Friday, March 22, 2013

Recent Buy and a Put Option

I've been busy with the portfolio this week so it's time to announce 2 new moves.  First I purchased 50 shares of Lorillard (LO) and then I also sold a put option on Intel (INTC).  I think both moves will help out the portfolio through added dividends and/or premium income.

(1) Purchased 50 shares of Lorillard (LO) for $39.96 per share.  After commission and fees my per share cost basis on these shares is $40.12.  I could have picked the shares up later in the morning for cheaper but I'm fine with the price.  The price always seems to go down after you buy and up after you sell, but such is life.  Based on the current annual dividend of $2.20 per share my YOC is 5.48% and I'm now set to receive an extra $110 per year in dividends.

I currently have an open put option for 100 shares of LO but I don't think that it'll be exercised and I really wanted to add to a stable dividend payer such as LO.  This purchase increased my forward 12-month dividends to $2,177.61 and increased the YOC for my portfolio from 2.99% to 3.06%.  I'm now 62.22% of the way towards my forward dividend goal for 2013 and over the 3.00% YOC goal.

(2) Sold a $21 put option on Intel (INTC) for $0.53.  After all brokerage costs I received $45.01 in option premium to do with as I please.  This put option will expire on April 20th and can go one of three ways.

     (a) If Intel is trading above $21 on April 20th, then I will get to keep the full option premium as profit.  This would represent a 2.14% return over then length of the option which is annualized to 26.08%.

     (b) If Intel is trading below $21 on April 20th, then I will be forced to purchase 100 shares for $21 each. However, since I received the option premium I get to back that out of the cost basis.  My cost basis would then be $21 - $0.53 + $7.99 / 100 + $7.95 / 100 = $20.63.  Based on the current annual dividend of $0.90, this would be a YOC of 4.36% for these shares.

     (c) If Intel makes a large move upwards in price between now and expiration I can close out the position early for a net profit.  Unless the move comes pretty quickly I don't think I'll be closing this put out early because the commission will eat up too much of the profit on this trade.

I've been looking for an opportunity to average down my Intel shares and figured that this was a great way to do it.  If the shares are put to me, then I'll be able to decrease my total per share cost basis by almost 6% and increase my dividends by another $90.  The put will also expire about 2 weeks before the next ex-div date so I will be able to receive the next payout as well.  This will take my position in INTC up over 5% of my FI portfolio and I think that's where it'll be staying for a while.  I also sold the put on margin which at the time I sold it meant I needed $553.50 to satisfy the margin requirements instead of the $2,100 if I sold it as a cash secured put.

I feel that both the purchase of LO and the put option on INTC will be great additions to the portfolio.

I've updated my Option Summary and Portfolio pages to reflect these changes.

10 comments:

  1. I think those are both good buys. I'm working on closing out my INTC put and selling a put on LO. I'm a little hesitant to buy LO outright since I already have a lot of money in MO. But there's so few good buys right now that LO might get grabbed in the upcoming weeks.

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    1. MyFIJ,

      I was looking to make another defensive purchase and LO seems to be the cheapest of the tobacco companies. Since PM doesn't make up a large portion of my portfolio I was fine adding here. I wish I had sold some puts on INTC when the big drop after their earnings were announced 2 quarters ago and the price dropped to sub-$20, but that's passed so I'll just take this opportunity. I think it's a good spot because I can average down nicely or get a very nice return.

      I agree about the lack of good buys currently. I think if you want to make buys right now you have to push closer to the fairly valued or slightly over valued range. As Buffet said "I'd rather own a great company for a fair price, than a fair company for a great price"

      Thanks for stopping by!

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  2. I like both of those purchases! I think the fear that menthol cigarettes will be banned are a bit overweighted in the market, as such a ban would result in too much tax revenue being lost.

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    1. W2R,

      I don't see the ban going through either but it's still weighing heavy on the market. You bring up a good point about the lost tax revenue. It's funny though because there shouldn't be too much lost since I was reading an article on SA and apparently menthol cigarettes were discovered by someone that kept his cigarettes in a tin with mint leaves and it gave them a nice flavor. So you could easily get around it if you wanted to.

      Thanks for stopping by!

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  3. Hi Pursuit,

    I like both of these moves. I also own both companies and have puts outstanding on both, 2 with Intel and 3 with LO. I still like INTC long-term and I think LO will do fine for a while, I'm not too worried about the menthol ban.

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    1. AAI,

      Glad to see you're on board with the moves with some skin of your own in the game. If this INTC put expires worthless then I'll look to sell a longer dated put, but the return was good for about a 1 month holding period and I can get the next dividend if it's executed. I would't mind selling another put on LO but I need to look and see if the premium is still there. My hunch is that it is, so I'll sell a longer dated put this time around if I go that route.

      Thanks for stopping by!

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    2. Pursuit,

      Nice going on the LO shares. I think LO is one of the finer opportunities on the market right now if you believe that the menthol worries are overblown (as I do). The yield is otherworldly right now in this environment, backed by solid growth to boot.

      Great going, you've been very active lately. Keep it up!

      Best wishes.

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    3. DM,

      Thanks. LO is one of the few bargains in the market but obviously it's not without it's issues with the potential ban. Assuming this passes with no impact the great starting yield and expected DG going forward will be a killer combination.

      I've been a little bit more active than normal, but unfortunately not much of that has been making outright buys. But that has to do with the state of the market right now.

      Thanks for stopping by!

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  4. I seriously need to buckle down and pick up some LO shares. If only I had an infinite amount of money =) I sold some puts on INTC as well, I think 10 years from now share holders will be rewarded very handsomely! I really like how you publish every detail of your portfolio, it's great to be reassured in some of my picks and get new ideas at the same time.

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    1. Marvin,

      I also like when other bloggers publish the details of their portfolio changes. I've gotten several ideas from that because it's hard to keep track of the several stocks. I'm working on it with my stock analysis page since it automagically updates so I can see where it's currently trading with respect to my calculations.

      I think LO would be a great fit for a DGI's portfolio, of course that's why I bought some. I think the menthol ban talks is much ado about nothing and the yield sure is juicy right now.

      INTC is another company that I think will be fine in 10 years. All they need is to make a little bit of ground in mobile to get their foot in the door. There operations currently spin off tons of cash which can tide them over until their mobile platform gets adopted.

      Thanks for stopping by!

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