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How to defend Call Credit Spreads explained by the best trader


 
 

How to defend a credit call spread? Tom Sosnoff and his daughter Case explains how to defend a call spread which goes against you.

Interesting explanation of what should a trader do if a credit spread goes against you. With Tom’s view, everything I have ever done to defend my spreads was wrong.

Here is an example of what a trader can do (excerpt from the video above):
 

We have a stock XYZ is trading for $50.

We sell 55/57.5 call spread (55 strike being the short) with 45 days to expiration (DTE) and collected 0.80 (or $80) premium. Here are a few scenarios what you should do:
 

XYZ is now trading for $52.5 with 29 DTEleave it

XYZ is now trading for $55.0 with 29 DTEleave it

XYZ is now trading for $56.0 with 29 DTEleave it

XYZ is now trading for $57.5 with 29 DTEleave it

XYZ is now trading for $59.5 with 29 DTEleave it
 

And now, here is a different situation:
 

XYZ is now trading for $55.0 with 7 DTEroll it into the next month

XYZ is now trading for $56.0 with 7 DTEroll it into the next month

XYZ is now trading for $57.5 with 7 DTEroll it into the next month

XYZ is now trading for $60.0 with 7 DTEleave it and hope for a miracle that the trade may return back before expiration, and if not, take the full loss.
 
 




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Yellen Almost Admits Fed Not Ready to Raise Rates


 

Peter Schiff’s report on Yellen’s talk about interest rates. Interesting video basically explaining why FED will not increase the rates and that all the talk is just a pretend of rates hike to make it look like FED wants to do it. If the recovery was really so good to justify the rates hike, they would already do it. Keeping rates this low basically says that even FED doesn’t believe to this phony recovery.
 




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Posted by Martin June 16, 2015
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Are the markets turning?


A few years ago, when I was training trading options, the trader from whom I was learning pointed out that the markets were turning down. Slowly reversing. And I remember I made quite nice money under his leadership.

The chart looked like this:

SPX turning

It was 2011 and the market corrected 16% those days (from July to August).
 




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Posted by Martin June 15, 2015
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4 Best-Positioned Upstream MLPs: MEMP, VNR, LRE, and LGCY.


Wunderlich Securities analyst Jay Dobson has a pretty glum assessment of upstream master limited partnerships (MLPS). These are exploration and production companies that have been hammered by energy price declines.

Dobson writes in a June 15 industry report:

The sector has too much debt on average and has suffered from the dramatic decline in oil, natural gas, and natural gas liquids prices since late 2014. Further, a lack of hedging discipline has left the industry more exposed to the declining prices and, in some cases, with very limited financial flexibility.

That said, there are a few he recommends as he takes over coverage of the sector. He believes these are the MLPs that are in the best positions for the current energy environment:
 

  • Memorial Production Partners (MEMP),
  • Vanguard Natural Resources (VNR)
  • LRR Energy (LRE). Its merger with VNR is still pending and its trading at a 6% discount, so it’s is another way to play Buy-rated VNR, says Dobson.
  • Legacy Reserves (LGCY). He notes this one is more risky.

Continue reading >>>
 




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Posted by Martin June 09, 2015
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Stocks to buy in June 2015


May stocks I selected finished down -2.98% loss. The market is still driven by interest rate fear and oil pushed down by a price war. All will end one day however and the stock will go back up. For June 2015 I have a new selection but the change from the previous month is small, so I decided not to rebalance my Motif Investing Fund.

I created a screener which browses my dividend stocks watch list consisting of about 200 dividend stocks (there are a few growth stocks too, however). Every month the screener selects stocks which are undervalued based on their P/E, PEG, current earnings and future earnings, and forward P/E among others and assigns a rank to each stock. The first 30 stocks are then selected for my portfolio.

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I buy those stocks in my Motif Investing account and rebalance every month (except June) by removing stocks which are no longer on the selected stocks list and add new stocks. You can see the April selection here.

I also use the screener to buy stocks in my ROTH IRA account. Unlike at Motif investing where I can buy fractional stocks and thus the entire portfolio of 30 stocks at once, in my ROTH IRA account I typically select a stock with the highest rank to add and invest the entire amount into that one stock.

