The Money Tree

Safely Generating Income in Retirement

New Trades

Posted by mounddweller on November 10, 2011

Fellow Traders,

I’ve fallen behind in updating you on some of my trades.  So, without further delay I’d like to tell you about a couple trades I made last week and another couple I made earlier this week.

First up is Waste Management (WM).  WM has been on my radar screen for a few weeks now.  I’ve had considerable success in the past selling puts on large-caps which are currently out of favor on Wall Street.  I think WM is a similar opportunity.  Let’s take a look at the price chart and you’ll see what I mean.

After hitting a 52-wk high of almost $40 back on May 2nd WM fell sharply and subsequently hit a 52-wk low of $27.75 on August 9th.  Since then WM has rebounded to as high as $35 before falling back.  Today it closed at $31.16.  Last Tuesday, November 1st, I sold 4 NOV $28 puts at $0.25.  At the time I placed my trade WM was priced at $31.72.

I felt comfortable placing this trade for several reasons.  First, my strike price of $28 was very near the $52 wk low.  Also, its financial crisis low in March of 2009 was $23.26.  Second, WM has a dividend of $1.36 / share.   If I were to have WM put to me at $28 my dividend yield would be 4.86%.  Over the past 5 years WM has increased its dividend by 55%.   Third, my ROIC, net of commissions, is 0.8% with an 18 day holding period and 11.7% DSP.  Annualized my ROIC is 16.23%.

For these kinds of trades I like to have an annualized return greater than 15%.  Why 15%?  Because at 15% you’re doubling your money every 5 years.

OK, I’ve ran out of time tonight before I’ve been able to tell you about my other 3 trades.  I’ll by back tomorrow with another post to tell you about RY (two trades) and CCJ.

Regards,

Troy

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