Selling Options for Fun & Profit

Selling Options for Fun & Profit

As I mentioned way back in January,  I had the intention of merging the DDI #1 portfolio (moving it from WellsTrade) with my existing Fidelity account to generate both daily dividends as well as option income. After months of sort of moving things around and getting re-focused on creating systems for generating income, I’ve got the Fidelity account dialed in for primarily option trades as a source of income – so that’s what I’m doing there, covered calls, put spreads and even some *naked* puts – eeegads!  Yeah, naked puts, I will write them when I’m ok with buying the stock at a lower price, knowing that even if the price drops below the strike price, many times you can roll the contract out a few months to collect a few extra dollars of income *AND* if the stock turns around, I won’t even have to buy it! Some times you get lucky and that all works out…sometimes not…but that’s what trading is all about, playing the percentages.

Today I opened a new spread on a company I really like the fundamentals on – ticker: MKC – McCormick and Co., best known for their wide variety of cooking spices.

Screen Shot 2018-07-24 at 12.56.08 PMI like this company for a number of reasons, one- it’s got a HUGE moat, and barrier to entry in this business will continue to give this 129 year old company  a pretty strong grip on this market sector, keeping most new comers out.

Second, the company is consistent buyer of it’s own stock – shares outstanding has dropped from 133M in 2013 to 128M in 2017.

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And the third reason (although there are many others I won’t go into here) why I like this company, is it’s ever increasing dividend payout…. from $.98/share in 2009 more than doubling to $2.08/share today.

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The down trend support is at about $100/share and it’s currently trading at about 20% premium to that level. With that in mind, I went ahead and opened a December 2018 PUT Spread – selling the $100 PUT and buying the $95 PUT taking in about $380 in premium.

I’d love to hear what you are buying or trading? Adding dividend stocks to your portfolio? Or do you prefer to trade the options market? Leave a comment below with what’s working for you!

Thanks for reading!



Consolidating the DDI Portfolio

Consolidating the DDI Portfolio

daily dividend investor consolidates option contracts increased monthly cash flow

For some time now I’ve wanted to be able to write option contracts (buy and sell puts and calls) in the DDI Portfolio to generate additional income. However, the WellsTrade account where I manage the portfolio won’t allow me to trade options. I suspect this has to do with not wanting to hand out free option trades in addition to the 100 free equity trades they offer me each year. So as the new year begins I thought what better time than now to take the DDI Portfolio to the next level and move it into my existing Fidelity account where I have free range to trade all the option contracts I like.

In early January I started the transition process by moving about 80% of the DDI Portfolio holdings over to my Fidelity account.  I didn’t want to close the WellsTrade account completely since it still offer me the 100 free trades – I figured, perhaps I could use it later – perhaps if I decided to start yet another DDI fund! The other kicker is that I get all of my banking fees waived by keeping a minimum balance in the WellsTrade account, so I left just enough in the account to avoid fees for the foreseeable future.

Options Contract for Income 

Over the last couple of years I’ve worked to increase the monthly income from the portfolio – however it’s been a bit of an uphill battle. However, one of the factors that has adversely affected the monthly income is the price of oil. The drop in oil prices over the last 2-3 years has meant reduced income streams from those holdings that are pure oil/gas investments, specifically the oil royalty trusts like SBR (Sabine Royalty) and CRT (Cross Timbers Royalty).

increase cash flow efficiency monthly spendMy goal is to replace some of that lost income by writing covered call option contracts on several of the larger holdings in the portfolio. Writing a covered call on ticker: O (Realty Income) for example has the potential to net an additional $.10-$.30 which in addition to the monthly dividend of ~$.21 equates to increasing the monthly income for that one holding by 50-100%. When writing a covered call the downside is the potential of having to sell the stock, usually at a less than optimal price. Since income is the primary objective of the DDI, I’m ok with that “risk” and am willing to buy back in at a potentially higher price. As Jeremy over at Go Curry Cracker writes – it can actually be beneficial in paying less tax to capture capital gains by performing “Capital Gains Harvesting” on a regular basis.

DDI Portfolio #2

As I mentioned in a previous post, I had moved some funds to another account over at Schwab where I planned to start the Daily Dividend Investor Portfolio #2. For now I’m just going to let those funds/holdings marinate while I focus on DDI #1 and working the options contracts for increased income. I’ll do an update post on DDI #2 once I’m ready to focus on it.

As always…stay tuned! Thanks for reading.




Waiting for the Pull Back and Other DDI News…

Waiting for the Pull Back…

Eight long months ago, I was so excited to have a $5000 one day (unrealized) gain in the DDI portfolio. Yet my enthusiasm was definitely tempered by my concern of a good sized pull back.  Since that last post, we have had a few up and down waves in the market, but yet no sizable pull back to date. The Dow has gone from about 21,000 on March 1st to hovering around the 23,400 mark today. We’ll continue to enjoy the upward rise….and hope that any correction is small and short lived!

