The Money Tree

Safely Generating Income in Retirement

Archive for October 28th, 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 ( 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.



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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.




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