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Posted by Martin February 20, 2013
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Trade adjustment – Gold (GLD) addition

Trade adjustment - Gold (GLD) addition

Today I added a few shares of GLD into my portfolio as Gold suffered a huge sell off. As I wrote in my previous post I believe the today’s price action is an overreaction of investors, most likely responding to (outdated) report from Sorros Fund Management.

As I wrote I believe GLD indicated a bearish exhaustion as is due for reversal. Let’s take a look at charts:

First take a look at 5 year chart, which nicely shows the new support line formed in October 2011.

Gold 5 yr chart

(Click to enlarge)

The red horizontal line indicates the support at which I originally placed a trigger buy order ($151.60 a share) and honestly I haven’t expected the price ever touch this level again.

Following is the 6 months daily chart:

Gold 6mo chart

(Click to enlarge)

In this chart you can see a very extended bearish candle and trippled volume. In my opinion this is a bearish exhaustion and we may experience a rebound. This price action also triggered my buy order today and I added shares to my portfolio.

02/20/2013 14:05:43 Bought 6 GLD @ 151.6

This trade lowers my cost basis in GLD from $164 a share to $160 a share.

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Posted by Martin February 20, 2013
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Is today’s trading marking the beginning of the correction?

Is today's trading marking the beginning of the correction?

Today’s trading was hectic and markets fell hard after FOMC meeting. The market is idicating nervousness and today’s price action – extended bearish candle may indicate the end of the trend.

Almost all my stocks fell hard as well. I am not that concerned about it however, since I have been expecting correction since two weeks ago. I just moved more cash to my account to protect my current posittions against potential margin calls, and will be riding it down where I may start adding more shares.

However today trading offered some nice opportunities as well. I was watching GLD and I had a buy trigger order at $151.60 a share. Honestly I didn’t expect Gold to reach this mark today. I was expecting a couple more days for Gold to slide towards that mark.

Gold was under sell off recently because of some institutional investors unloaded Gold from their portfolio. For example Sorros Fund Management sold 50% of his stake in Gold as reported in December 2011. I am not sure when this latest 13-F filling came actually out, but it is quite outdated. If traders were reacting to this news today, then it is a very stupid reaction.

Gold is very oversold these days and today trading could mark an exhaustion day. An exhaustion day can indicate the reversal in stock trend. It is a day, when everybody give up and throw the towel into the ring. Usually retail investors aren’t willing to bear more losses anymore and sell. Typically it is that last wave of selling (or buying if we look at bullish exhaustion), where there is no more sellers and the stock reverses. This day is marked by large extended bearish candle (or bullish) with unusuall increase in volume and it must occur during a continuing trend. When you take a look at Gold, you can see the stock falling since October last year. Today the stock fell sharply on heavy volume and it reach major support line. This support line has been formed in July 2011 when the parabolic run up in Gold started and this support was tested (and held) for many times during the last period.

Based on above technical anaylisis I believe Gold has reached bottom. Based on that I accepted my buy order and let it executed. If however Gold continues falling I have reserve funds and will be buying on my next buy point level which is at $140 a share.




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Posted by Martin February 20, 2013
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New Trade – 8×8 Inc. (EGHT) covered call

New Trade - 8x8 Inc. (EGHT) covered call

My MBI covered call trade was cleared this Saturday with a nice gain. This released some cash and I am looking for another opportunity to make some cash. I found 8×8 Inc. (EGHT) stock which seems to be a good candidate to deliver a profit.

The stock recently corrected and is considered undervalued based on PEG value of 0.4346, one of the lowest in the Communications Services industry, which is supported by a PE of 6.519 that is also among the lowest in the industry.

From 5 yr chart you can see nice growing graph with healthy corrections:

EGHT

Take a look at daily chart. You can clearly see the stock undergoing correction. At this moment the stock corrected below 50 day MA, but it still is well above 200 day MA. From the technical analysis perspective, this correction seems to me in line with the previous ones, so I can expect the stock to rebound and go higher.

EGHT daily

Analysts are positivie on the stock and recommend moderately buy. Earnings and revenue are expected to grow from 0.06 a share to 0.20 a share (300%) in the next quarter and by 40% annualy. If that happens, this should provide enough boost to the stock to go higher.

8×8, Inc., is a United States-based company, which provides telecommunication services and technology for Internet protocol (IP), telephony and video applications. The Company provides voice over Internet protocol (VoIP) and Video Telephone service that enables broadband Internet users to add digital voice and video communications services to their Internet connections. The Company also offers voice mail, caller ID, call forwarding, call waiting, 3-way calling, online account management and billing, international call blocking and caller ID blocking services.

Here are the trade details:

Bought 100 shares EGHT: $6.79
Strike: $7.50
Sold 1 Covered Call: $0.45
Total Purchase: $634.00
Commissions: $8.78
Total purchase: $642.78
   
Expected Option Assignment: $750.00
Option Assignment Fee: $19.00
Expected Proceeds: $731.00
   
Expected Net Gain: $88.22
Expected ROI: 13.72%

If my expectations are correct and the stock rises above 7.5 a share by the option expiration, the stock will be called away and I will realize the profit listed above. If it doesn’t end up above 7.5, I will continue selling covered calls as long as it will be called away. That should also increase the potetial return. If the stock however continues falling, I will apply a correcting measures by selling calls longer away and with lower strike to still end up with gain when called away – a similar approach to what I am currently doing with a DMD trade.