For example, in April I could add a new stock into my ROTH IRA account as I saved $1,000 amount (a minimum amount to minimize negative effect of commissions). To decide which stock to buy I looked at my screener result and found out that ConocoPhillips (COP) had the highest rank as the most undervalued stock. So, I bought the stock.

And here is a new selection for June 2015:

 

You can buy this motif if you want if you open an account with Motif Investing. Then you can buy the entire portfolio the same way as a mutual fund – you buy all positions at once with minimum $250 investment. You will be buying fractional shares if you do not have large amount of money.

 

 

 

I purchased this motif myself to show confidence in my stock selection. You can open your account too and if you start investing, you will receive a $150 bonus from Motif Investing.

I am rebalancing this motif every month. Let’s see, how well this portfolio will do at the end of the year.

Good luck to all of you!
 

Previous selection :

Stocks to buy in January 2015
Stocks to buy in February 2015
Stocks to buy in March 2015
Stocks to buy in April 2015
Stocks to buy in May 2015

 




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Posted by Martin June 04, 2015
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PPL spun off to a new Talen Energy. Shall I keep it or sell it?


PPL changesIf you own shares of PPL Corporation, you are most likely a new owner of a brand new company Talen Energy. I bought 66 shares of PPL a few years ago, I think it was in 2013, and since then my holdings grew up 12% plus I enjoyed a nice dividend at around 4% annually.

PPL has been increasing the dividend for 15 consecutive years. Its 3 year average dividend growth is at 2.1%. The last year dividend growth was at 9.85%, which is impressive. And PPL’s current yield of 4.70% is also attractive.

In the past, the dividend yield and growth fluctuated significantly. In 2013, the dividend growth was negative (-7.69%), in 2012 it was positive (5.93%), etc. I think in the near future, PPL will enjoy a positive dividend growth and it will be a great and shiny dividend growth company. Why?

I believe, it is because of a recent spin off.

You may be interested in:
Talen Energy Corp. established as PPL Corp. energy generation spinoff by Kurt Bresswein
Talen Energy
What Should PPL Corp. Shareholders Do With A 65% Stake In Talen Energy? by Chronic Bull at Seeking Alpha

In 2013 PPL announced it will spin off a portion of its business into a new company. And the new company is Talen Energy (TLN). So why PPL did it and why it seems that it will help PPL to have more consistent revenues and thus dividend growth?

PPL made money, originally, in two major segments – power (energy) generation (unregulated segment), and energy delivery (regulated segment). PPL owned several power plants (coal/gas/ oil fired plants as well as nuclear plants) around the country such as in Kentucky, Pennsylvania, Montana, as well as in the United Kingdom. In many of the States, and in the UK, it was also involved in energy (electricity, and in some locations natural gas) delivery to the end users.

And here was the problem. The unregulated segment of energy generation was very volatile and dependent on natural gas, oil, and coal prices. The volatility was responsible for unstable revenues and as I believe, dividend growth. The company was able to overcome bad years and keep the dividends growing, but the history of the dividend growth shows the picture of the struggle quite clearly.

PPL still increased the dividend, but due to a huge slump in 2014, the growth was very small. And thanks to low oil prices in 2014 – 2015, it will most likely be small in 2015 as well.

From this perspective it looks like the spin off was a good move. By doing so, PPL got rid of all its unstable energy generation segment and a new company, Talen Energy (TLN), is now completely involved in energy generation while PPL in energy delivery.
 

 

Every holder of a PPL stock received 0.125 shares of TLN. My 66 shares of PPL earned me 8 new shares of TLN at $16.3112 initial purchase cost (I actually didn’t pay for it, but this was the spin off initial price reported to my broker by the new company). At a current price of $19.30 a share I am immediately gaining 18.32% profit.

It is nice, but as a dividend investor, I look at it from the dividend perspective. And that perspective shows that Talen is not paying a dividend and most likely will not pay a dividend. From the CEO speech at the initial conference call it is clear that this will be a growth company focused on M&A (mergers and acquisitions) rather than on dividends.

And here comes my dilemma. Should I sell the new stock and invest all proceeds back to PPL or keep the stock and let it go?

Reason to sell

The reason to sell TLN is simple. No dividend, no holdings. Why holding a stock which may (and also may not) sometimes in the future make me money. The power generation sector is so volatile that it has big up swings as well as huge down periods, just look at oil price chart in the last 20 years and you will see what I am talking about. What if I need the cash and the stock will be down? A never ending problem with 4% withdrawal rule, right?

