haul. I still am not convinced that I would ever fall in love with the business model of the company. But from a short term perspective, Twitter presents a great short term option trading opportunity.

Trade Detail

To take advantage of this opportunity I opened two trades recently. Both were bull put spreads speculating that Twitter would stay above my short strike in upcoming three weeks.

The first trade is a short one. It will expire next Friday (October 3rd, 2014) and the second trade will expire on a regular option expiration day – a third Friday in October.

The first trade was selling a bull put spread made of weeklys options.

Twitter

When creating a spread, you sell a short put (or call) and buy a lower put (or higher call) for protection. If the stock stays above the lower short strike (or below the short call), the spread expires worthless for a full profit.

If the stock drops below your short put strike but stays above the lower long put strike, you will see a partial loss or partial gain (it depends where the stock lands, if still above your breakeven point or below it).

If the stock lands below both of your strikes, you will end up with max. loss.

The first trade I entered was as follow:

STO 2 TWTR OCT1 14 51 put
BTO 2 TWTR OCT1 14 49 put

@ 0.50 LIMIT GTC

The trade executed on Thursday last week and I collected $100 in premium. The trade is set to expire next Friday.

The second trade I entered was as follow:

STO 1 TWTR OCT1 14 49 put
BTO 1 TWTR OCT1 14 44 put

@ 0.60 LIMIT GTC

The trade also executed on Thursday last week and I collected $60 in premium. The trade is set to expire the regular third Friday in October.

If any of the trade turns against me, I will most likely exit it. I will not be rolling those trades.

If you are interested in receiving an alert for the trades I am about to open myself, you can subscribe to a newsletter to receive a trade alert prior to entering it myself.
 

Happy Trading!




All Dividend Investing,  Options Trading,  Personal Finance
Posted by Martin September 26, 2014
No Comments



 
penny stocks

10 Billion hedge fund liquidation forced me to review my portfolio


If you wondered what spurred such hasty sell-off yesterday, we may have an answer to it. According to Wall Street Journal a “$10.6 billion BlueCrest Capital Management LLP, one of Europe’s largest hedge-funds (and best known for its credit market expertise), laid off several stock traders in the U.S. Thursday and began liquidating their investments, according to people familiar with the matter, not long after it aggressively expanded into equities.”

So here we go. The selloff caused Nasdaq to fall by 2% and it also had a very negative impact to my portfolio.

If one hedge fund could almost destroy the market’s bull trend, then it is an evidence that the market is vulnerable, pumped, unstable, and definitely not “contained” as Janet Yellen is trying to convince us.

I made a scary discovery that my own portfolio wasn’t stable either. After I was forced to liquidate some volatile and overextended positions in my portfolio which caused me taking large losses at the beginning of September, I once again could see that I still hold risky and volatile positions on a very low cash reserves.

Michael Platt of BlueCrest, which has done worse than many competitors. BlueCrest Capital Management/Bloomberg News
Michael Platt BlueCrest Capital

As sometimes a farmer must take drastic measures in his vineyard, prone and cultivate his crops before he could reap juicy fruits, I too decided to take some further drastic and painful measures to get rid of rotten portion of my portfolio.

At the beginning of the month I liquidates too volatile position against Taser Int. (TASR) and yesterday I decided to liquidate a second risky position against Cliffs Natural Resources (CLF). Both positions had severe impact to my portfolio, but I decided to take it to be able to start fresh again.

Not only I can sleep better now, I also could raise my cash reserve closer to my target (30% or more). I can also shift to more safe instruments such as indexes (SPX, RUT, and others).

With indexes you will not be exposed to hypes, pump and dumps, or earnings.

I cut bad branches of my money tree and wrote this month off. Sometimes it happens to traders (newbies like me) that they wipe out their accounts. Fortunately, in my case, my dividend stocks saved my butt. I only wiped out my options earnings, not stocks nor dividends.

Next month, I will be starting fresh

Today’s trading was a bit better than yesterday. Bears were excited to jump on the wagon and load up. Today, they were chopped into small pieces. But the battle is not over. The next week will renew the battle for the power in the market. Will bears win, or bulls? I do not know and the next week will reveal it.

Nevertheless, I will continue trading options adding weekly money making trades into my portfolio trading weekly options against SPX plus long term options to increase income.

For example, just yesterday, I opened a new trade against Twitter (TWTR) which showed continuation in trend, unlike the rest of the stocks (along with GoPro (GPRO) which also refused to drop yesterday). I opened two different contracts expiring next week and in October. Both trades are short term weekly money making trades.

Next week I will look for opening another trade against SPX, which also is a part of my weekly strategy.

Let me post an offer to all of you interested in trading options. If you wish to follow my trades and get an alert of a trade I am about to open, you can subscribe to a free newsletter.