Happy Trading!




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Posted by Martin February 19, 2013
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Market expectations

Market expectations

Today’s trading is over and the markets added to their gains and added to their overbought pressure. Everybody is already talking about correction behind the door, but the market is still strong and marching up. Investors are still pouring new money, moving more cash to the stocks on every dip. It really is something which should make every savvy investor cautious.

Fear and Greed indicator is at 86 level – still very elevated. Optimism is supported by investors confidence data from Germany, but not economical improvement. US homebuilders confidence fell down from previous period. All that can quickly turn into negative and investors can run away from the market very quickly.

I am waiting with my new purchases or additions to see what happens next. I do not want to be buying at the current price levels. There are stocks out there, where you can already see some pressure and slow down.

I might be wrong and I do not want to be predicting the market movement, but I think, it would be wise to wait at this moment. However, I have a few stocks I am currently watching closely being ready to buy.

One of them is McDonalds (MCD). A fenomenal stock in my opinion. Last week I have read an article, why you should sell MCD today and buy it later at a lower price. As a dividend investor I do not agree with this strategy, but I take it as a great opportunity. If the author is correct and bad data from MCD, in my opinion temporary, really push MCD down to $84 a share, which again I do not think is a realistic expectation, I would buy more shares. I agree with another investor, Craig Van Pelt, who posted his story witnessing opening of McDonalds stores in Russia and what wonder it did to Russians, that MCD still has great power around the world to easily overcome any consumer drops today. I have a similar experience from a post-communist East European country. As MCD is expanding to other countries, it will provide realitively cheap fast food to inhabitans of those countries. In many occassions I remember McDonalds was considered a restaurant with high food standard in quality and assurance that the food is checked and fresh as opposed to many local restaurants. If any problems should occur, they will be temporary and create a great opportunity to buy MCD for cheap.

Another stock I am considering to add to my portfolio is Gold ETF (GLD). Gold is currently heavily shorted. I believe that in long term this is another opportunity to buy more shares. Given the monetary policy of FED and ECB currencies will decline and that will push gold up. The banks are buying gold heavily, so all the hype around gold these days look like a shake out to me. I plan on holding gold for another 15 – 20 years from now. Given the time frame I think, this would be a good time to buy some more shares.

Last stock in my nearest focus is 8×8 Inc. (EGHT). Today I did some reading about this stock as a candidate for covered call and I liked what I could find on the internet. The stock is currently in correction phase and the correction is in line of the previous corrections. If we assume that the stock market moves in some sort of a rythm repeating itself, than I am assuming EGTH would act in similar manner in the future. Given that the stock may grow up at or above $7.5 per share and that will be my play. I will buy-write a covered call trade expecting the stock to be called away.

In the near future it looks like the market will continue its upward move with some minor stops or slight corrections. We are not exhausted yet to see some major pullback. My strategy will be however waiting for it and adding new trades carefully.

Happy Trading!




TastyWorks

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Posted by Martin February 18, 2013
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My inspiration in last week #10

My inspiration in last week #10

I often browse the internet to find ideas about investing, trading stocks, options, investing opportunities and strategies. I like to read about investors and what their investing/trading approach to create income you can live on is.

 

This week I found the following interesting posts:

Dump Your Hedge Funds and Buy This StockInsider Monkey

G-20 Sparks Gold’s Ugly Sell-OffSeeking Alpha

Central Banks Buy the Most Gold Since 196424/7 Wall Street

Why It’s Time To Sell McDonald’s Shares Now And Buy On The Next Major PullbackSeeking Alpha

Buying Options Is A Fool’s ErrandBrick By Brick Investing

Top 10 Reasons I Like Dividend Growth StocksDividend Growth Stock Investing




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Posted by Martin February 14, 2013
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Expiration Friday – 13.71% gain

Expiration Friday - 13.71% gain

Tomorrow will be the time to reap the profits, harvest the gains or count the loses. Since the day I decided to trade only covered calls and cash secured puts and buying dividend stocks my goal was not to lose a penny. As Warren Buffets says it.

Easy said, difficult to do. I have a couple of options trades which are not going well as far as now, but I have plenty of time to wait since the expiration day is far away and a lot of things can happen until then. So there is no need for panicking.

I hold a covered call of MBIA (MBI) stock, which is now deep in the money and that means it will get execute tomorrow. The option will be exercised and I will be required to sell my shares of MBI.

The guy on the other side will make nice profit. He will buy the stock for $9.00 a share and sell it for 10.95. Very nice gross profit of $1.95 a share. He paid 0.52 to buy my call, so his net profit (without commissions) will be 1.43 per contract.

But what about me? will I lose money?

This trade didn’t go well from the beginning and later I was even considering closing the ugly trade. But as many times in the past, the ugly ducklings turn into nice swans, this trade also turned to be a swan. If you remember, I opened this trade with a purpose of being assigned. It was my goal to get assigned because it was how I could make money on this trade.