Reason to hold

The reason to sell TLN is more pragmatic, while the reason to keep it is more from the land of dreams. Once I read a story about an old woman who died a few years ago, but lived long enough to remember both world wars, but most importantly, she died very rich.

When she was born sometimes in 1902, her father bought her 1 share of AT&T company (at that time the company’s name was Bell Telephone Company). The old lady held the stock until her death, but over the years, she not only held the original stock, but many more shares of all the spun off companies (such as AT&T, Lucent Technologies, NCR, and others). She also ended up holding many shares of AT&T company (as the company split stocks several times over the years).

And of course, she was receiving and reinvesting fat and growing dividends from many of those companies she held.

Grace GronerI do not remember details and all names of those companies, or how much she ended up having in her portfolio. I couldn’t find her story on the Internet anymore. But there was a similar story about another woman named Grace Groner who purchased 3 stocks of Abbott Laboratories in 1935. In 2010, at the time of her death, all her holdings grew into $7 million dollars thru dividend reinvestment, stock splits, and spin offs.

A great example of compounding. Yes, she was compounding for 75 years, and even though it looks like she never used the money, it clearly shows that over time and with the right dividend growth stock your investment can grow substantially.

Both women kept all the spun off stocks and let them grow over the years. That’s was impresses me and makes me think to keep TLN. Although TLN can be a volatile company due to the nature of its business, it may grow, split, and spin more, and more, over time.

Getting the shares didn’t cost me a penny. I didn’t have to sell PPL or any other stock to buy TLN. I didn’t have to add more cash to my account to buy TLN. It was given to me. I still hold 66 shares of PPL, enjoy nice dividend and the price of the stock is still 12% up amid a small turbulence after the spinoff and current tornado in the stock market.

You may be interested in:
The Problem With Grace Groner (And Stories Like Her’s) by Nelson Smith at Financial Uproar

I can easily pretend that I haven’t received any new stock. But there is still that little doubt back in my head that now I have additional $154 which I can add to my savings and later (once I save more money using my commission free ETF strategy) buy a dividend growth stock. It could either be PPL or COP.

Keeping the stock is very appealing to me, but the pragmatic voice is strong too.

This is why I am asking you, my readers, what would you do in this situation? Hold TLN or sell it?

Let me know, what you think!

Image credit: WNEP
 
 




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Posted by Martin June 01, 2015
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Path to nowhere continues. Where is SPX going tomorrow?


Monday was again as expected. I expected it to go higher at first to overcome Friday’s selling but then drift lower. At first the manufacturing data which came out better than expected but along with not so good economic data (mainly consumer spending) put the market on an upward trend. The market seems to love not too good data and not too bad data as they prevent FED from being aggressive raising the interest rates.

You may be interested in:
AbbVie: The Future’s So Hazy I Can’t Wear Shades By Ben Levisohn with Barron’s
The Oil Glut is Not Real By Leonard Brecken with Oil Price
Are Stock Bears Being Too Pessimistic? by Chris Ciovacco
Outlook for June 2015 by Roadmap2Retire

The market looked good until about one hour before the end of the session when bears once again took over and send the market down. I expected the gains very small and thanks to last 30 minute selling it happened. We bounced off of 2100 support but failed to break the resistance at 2120.

I am afraid this weakness would continue as I see my indicators pointing down.
 

 

I believe tomorrow the weakness will continue and for that I expect the market to go DOWN to test 2100 level again.
 




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Posted by Martin May 31, 2015
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Tech stocks are going to break out this week, will $SPX follow?


Tech stocks are about to break out in a big way, according to one top technician.

“The Nasdaq Composite has outperformed the broader market this year, outpacing the S&P 500 [Index],” technical analyst Rich Ross said on CNBC’s “Trading Nation.” The Nasdaq Composite has rallied more than 7 percent year-to-date, while the S&P 500 is up just under 3 percent in the same period.

Against that backdrop, “I have high hopes for the Nasdaq as we head into next week,” the Evercore ISI analyst said.

Continue reading >>

My expectation for $SPX move tomorrow is UP although there is a great weakness in the market so the gain may be very small.