You will receive an alert whenever I am going to open a new trade, trade adjustments, or trade exit. I not always publish all my trades here on this blog before I place the trades with my broker. On this blog, I post the trades after they happen and sometimes I do not post them at all. I just publish them in “My Holdings” and “My Trades & Income” where you can see results of those trades.

With a newsletter, you will receive a trade alert with explanation before I place it myself. If you like the trade, you can follow it and place it too.
 

 
Happy Trading!
 
 




All Dividend Investing,  Options Trading,  Personal Finance

New Trade – Alibaba (BABA), I too decided to take this play and bought a few shares

New Trade - Alibaba (BABA), I too decided to take this play and bought a few shares

Not exactly a dividend growth stock here, but the prospect was appealing and made me think to buy some shares of Alibaba (BABA).

When I first heard about BABA in the news and all the frenzy it created I said myself “Not interested”. I do not do IPOs nor buy post IPOs. I only made one exception to this rule when several years ago I bought Visa (V) post IPO. I bought in the very first day at approx. $55 a share when Visa got on the open market the very first day.

Unfortunately, I was stupid enough to sell a few months later approx. at $65 a share. If I stuck with the stock, today my shares would be worth around $210 a share (as of this writing).

So why I bought post IPO shares of Visa? It was a perfect business model which many people fail to understand and even greater growth.

And that made me think about BABA. Will BABA follow the same fate as Visa, Google, Apple and even Facebook? Or what about Netflix, my another investment failure? Should I repeat my mistakes or is all BABA hype a frenzy?

What if BABA is really a great business with great growth potential and I will once again miss the boat if I stay aside? I decided to do some reading to see if I can justify my strong feeling that BABA is a great play for the long run and I should jump in.

BABA Logo
 

What makes BABA a great business model?

It operates on a similar way as Groupon, Amazon, and eBay. It is a portal which connects together manufacturers from China, Asia, and part of Europe with buyers. It operates mostly on a whole sale level, so not for a small guy who wants to buy a single piece of goods BABA offers thru its website. But if you plan opening a store, BABA can be a great source for you. You no longer need to go large scale shopping to Costco (COST) to get the best price.

If you are a manufacturer, you can join BABA for free (as well as buyers), but what makes BABA unique, unlike eBay you can upgrade for a fee which gets you a better deal, position and listing. Higher chances to sell your stuff.

And that’s a great potential in BABA. It not only gets a share from all transactions it makes. Last year the company netted $8.5 billion dollars. You may say, it’s tiny, Walmart cashes in $246 billion net revenue! It is BABA’s growth potential which is intriguing.

BABA is the only significant ecommerce player in Chinese market and worldwide. And the Chinese market is a big one.

Last year, the Chinese ecommerce market was a $298 billion business. Slightly bigger than the United States’ $263 billion market, making China the largest e-commerce business in the world.

What is impressive however, is the predicted growth of that market. E-commerce in China is predicted to hit $540 billion by 2015!! The consumer base of BABA is expected to grow from 140 million shoppers annually in 2010 to 520 million by 2015. The US is expected to grow the base to only 200 million by 2015.

That is the market potential, what about company growth potential?

If we look just at the mobile division, BABA sales grew 100% last year.

Compare it to Apple for example. Although AAPL is a great company, it went from 45% sales growth in 2012 to approx. 5% this year or even more sluggish 2% in 2016. Alibaba is expected to hit 50% sales growth in just next 12 months.

Apple’s operating margin in 2013 was 28.7% versus Alibaba’s margin of 51%, according to USA Today.

The numbers are just expectations and we yet will see how accurate they are, but when thinking about the E-commerce market and who is who in that field I strongly believe this stock will be a great play over the long run. It may actually outperform even faster, maybe in a year.

You may compare BABA with another Chinese e-commerce company – Baidu (BIDU). Its outrageous performance makes me feel that BABA has a great chance following the same pattern. BIDU went public in the US in 2005 and since then the stock surged 1,600% from its first closing day. Over the past nine years, BIDU outperformed stocks like Apple (APPL), Amazon (AMZN), and Google (GOOG). And BIDU is still growing, its last quarter report showed 34% growth and 58% sales growth.

I believe BABA has a great chance to grow the same way as BIDU did. It operates in a different segment than BIDU and as of now I do not see any stronger competitor besides eBay or Amazon.

Let’s see if my assessment of BABA is correct and maybe five years from now we will see a similar stock price surge.

Moreover, BABA is expected to start trading options next week. Another good reason for me to invest in this company.

For that reason I decided to take a small play in this stock.

Trade Detail

Today, I bought only 12 shares and I am ready to add more if the stock continues lower.

BTO 12 BABA @ 89.99 LIMIT GTC

To get into this trade I used my contingency order system. I was tracking the stock since Friday last week and lowering entry stock as long as the stock reversed and hit my trigger. It happened today.

 
BABA
 

Good luck to all of you who bought BABA recently. I believe, it will be a good investment.

 




All Dividend Investing,  Options Trading,  Personal Finance

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


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