The Money Tree

Safely Generating Income in Retirement

Archive for November 24th, 2011

New Trades – T and WM

Posted by mounddweller on November 24, 2011

Fellow Traders,

Yesterday I opened two new NP trades.

(1) STO 3 T DEC $27 Puts at $0.40

(2) STO 4 WM DEC $28 Puts at $0.40

First, let’s look at my trade in AT&T (T).  I’ve traded in and out of T on a couple of different occasions.  I find it attractive at $27 or less.  I sold my puts when T was trading at $27.63.  With this trade I don’t have much down-side protection but in this case that wasn’t important to me.  If I have T put to me at $27 at December expiration I will be in line to receive the $0.43 dividend; T goes ex-dividend on January 6th.  My ROIC is 1.36% (net of commissions) with 23 days to expiration.

I limited the size of my trade to 3 contracts.  If T continues to move lower I will sell additional puts at the $25 and/or $24 strike price.  T has a solid and steadily increasing dividend.  I think it will find support as its yield closes in on 7%.

Next up is Waste Management (WM).  Regular readers may recall that I sold naked puts on WM last month as well.  The puts at the $28 strike price expired worthless.  Thus, with the market selling off again on Wednesday, I took the opportunity to sell the DEC $28 puts for $0.40.  My ROIC, net of commissions, in this trade is 1.34% with 23 days left to expiration.

Looking at the chart above it should be obvious why I like the trade at the $28 strike price.  WM has solid support at $28.  You’ll notice both the T and WM charts are 3-yr charts.  One thing I’m looking at all of my trades these days is where did the stock trade in October 2008 and March 2009.  This gives me some sense of how much down-side risk I might have if either the European or American debt crisis causes the markets to come unglued.

Both my T and WM trades represent my efforts to focus more of my trades in blue-chip, large-cap, dividend achiever types of stocks.   These are stocks that I can feel comfortable owning and establishing long-term positions in.    Once assigned I can collect dividends over time and sell calls against these positions.



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