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May 2015 trading, investing and dividends results


Another choppy, crazy month in the stock market is over. It was a month about which people have a saying: “Sell in May and Go Away.” If you have done that, you would lose money. I watch other investors and traders at StockTwits to see what they have to say about the market. I found a chart, see below, from a trader about “selling May” trading.
 

Sell in May
 

If you followed the May seasonality and sold all last three May months, and stayed in cash until September, you would lose money by being left out. I find this quite interesting.

So what about you? Did you sell your stocks in fear of a sell off?

If you are diligently investing, like I do in my ROTH IRA account, you should be doing well. However, trading may be a totally different story.

May 2015 trading results

For me, May 2015 was somewhat successful. It was, once again, extremely hard to trade this market, compared to last year. The stock market created a new all-time high this month, but failed to hold and follow through. My trading business experienced large swings from great up-moments to scary down-moments. As you can see in my Weekly monitor, my Net-Liq lost 10% last month.


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No matter how inconvenient it is, as a trader I must find a consent in those swings. I must find a way to deal with those swings and be able to ignore them. Lately, I found a few novice traders and investors being deadly scared seeing their Net-Liq swinging from one edge to another. They weren’t able to stomach that their account was down 20% one week and up 20% the other. This market is extremely hard to trade and being driven by fear can force you making trades which you wouldn’t normally do.

You may be interested in:
Options Expiration – May 2015 by Alex with My Trader’s Journal
Selling Puts to Buy Dividends by Dennis with Dennismccain Investing
Discover Financial Services (DFS) – Sold Jun 5, 2015 weekly Covered Call by Stocks and Options

As long as you stay the course (follow your trading plan), defend your trades, and try hard not to take a loss, or take a small loss only, the Net-Liq swings would be unimportant (all that depends on your trading plan and the way you protect your trades). As far as my trading, in May 2015, I was able to close trades making money and losing none. Of course, it may all change next month, but I hope not. In this light, my 10% down swing in net-liq doesn’t bother me. It is just a temporary drawdown. If my trades I have open, expire worthless this week, this same Net-liq will be back up where it was last month.

And that is the nature of trading. If you cannot handle it, do not trade or learn it first. I found an interesting post by Joshua Belanger, an option trader, where he listed at least four reasons why he is not posting his trading results. These up and down swings was one of them.

He says:

However, it was common to see traders up big…down big…or even scratch on the day. Not to mention the swings, from positive to negative…or negative to positive…the roller coaster ride that is called trading.

This can be discouraging to many. I feel it inconvenient, mainly when I have to post my down days (or weeks, or months). Yes, posting my trading results makes me feel guilty about my trading and about the results. It forces me to get better. But such forcing may be contra productive. It may force you into trading although you should stay out of the market.

But why do I post my trades? Well, I want to show to everybody interested in trading options that it is possible to make it (because 97% of traders lose money). But also, I want to show you that such trading can be also bumpy and not an easy quick rich scheme. I hope that my blog can do this job and it can be a helpful source to any trader or investor.

Below, you can see my May 2015 trading results. I post only closed trades here. You can follow all my open trades at My Trades & Income page.

$4.95 Stock Trades at OptionsHouse.com

 

May 2015 options trading result: $106.52 (0.91%)
2015 portfolio value: $10,977.82
2015 overall trading account result: -6.23%

 

May 2015 dividend investing results

My dividend growth investing strategy worked very well this month. My ROTH IRA was actually the only one account up in this crazy market. That may lead you to a question, why am I trading options and not just stick to dividend investing. Well, trading provides me with excitement I like, and also I hope that I will be able to build another good source of additional income which can be used to invest into dividend stocks. If you look at my dividend income below, you can see an interesting comparison:

My approx. $18,000 dividend account brings approx. $100 ($93.69 to be exact) monthly dividends.

However, my approx. $12,000 options trading account brings approx. $100 monthly premiums.

As you can see, my smaller account generates the same income as my larger account. It is nice, but there is a catch. It can be riskier and definitely it is not a passive income. You need to do some work than just buy a stock.

But there is a way to make options trading work without exessive risk and losses: stay small and do not overtrade. A golden rule, which I myself break time to time. Sometimes, I am driven by the market into breaking this rule (which is also wrong), sometimes, I break it because I am greedy, have enough available cash and want more trades (also wrong).

