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Posted by Martin May 20, 2013
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Trade Adjustment – 8×8 Inc. (EGHT) new covered call

Trade Adjustment - 8x8 Inc. (EGHT) new covered call

Last Friday (05/17/2013) was the last trading day before options expiration day. I had two options in play for this month. one of them was a covered call for EGHT. This stock broke above the strike price for several times before expiration, but at the end ended below it, so my covered call expired worthless.

Originally I wanted the call being assigned and have the stock called away to free cash I have in this stock, but I am OK with this outcome as well. Not only I have realised 100% profit on my original trade, but today morning I could sell another covered call improving the profit of the entire trade.

By expiring this call I could keep $45 premium (6.3% gain, 29.5% annualized return).

You can review my original trade in the “New Trade – 8×8 Inc. (EGHT) covered call” post.

As you may see in my original post, if the stock got called away, this trade would ended up with 13.72% gain.

It didn’t happen and I could sell another covered call today.

Trade Detail

The trade got executed this morning at opening and I collected $100 premium for this stock improving my trade:

05/20/2013 09:30:00 Sold 1 EGHT Nov 16 2013 7.5 Call @ 1

 

Own 100 shares EGHT: $6.79
Strike: $7.50
Sold 1 Covered Call: $1.00
Total Purchase: $100.00
Commissions: $8.78
Total purchase: $551.56
Expected Option Assignment: $750.00
Option Assignment Fee: $19.00
Expected Proceeds: $731.00
Expected Net Gain: $179.44
Expected ROI: 32.53%

I am excited how this trade perform so far. Let’s see where we get this trade in Novemeber.




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Posted by Martin May 16, 2013
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Commission free wealth building – this time with REIT ETF

Commission free wealth building - this time with REIT ETF

If you ever wondered how to avoid fees on your retirement account or even taxable account or you only can afford invest small money, the commission free ETFs may be your solution as I wrote in my previous posts “How to invest with small money“, and “New Trade – SPDR EURO STOXX 50 (FEZ) in ROTH IRA – Commission free wealth building”.

Fees, taxes and benefit of commission free ETFs

ID-100144085If you wish to use this strategy in your taxable account you can improve its performance by a large margin. Imagine, that in taxable account you pay taxes on every dividend you receive and on every capital appreciation you materialize (sell the stock). On top of all this you pay commissions! What a great improvement you can get when you can avoid commissions! And another benefit would be if you avoid (or minimize) selling your stocks at all. That is one of the reasons why I invest into dividend paying stocks, because unless the company cuts the dividend, you do not have to sell and you can hold forever.

With that you avoid taxes on capital gains and commissions. All what is left is commissions on dividends.

Why do you need taxable account as part of your retirement portfolio

You may ask a question why having a taxable account a part of the retirement portfolio of accounts? Well, the philosophy of having a taxable account as part of your retirement strategy is having such an account working for you as a bridge.

Department of Labor estimates that reducing annual fees and expenses to 0.5% from 1.5%, a 30-year old with $25,000 in assets could expect an extra $64,000 at retirement.

If you have 401k, ROTH IRA or traditional IRA, you are typically required to begin your retirement withdrawals when you turn 59-1/2. But what if you save enough money so you will be able to retire early? Let’s say you max your 401k and ROTH every year and your combined portfolios will be big enough to start retirement when you turn 40.

At that point you will not be eligible for Social security, 401k or ROTH IRA benefits. How will you go over the almost 20 year long period and where do you plan to get the money?

This is where the taxable account comes in the game.

And since it is a taxable account, you get no tax benefits and you get hit by fees. Let’s minimize these loses by avoiding fees.

Which ETF to select?

dividendThis depends on your selected strategy which ETF you want to go. I am a dividend investor so my preference is to select ETFs which pay dividends and distributions. Last time I selected SPDR EURO STOXX 50 (FEZ) which is exposing my portfolio to international stocks. This time I am going for ETF which is investing into REIT sector. My screener listed SPDR Dow Jones International Real Estate ETF (RWX) as my candidate. REIT stocks were recently beaten down by 1Q bad results, which in my opinion is a seasonal hiccup and overall management should be able to overcome this in the long term. RWX is also an index ETF, so I am not exposed to only one company but to the whole REIT industry.

