The Money Tree

Safely Generating Income in Retirement

Archive for January 7th, 2011

AT&T (T) – Position Closed

Posted by mounddweller on January 7, 2011

Earlier this week I closed out my long-held trade in AT&T (T).  Let me give you a brief history of this trade.  I initiated this trade before I found Ron Groenke and began using his VISIONS software.  My original plan for the trade was to buy the stock, sell a LEAP call against these shares and collect the dividends until called away or the call expired.  Then repeat the process by selling another LEAP call the following year.  Well, as you might expect, my ‘perfect’ trade didn’t play out as planned. 

We all know what happened in 2008.  By late summer/early fall the market began to fall.  By January 2009 my originall LEAP calls did expire worthless but because of the steep drop in the price of AT&T I was unable to write another LEAP call at my original strike price.  At this point I had a number of options (pun intended) available to me to try to recover and manage the position.  However, given it’s relatively small size I instead let it lanquish in my account and for another 17 months did nothing but collect the quarterly dividend.

About midway through 2009 I decided I had to do something.  I had to either accept the loss in capital and move on, or more actively manage the position and attempt to recover my original capital.  I decided the best course of action was to sell puts on additional shares until assigned.  I did one round of naked puts but then decided to just buy additional shares outright because I felt the stock had bottomed.   Finally, in the fall of 2010, I decided to sell the OTM JAN $29 calls. 

It was these JAN $29 calls that lead to me closing out my position.  Earlier this week, someone decided they needed AT&T’s next dividend more than I did.  My calls were assigned early on the day before T went ex-dividend.  I think I got the better end of the deal though as T has since fallen below my strike price of $29. 

At the end of the day I’m pleased at how the trade turned out.  By being patient I was able to turn what could have been a loss into a $934 gain.  My annualized ROIC of 3.53% is nothing to write home about, but it sure beats the $1400 loss I was looking at when T bottomed out in March 2009.

Here is the complete history of this trade:

I like AT&T.  It has a great, stable and reliable dividend.  Thus, I am looking to reenter a position in T.  Earlier today I tried to sell the FEB $28 puts at $0.45.  Unfortunately, my trade did not fill.  I am going to continue following it closely next week in the hope I can find and get filled at a suitable entry point.

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Deep OTM NP Strategy – JAN Week 2

Posted by mounddweller on January 7, 2011

Hello everyone.  I’m back with the selections for January – Week 2 of the Deep OTM NP Strategy.  This week we have 3 selections, 2 mid-caps and one small-cap.  Information on each is provided below.


In addition to these 3 new selections, as was also the case last week, there are several other trades that reappeared on our screen after having been selected earlier this month.  Stock which reappeared on our screen this week are: MBI, VHC, VRGY, and ZLC.

Please keep in mind, generally speaking, NONE of these trades are suitable as long-term investments.  We are simply looking to pick a little money off the money tree by placing a calculated bet that the stock will not decline sufficiently in the time remaining to expiration to close below our strike price.

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New INTC Trade

Posted by mounddweller on January 7, 2011

I executed a new INTC trade today.  I STO 5 FEB $19 puts at $0.26.  The premium (net of commissions) was $117.26.  If the puts expire worthless at expiration in February my ROIC will be 1.23% with a 45-day holding period.  This equates to an annualized return of 10.01% which is a little below my desired minimum return of 15% annualized. 

Despite the sub-par ROIC I went ahead with the trade for the following reasons:

(1) First, and foremost, I wouldn’t mind owning INTC at $18.74

(2) I have way too much capital sitting on the sidelines earning nothing.  Selling OTM INTC puts is a safe way to deploy capital and generate income.

Posted in Troy's New Picks! | Tagged: , , | 2 Comments »