But back to my dividend investing. I used my accumulation strategy I wrote about in my last post. I bought a few more shares of my commission free RWX saving vehicle and accumulated approx. $980 savings. That means, that the next month after I receive June dividends, I should have my $1,000 saved (my minimum amount to buy a dividend paying stock to minimize negative impact of commissions).

You may be interested in:
Weekly Roundup – May 31, 2015 by Passive Income Pursuit
Stock Analysis: Lowe’s Companies by DivGro
June Stock Considerations by DivHut
$3,010,671 My Net Worth Update May 25, 2015 by Asset Grinder
My Stock Watch List For June 2015 by Jason with Dividend Mantra
Dividend Income for May 2015 by No More Waffles

 

What dividend stock would you buy if you were me?

I published a small poll wondering which stocks you would buy with that saved $1,000. As of now, readers voted for Chevron (CVX), but the poll is still open and I am interested in knowing your pick.

If you have a minute, please, go and vote which stock you would buy.

 

May 2015 dividend stock buys: none
May 2015 dividend stock sells: none

 

 

May 2015 dividend income: $94.31
2015 portfolio value: $18,561.26
2015 overall dividend account result: +6.37%

 

ROTH Dividend Income
My ROTH IRA dividend income breakdown per month and per company.
 

All accounts

Besides trading and dividend accounts I also have 401k account, emergency savings account, etc., which I do not report in detail. You can review those accounts in my “all Accounts Value table at the bottom of My Trades & Income page.

From that table you can see that all my accounts are up 8.99% for the year. Considering how bad the market was this month I think, this is not a bad result.

What do you think?

How about your investing or trading result?
 

What is my market expectation for June 2015?

Trading this market is difficult. Calling where it will end or go is even worse. However, although many people think it is impossible to predict the market, I believe, it is possible. Of course, I do not mean calling the exact number where the market ends. I mean where the market may go. We can look in the history. The past trading may give us some clue. It is not 100% guarantee.

Today’s market is fear driven. Many investors believe, that FED would raise interest rates which would be bad to stocks. But, as Jim Cramer said, would you raise the rates in a faltering economy?
 
 

Nevertheless, investors are fixed to FED too much and stopped thinking rationally. We have to deal with it.

You may be interested in:
Stock Market Top-Callers Are Missing One Key Ingredient by Chris Ciovacco
Greece, facing euro zone exit fears, designs new two-euro coin by Karolina Tagaris with Reuters
More Weight Added To Equity Bear Case by Dana Lyons
Here’s why traders on New York Stock Exchange floor aren’t convinced the bull market is over by Akin Oyedele with Business Insider
Rate Hikes and Market Returns by Chad Gassaway

I mentioned above that following seasonality in May 2015 could lead to bad results, if you sold in May and ran away. But not all seasonal patterns may be bad to follow. Recently, I found a website by Dimitri Speck who worked hard to create charts about seasonal cycles. He combined all data of several indexes into one chart per index to create a pattern of cycles. An interesting seasonal pattern or cycle was a pre-election year for DOW index, for example.

We are in a pre-election year and May worked very close to what this cycle shows. Will June work the same way?

Pre-election year

If the market continues to show the same pattern, we may see June end higher. I cannot say how high it would go, it may be only a little growth, but it may be higher.

For the next week, we have a Greece deal or no deal event in front of us which may move this market higher or down. Another event would be Friday’s employment report which also is a market mover, so expect bumpy trading next week.

I hope you had a great month in this crazy market. I hope your investments or trades performed the way you wanted. And if not, do not worry. This craziness will end one day and the stocks will perform once again. If we see a correction, many wait for it so desperately, it will be great for dividend investors as well as for traders. And if the market continues higher out of this 7-month of going nowhere it will also be good for you. So don’t let anyone out there derail you and keep holding tight to your investing or trading plan.

And if you have a minute, share with us your investing or trading story!

Happy trading and investing!

 




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Posted by Martin May 28, 2015
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Nothing exciting before GDP data adjustment.


The market did exactly what I expected. It went down and later recovered the selling. But the recovery wasn’t strong enough to push the market higher, so it ended down.

Tomorrow we will see GDP revised. This may be a market mover. Will it be taken positively or negatively by the investors? Normally, I would say the market would go higher tomorrow, but if the freaks at Wall Street get spooked and irrational again, the market would go down.

Let’s see tomorrow though. For now, I would call the market to go UP.
 




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