RWX pays nice annual dividend of $2.66 (3.59% yield) and distribution at 5.79%. It is a commission free ETF, so I will only pay taxes on dividends and distributions if I purchase in my taxable account. I am however going to buy this ETF in my ROTH IRA and it will cost me $0 in fees and taxes.

To buy into this ETF I will use my “contingency order strategy”.




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Posted by Martin May 14, 2013
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Safeway (SWY) hikes its quarterly dividend


SafewaySafeway increased its dividend payout by 14% today and the yield got above 3% threshold. (My threshold to consider the stock as a buy). This makes this stock more attractive to me to be added to my portfolio. The current yield of the stock is 3.1% at the rate of $0.20 per share.

But is this increase sustainable?

The Morningstar analysts are no longer providing a fair value for this stock and they have some concerns over the capital expenditures and the sustainability of the positive in-store growth mainly amid the strong competition from discount giants such as Wal-Mart or Costco.

What do you think, is SWY dividend increase justifiable in the long run?

When a company’s management increases its dividend a dividend growth investor can consider this as a good sign that the management (most likely) believes in the company’s growth. Unless they want to ruin the company or offer a phony one time payout to one of their leaving manager (a golden parachute), it would be a stupid move to increase dividends and bring financial stress upon a company.

But you never know what’s cooking under the hood.

I wanted to check how is the company doing financially and compared its free cash flow and EPS vs. dividends:

SWY

SWY

I couldn’t find bad things with this company. Although there is some risk involved with rising prices of food when customers may turn to Safeway’s low-cost competitors, but the recent move from the management seems optimistic. And there is no stock out there with no risk anyway.

Safeway has a nice 7 years history of increasing the dividend, it’s payout ratio is 26%, and dividend growth rate at 20.5%.

I still consider this stock a buy and I will continue selling puts against this company as long as I get exercised into a position.

Happy trading!

 




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Posted by Martin May 13, 2013
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Trade order adjustment – SPDR EURO STOXX 50 (FEZ) in ROTH IRA


SuccessToday’s mixed trading session ended SPDR EURO STOXX 50 (FEZ) price movement within my expectations. As I wrote in my previous post “How to invest with small money” I would invest in this ETF to take advantage of investing small money into a commission free ETF.

Investing into FEZ is basically an experiment to me. Generally I wasn’t much successful investing into ETFs in the past, so I want to give it another shot. I think I know the reasons for my previous failure – fees and small investments.

Today, after trading I adjusted my trigger price. This adjustment is within my “entry into stocks” strategy which I myself call a contingency order strategy.

The strategy is about waiting for the stock to reverse into a correction and then track the price down and basically place your buy order slightly higher than the previous day high price. With this strategy you can ride the stock all the way down and you get the order exercised only when the stock reverses. If you provide the stock with some “wiggling” space as Dave Landry speaks about in his book “The Layman’s Guide to Trading Stocks” you will get executed only when the stock really reverses and resumes the trend. This strategy will almost allow you to fish for the bottom.

On rare occasions you can get executed prematurely. It has happened to me in a very few occasions since I’ve been started practicing this entry into stocks method. Mostly I was profiting on this squeezing more juice from the stocks then if buying outright.

On Friday last week I entered my contingency order (or trigger order) wanting to buy FEZ only if the stock reverses and reaches $39.29 a share. It didn’t happen today and the stock continued down. The new closing price was at $35.94 a share. My strategy then dictates me to lower my trade trigger down to new $36.04 a share.

My new order will look like this:

If the last of FEZ is greater or equal to $36.04
BTO 2 FEZ at limit $36.04

I expect FEZ going lower because of the price action I can see at the chart below.

FEZ

From the chart I can see the stock reached the previous high and bounced off of it. The simplest way to read this chart from technical analysis perspective is that now the stock would go down to its 50 day MA from which it should bounce back up.

Of course this is a book-like theory. Everything can happen. Today’s market is crazy, sometimes defying the principles of technical and fundamental analysis (I think, it is because FED is messing up with the market, but that’s another story).

If I am correct, I should be able to pick up my 2 shares at around $34.5 a share.

 




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Posted by Martin May 12, 2013
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My inspiration in the last week #21

My inspiration in the last week #21

This week I would like to present the following interesting web sites and links.

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.