Here are the trade details:

Bought 100 shares MBI: $8.18
Strike: $9.00
Sold 1 Covered Call: $0.52
Total Purchase: $766.00
Commissions: $8.78
Total purchase: $774.78
   
Expected Option Assignment: $900.00
Option Assignment Fee: $19.00
Expected Proceeds: $881.00
   
Expected Net Gain: $106.22
Expected ROI: 13.71%

The call option is deep in the money, and it is very unlikely that it falls below $9.00 a share tomorrow, so I can consider this trade as victory and Count the Money…

My other options have expirations in March, May, July and August 2013 and there is a plenty of time (value) in those options.

Happy Trading!




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Posted by Martin February 14, 2013
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New Trade – ARMOUR Residential REIT, Inc. (ARR) addition

New Trade - ARMOUR Residential REIT, Inc. (ARR) addition

This morning Armour Residential (ARR) opened 5% lower due to SPO. There may be many reasons for SPO but thoe one I have read on the internet would be financing new projects. With a book value at $6.73 this seems to be a good sign. It is also how REITs get their financing. They issue SPO, the price drops, later, usually within 30 days they get back to where they were before. It looks like a great opportunity to add shares to my portfolio.

I bought 100 shares this morning:

02/14/2013 11:31:46 Bought 100 ARR @ 6.7399

Total shares held as of today: 405
Estimated annual dividend: $388.80
Consecutive Dividend Increase: 0 years
Dividend yield today: 14.10%
Dividend 5yr Growth: N/A
Dividend paid since: 2010



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Posted by Martin February 13, 2013
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Is MCD providing a buy opportunity?

Is MCD providing a buy opportunity?

Today news came up about a possible margin squeeze affecting restaurant chains. Higher commodity costs, frugal consumers, possibly a higher minimum wage could possible affect earnings of companies such as McDonald’s (MCD), Chipotle (CMG), Subway and Panera (PNRA).

How serious this is?

I hold MCD in my portfolio. It pays dividends and current yield is at 3.24% with dividend growth at 14%. The free cash flow rate, 5yr average is 13.4%, earnigs growth 23.8%, EBIDTA 19.8% and my annual expected return is at 9%.

The company is followed by 44 hedge fund managers. One of their rules to add shares into their portfolios is that at least one executive officer should buy the company stock. In November last year this exactly happened and the stock has risen 8% since then.

So smart money are buying the stock.

The stock was very extended since November last year with a nice drop in price in December 2012 when I pick up some shares. Will today’s price action offer the same opportunity?

MCD provides buy opportunity

Will the stock, squeezed by panicking investors provide a similar opportunity as it happened in November and partially in December?

Time will show, however, this price action activated my attention to this stock and I will be adding more shares to my portfolio. I am going to wait for tomorrow morning to see what the stock is going to do. If it continues falling I will track my buy order lower as well, if it reverses I might cancel the trade and wait further.




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Posted by Martin February 13, 2013
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New Trade – MBIA Inc (MBI) put selling

New Trade - MBIA Inc (MBI) put selling

Today I execute the trade on MBIA Inc (MBI) which i wrote about yesterday. I sold 1 put contract against this stock.

What is the game plan?

I will be selling puts against this stock, but trying to avoid assignemnt. If it however happens and I get assigned or won’t be able to roll the put out and away I will start selling covered calls as long as I get assigned again and get rid of the stock.

Today I sold one put contract against MBI and collected $118 premium.

02/13/2013 09:30:09 Sold 1 MBI Aug 17 2013 9.0 Put @ 1.18

If I get assigned I will buy MBI for $9.00 and my cost basis will be at $7.82 (less the premium). If I gett assigned, I will start selling covered calls as I did previously with this stock.

If the stock stays above the strike price, the put expires worthless and I’ll keep the premium and repeat the process. Also if the stock manages to run up and the put becomes worthless prior to its expiration I may consider buying the put back and selling new further in time. I’ll keep posting the progress of this trade.




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Posted by Martin February 12, 2013
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MBIA Inc (MBI) and put selling

MBIA Inc (MBI) and put selling

After reviewing my current position with MBIA (MBI) I decided to take another trade with this stock. I already hold 100 shares of MBI and have a covered call written against this stock, see my previous trade here.

This trade went bad originally and I was double guessing it whether it was a good joice buying this stock. It was fighting with Bank of America over some insurance claim issues, where MBI claimed lost money insuring some faulty notes issued by BAC and BAC knew that the notes were bad. Well, at the time prior to crisis, everybody did it actually.

It looks like MBI is going to be paid some compensation in a settlement and thus we saw this stock soaring last couple of days.

I am going to take the advantage of this movement, and tomorrow I will sell a put against this stock. I was able to find a nice premium for quite low strike ($9.00) at 1.18 ($118 total premium), so if the stocks stays where it is now or even goes higher, I should keep the premium and maybe repeat the process.

If the stock falls below $9.00 strike, which can easily happen, I am OK to get assigned to the stock and immediately sell it or sell another covered call against it.

Let’s see tomorrow how the trade executes.




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