The Money Tree

Safely Generating Income in Retirement

New NP Trade – O

Posted by mounddweller on July 2, 2009

I have executed yet another NP trade.  Anyone reviewing my trading history in 2009 will find I have been almost exclusively selling NPs this year.  As a matter of fact I’ve only executed one new CC trade in 2009.  To be quite honest, I’m not sure why that is the case.  It’s not for lack of trying.  I run my VISIONS Scout screener every week looking for great CC trades.

Anyway, like I mentioned above I did execute a new NP trade today.  I sold the AUG O $20 puts for $0.50.  My ROIC on this trade is 2.50%. 

Now that I’ve explained what I did let me tell you why I did it.  My reasons for executing this trade is similar to that of my recent NP trade in TK.  I want to own O, Realty Income Corp long-term.  Realty Income Corp is a REIT engaged in the acquisition and ownership of commercial retail real estate properties in the United States. The company leases its retail properties primarily to regional and national retail chain store operators.  It pays dividends monthly.  In fact the company has declared 468 consecutive common stock monthly dividends throughout its 40-year operating history and increased the dividend 54 times since Realty Income’s listing on the New York Stock Exchange in 1994.  Annualized the current dividend is $1.7085.  If assigned at $20 my initial dividend yield will be 8.54%. 

My objective in owning O and TK (as well as some high yield MLPs) is to build a portfolio of stable business which are able to consistently grow their dividends.  By reinvesting those dividends from now until when I retire I plan to have a substantial income stream to supplement my CC/NP trading income.  In the interim I can also generate additional income by selling CCs on these positions as I accumulate shares.

Below is the price chart for O.  You’ll immediately notice this is NOT a good short-term trading candidate based on Ron Groenke’s criteria.  I would not recommend this trade to anyone unless (like me) you intend to hold it for a very long time.  My plan is to sell additional NPs over time if the price continues to fall.  For example, if O trades for less than $20 and the stock is put to me, I’ll probably sell additional NPs at the $17.50 strike price or lower until I have accumulated the total number of shares that I’d like to own.

VISIONS - O price chart

2 Responses to “New NP Trade – O”

  1. Rich said

    Troy, I also own shares of Realty Income in both of our IRA accounts. I have had shares for several years now. Unfortunatly Scottrade does not allow NPs in their IRA accounts so I use the accumulated dividends to buy more shares on market dips. I do sell CCs on the shares for the added income. You may want to also look at Penn West Energy ( PWE ). It pays a slightly higher yield than O and you can also do options. Another fund, DOW Premium income DPO is another good dividend fund, paying around 18% right now. No dividends on this issue but you can use the long term dividends to buy shares of the others. We’re both retired so I have our IRAs set up as Money Tree/Cash Machines to augment our pension funds.

    I have a small Options account that I have also started doing naked puts on. got one with URE Sep 3 and one with AA July 10. I’ve read articles where some guys do the naked puts exclusively. I closed out my positions with UYG the other day. URE had a better gold score than UYG. Had 3 contracts assigned in June so I just sold the rest of the shares and then used the funds to buy some more URE shares and NPs. Wound up with a gain of 121% with UYG since Jan. I guess thats the correct way to explain the gain. got back all my basis plus more so I suppose its safe to say I drove my cost basis below zero.


  2. Rich said

    By the way, even though the DOW Premium fund does not have options, the fund managers actually use options to generate income on the DOW stocks. So in effect this is a back door way to get premiums from someone else trading options.

    Have a great 4th of July!


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