 

 
 




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Posted by Martin May 10, 2013
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Dividend paying stocks attractive to buy today


Today’s trading session brought a couple of stocks I own in my TD and ROTH IRA accounts which reversed enough to be once again attractive to buy or in other words: to add to my portfolio.

PPL Corporation is an energy and utility holding company. The Company operates in four segments: Kentucky Regulated, U.K. Regulated, Pennsylvania Regulated and Supply. Through its subsidiaries, PPL generates electricity from power plants in the northeastern, northwestern and southeastern United States; markets wholesale or retail energy primarily in the northeastern and northwestern portions of the United States; delivers electricity to customers in Pennsylvania, Kentucky, Virginia, Tennessee and the United Kingdom, and natural gas to customers in Kentucky. As of December 31, 2012, the Company’s subsidiaries were PPL Energy Supply, LLC (PPL Energy Supply), PPL Electric Utilities Corporation (PPL Electric), LG&E and KU Energy LLC (LKE), PPL Global, LLC (PPL Global), PPL EnergyPlus LLC (PPL EnergyPlus), PPL Generation LLC (PPL Generation), Louisville Gas and Electric Company (LG&E) and Kentucky Utilities Company (KU).

The stock corrected significantly from its top, see the chart

PPL

The stock paid and increased dividend for 13 consecutive years. It increased its dividend to $0.367500 (2.1% increase) and its current yield is 4.60%. The 5yr dividend growth rate for this company is 3.01%.

My calculated fair value is $35 a share and thus the company is currently trading below my fair value. The company has a very aggressive expenditure plan which can provide a solid base for 8% compound annual growth rate. Circa 65% of power generation is realized via a low cost power plants, which provides an edge for PPL for an eventual increase in power prices. The expenditure plan ($17.4 billion) may however provide a significant pressure to future dividends (also refer to company’s negative cash flow).

A negative free cash flow in many cases is not bad in itself. It could be a sign that a company is making large investments and if these investments earn a high return, the strategy has the potential to pay off in the long run.

Conclusion

I own PPL in my ROTH IRA account and I have owned for several years enjoying sustainable dividends and I plan to own this company for a long term run. If you want to add this company to your portfolio, I would apply a contingency order strategy to enter into a position. The stock has been falling for 7 consecutive days and today it broke below 50 day MA. This may be the end of the correction in this stock, as well as we still may see a further downside pressure. The next support for this stock is at $30 a share and $28 a share and we may see the stock re-testing one of these levels prior to reversing the trend.

 




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Posted by Martin May 09, 2013
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Supper quicky note #8


Yesterday I was quite disappointed with the market and my account results.

I made MONEY!

I made a good chunk of money yesterday. So why I am disappointed? Because the market was running up again, extending its over bought status and creating a bubble once again. Maybe not that big bubble we saw a few years ago, but the fall and panic which will follow this will once again be large.

I can hear all the talking heads already saying something about the end of the world.

I am crazy!




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Posted by Martin May 06, 2013
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April gone, Yakezie up!


Proud Member of YakezieI realized I became obsessed with Yakezie challenge. Although I am tired I still strive to publish posts which hopefully can add value to my readers and show them my progress from money wasting sucker to a successful dividend investor and at the same time browsing other blogs, reading, responding and promoting them.

The obsession went thus far that I am tracking my Alexa rank and I can even create a graph indicating the progress. This turns me into a crazy person. However this is my trait a part of me and I do this almost with everything. I start tracking and recording every part of my life which matters to me.

When I was a kid, I tracked my allowance saving in the same way. My mom told me that I was as greedy as her brother, my uncle, who was doing the same thing his whole life. Now I know she meant it as a compliment :)

That reminds me a sequence from the move “Trading Places” where Mortimer tells the exact thing to his brother Randolph, that their mother told him that he was greedy and money is not everything. Randolph responded that she meant it as a compliment.

As April is gone, my Yakezie rank progressed to 258,798.

I joined the Yakezie challenge on March 1 with a starting rank of 1,798,936. Two months later I am almost at the limit to become a Yakezie member.

For that I want to thank to all my readers and visitors of this blog. Thanks for stopping by, reading my posts and commenting. I like comments from you and I am like a little child when seeing new comments pending for approval.

So once again, here is my huge THANKS to you!
 
 




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