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Selling Seadrill (SDLP) & LGCY puts to add stock into my portfolio amid all negative sentiment

It is hard to be buying when everybody is negative on a stock, predicting its further collapse or struggle. These days we see oil exploring companies out of favor. Many had to cut on employment, investment and even vut the dividends.

When reading what other investors think about oil companies, you get scary stories, gloomy predictions, and stay away outlook.

I admit, that take a trade and buy a stock in such review and expectations needs a lot of courage. It is a gut wrenching approach sometimes to be a contrarian.

I recently took a position in Legacy (LGCY) for this same reason. Everybody was busting this stock and predicting its gloom and doom. I believe, this stock offers a great opportunity and it is worth to dedicate some cash to it. Lately I even opened a bull put spread against this stock expecting profits when oil goes up and the stock with it.

Today, I plan on taking yet another gut wrenching opportunity and initiate a position against Seadrill (SDLP) stock. It is another oil involved company making money shore drilling. Recently the stock tanked as many others in this industry and investor have only a scary stories and expectations. Only a few of them out there are posting articles having something nice to say. And whe they do, they are immediatelly attacked by others who invested in the stock when it was at $30 a share and now they are at a huge loss.


$4.75 Stock Trades at OptionsHouse.com

 

But with companies like this, you need to define an investing style (or strategy) you want to apply:

1) Either hold and collect dividends and go thru the thin or thick of the stock.
2) Or trade the stock and when there is a sell off coming, sell it and buy back at the bottom (well, if you are good at market timing).

If you decide to hold on and go thru bad times, you can do a few things – hold the stock, collect dividends, and sell puts or put spreads. That’s exactly what I am doing with LGCY stock while waiting for it to go up. I collect the dividend and I collect premiums from options.

So I am going to do the same with Seadrill (SDLP) and LGCY (adding to my existing LGCY position). I will sell put options against these stocks to collect premium if the stock goes up and stays above the put strike price. If not, I am OK to accept the stock, actually I will be happy to buy those stocks at those prices.

There will be two outcomes:

1) the stock stays above the strike price, the option expires worthless and I will keep the premium
2) the stock drops below the strike price and stays there at expiration, then I will be assigned the stock and buy it at the strike price plus I will keep the premium.

Since the price of the stocks are so low I am very comfortable to buy stocks at those level.

If you want to see these trades details, strikes and expiration I am going to take, you need to become a subscriber to my free newsletter where I publish my trades.

Good luck and happy trading!
 
 





2 responses to “Selling Seadrill (SDLP) & LGCY puts to add stock into my portfolio amid all negative sentiment”

  1. DivGuy says:

    A dividend investor should not (at least try not to) get overwhelmed by fear, panic and negative predictions. I stick to my oil holdings even though they’ve hit me hard since the beginning of the year. I still believe it will pay off in the long run!

    Cheers,

    Mike

    • Martin says:

      Hi Mike, I totally agree with you. I am even adding more to my oil holdings although those I purchased before the oil price slump hit me hard too, but they continue paying good dividends (LGCY didn’t even cut the dividend and claims that they will hold it thru this crisis as they did in 2008), so I am adding more and I also believe it will pay back a big time!

      Thanks for stopping by and commenting!
      Martin

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