The Money Tree

Safely Generating Income in Retirement

Archive for October, 2012

Update – INTC

Posted by mounddweller on October 28, 2012

Fellow Traders,

I want to update you on my INTC trade.  You’ll recall as OCT expiration approached I was short 5 OCT $24 puts and 5 OCT $22 puts.  As I wrote in my previous post (https://troysmoneytree.wordpress.com/2012/09/20/update-intc/) I decided if my OCT $24 puts were ITM at expiration I would accept assignment to position myself to receive the $0.225 dividend in early November.

So, I now own 500 shares of INTC at $24.  However, my net cost is $22.51 since I was able to collect $1.49 in put premiums from August through October.  The next step in executing my strategy for these shares will be to sell DEC or JAN calls at either the $23 or $24 strike.

With the OCT $22 puts I decided to roll out and down.  I bought back the OCT $22 puts for $0.34 and sold the DEC $21 for $0.54.  My plan will be to continue to roll these out and down as necessary to avoid assignment until such time as I have built up a substantial net credit.

Regards,

Troy

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New Trades – CSCO

Posted by mounddweller on October 28, 2012

Fellow Traders,

I know it’s been a couple weeks since my last post.  I’ve really fallen down on the job lately when it comes to keeping The Money Tree current.  So today I want to catch you up on a couple trades I’ve made.

First up is CSCO.  On October 19th  I executed two NP trades.

(1)  STO 5 NOV $17 at $0.33

(2)  STO 5 DEC $16 at $0.24

In both cases CSCO was trading at $18.12 when my trades were executed.

So, why CSCO and why now?  I think CSCO represents a great value.  It trades at <12x trailing earnings and <9x expected earnings.  It has $32B in net cash ($6.13/share).  That’s over 33% of its market value.  Subtract out the net cash/share from the Friday closing price of $17.29 and you’ll see CSCO is trading at 5.34x prospective earnings.  This for a company that generates over $8B per year in free cash flow and has a dividend yield of 3.24%!  CSCO is undoubtedly the Rodney Dangerfield of the stock market; it gets NO RESPECT!

So, that is why I decided to execute the two trades I did.  I would be happy to own CSCO at between $16 and $17 per share.

So, what is my strategy?  Well, if my NOV $17 expire OTM I will rewrite another round of puts at either the $17 or $16 strike with a JAN expiration.   If the puts are ITM as expiration approaches I will roll them out and possibly down depending on price and work to build up my net credit.  If the DEC $16 puts expire OTM I will enter a new trade and do a buy/write in an attempt to capture the dividend in the first week of January.    If CSCO is less than $16 at DEC expiration I will accept assignment and then look to sell covered calls against those newly acquired shares.

My overall objective is to begin building a long-term position in CSCO, reinvesting the dividends until I retire.  At retirement the dividends will form part of my income stream.

Regards,

Troy

 

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New Trade – CCJ

Posted by mounddweller on October 14, 2012

Fellow Traders,

I opened up a new position in Cameco Corporation (CCJ) on Friday.  Specifically, I sold to open 5 NOV $18 puts at $0.40.  I think once you see the 1 and 5 year charts on CCJ you’ll see one of the reasons I like this trade.  So here you go…

In both cases you can see CCJ is nearing lows.  What you can’t see, but I’d encourage you to check out for yourself is the MACD and Stochastics on CCJ.  Both, in my opinion, suggest the sell-off has just about ran its course.

CCJ also has good fundamentals.  Over the past 5 years it has doubled it’s quarterly dividends while maintaining a low payout ratio of only 35%.  It’s forward P/E is a very reasonable 12.  Cash and L/T debt are virtually even.

Even though CCJ is not a stock I’m planning to own long-term I always look at the fundamentals to make sure I would be comfortable owning it if my trade doesn’t work out as planned.

In this case, barring a meltdown in the overall stock market, I do not see CCJ falling much below $19.  So, if my puts expire worthless as I plan I will have made 2.22% ROIC with a holding period of about 35 days.

Oh, one final note.  This is not my first rodeo with CCJ.  Twice last year I sold NPs on it.  The first time at the $25 strike price and the second time at the $16 strike price.  The $25 strikes I was able to buy back for $0.05 and the $16 puts expired worthless.

Regards,

Troy

 

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