The Money Tree

Safely Generating Income in Retirement

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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3 Responses to “Shaking the Money Tree…Again!”

  1. Sean said

    Hi Troy
    Writing these articles and letting me know how you shake the money tree is a very generous gesture on your part. Many thanks.
    Could you please elucidate this statement further for me:
    “My strategy is to sell the puts as INTC approaches resistance at $19”
    Did you mean to sell the put as the market approach $19 as a support?
    Many thanks Sean

    • mounddweller said

      Sean,

      Oops! Yes, I meant support. I shouldn’t write posts late in the evening. I’m tired and don’t proof-read as well.

      Regards,
      Troy

  2. Rich said

    Hey Troy, I picked up on the error but knew what you ment. Selling INTC puts has been good to both of us. I now have my net cost of 100 shares down to a negative 1.47 per share. Yesterday I took advantage of the huge run up and bought back my Jul 23 put and rolled it out and down to a Jan 22.50 for a net credit. Thats a long way to go but I got caught last summer with puts at the 24 strike. Been slowly rolling out and down. Patience is the key and as you say, forget about home runs and hit consistent singles and doubles.

    Rich

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