The Money Tree

Safely Generating Income in Retirement

Archive for April 20th, 2011

Shaking the Money Tree…Again!

Posted by mounddweller on April 20, 2011

Fellow Traders,

You’ll recall over this past weekend I shared the results of my trading activity in Exelon (EXC).  My strategy in that trade was to sell puts and calls on EXC as it cycled up and down around its regular quarterly dividend cycle.  Today I want to share my results using a slightly different strategy with INTC.

Below is a one-year chart of INTC.  You’ll notice it hasn’t done much lately.  A buy and hold investor would have been hard pressed to earn a profit even after taking dividends into consideration.

However, to a put seller this chart is a dream come true.  I have been selling puts on INTC at the $19 strike price since last August.  My strategy is to sell the puts as INTC approaches resistance at $19 and then either (1) let them expire OTM, or (2) buy them back if I’ve captured 80% or more of the premium and there is a substantial amount of time remaining prior to expiration. 

In the “score card” below you can see this has worked remarkably well.  In just 8 months I have made almost $1,200  on a capital base of just $9,500. 

You can see I took advantage of the big gap up today.  I bought back the MAY $19 puts that I had sold just two days before.  If the stock reverses and tries to fill that gap I may get a chance to sell a second round of MAY $19 puts before expiration.  Wouldn’t that be grand! 

I would be remiss if I didn’t give some if not most of the credit for my success in this trade to Teddi over at www.fullyinformed.com.  A couple of years ago I wouldn’t have seen the beauty of this trade.  I was still stuck in the mind-set of trying to hit it out of the park every month by looking for hot trades that returned 3-5% every month.  Through Teddi I have learned to better apply the old adage “slow and steady wins the race!”  Try it out, find a stock you wouldn’t mind owning that seems to be stuck in a trading range.  Then, look to “shake the money tree” for 1 to 2 percent a month.  The annualized ROIC is fantastic and you’ll sleep well at night.

Regards,

Troy

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