Cleaning the Cobwebs

Shortly after my last post in March, I went through the DDI Portfolio and did some house cleaning. I sold off shares of:

  • AA – Alcoa
  • DBD – Diebold
  • DLR – Digital Realty Trust
  • NFLX – Netflix
  • TPL – Texas Pacific Land Trust
  • WDC – Western Digital
  • NAT – North American Tanker

Some of the shares such as DLR and TPL had some nice gains. A few had turned into dogs, including DBD and NAT. And for some reason I thought it would be a good idea to put Netflix into the portfolio as a potential “future dividend payer” – but decided I should stick to current dividend stocks. Needless to say, I missed out on about a 50 point run in NFLX – but as they say, hindsight is 20/20. But I’m ok with that as I’m working towards being more systematic about the day to day management of the DDI Portfolio.

Creating the Systems

One of my goals early on for the DDI Portfolio was to come up with a systemized process for buying, holding and selling the companies that make up the portfolio. I have to admit, I’ve often just shot from the hip over the years when buying and selling and while I’ve done well, I probably could have done BETTER.

In September and October of this year, I decided that the cash balance in the Portfolio was a little too low for my liking. If we did see a large pull back, I’d like to have some cash available to pick up some potential bargains. Additionally, I’d like the Portfolio to be liquid enough that I can start taking distributions on a regular basis without having to look for what to sell each time I need cash.

I came up with the following first pass at a systemized process for operating the Portfolio. The first goal is to let your winners “run”, so while I’m not opposed to taking some gains, my first focus would be to trim the losers. Selling losers isn’t as easy as it might sound. If you believe in the fundamentals or the “moat” of a given company it’s hard to give up on them and sometimes it just takes a little time to work through a down period for the company. As an investor though, at some point you have to say enough is enough and stop the bleeding before it goes too far.

I decided that at the end of each quarter, I would review the DDI Portfolio and make the following sales:

  • Any position down 10-15%, sell 25% of the current holding
  • Any position down 15-20%, sell 50% of the current holding
  • Any position down >20% sell 100% of the current holding

Applying the System

After reviewing the DDI Portfolio and applying the new “Sell” rules listed above, I was able to sell some underperforming assets and raise the cash position in the DDI Portfolio to about $30,000.00 or about 5%.  I am satisfied with where the DDI Portfolio sits currently with regards to company holdings as well as cash flow and cash balances. I’m optimistic that applying these sell rules moving forward should help to keep a healthy cash balance as well as keeping the portfolio losses in check.

Final Adjustments for 2017

One of the many goals I’ve had for the DDI Portfolio over the last few years, was to see the account balance grow to $500k. After reaching that milestone a little over a year ago, the portfolio has been stable within the $500-$600k range even with some losses and a number of cash distributions.

Since the portfolio has remained consistently above the $550k mark for the majority of the year, I have decided to transfer about $50k from the Wells Trade account that holds the DDI Portfolio and fund a new account at Charles Schwab where I plan to create the DDI 2 Portfolio. I haven’t decided what the emphasis or goal of the DDI 2 Portfolio will be just yet, but I’m thinking about possibly taking some more aggressive positions such as using options to try and “juice” the income returns. Longer term goals include growing both DDI Portfolios to at least $500k each! Once the funds have arrived at Charles Schwab, I’ll post some updates on my future plans – stay tuned.



Holy Crap! DDI Portfolio makes $5000 Gain in one day!

So I wasn’t planning on doing another DDI portfolio update so soon, but after logging into my Wells Trade account today and seeing a $5000 GAIN I was blown away. Of course, the gains are great and I hope they continue – but the real question remains, how sustainable is this current market rally? The markets seem to be in love with President Trump, but I’ll be the first to admit, I’m getting a little nervous about a possible LARGE SCALE pullback.

Where do you think this market is headed? Are we going to 25,000 on the DOW or 15,000?

Are you buying, selling? Both? Let me know what you’re adding or removing from your portfolios!

Here’s to your investing success!

The 2 Things Dividend Income Investors Must Know – Part 2

Ok, so it took me a while….but I just uploaded part 2 to my YouTube Videos “The 2 Things Dividend Income Investors Must Know”. In this video I show you how using MorningStar – can make finding and evaluating dividend paying stocks quick and easy!

Bonus! – In this video I also show you one of my recent additions to the DDI Portfolio and *why* I was so excited to find this diamond in the rough. Take a look and let me know what you’re investing in as this market continues to climb higher and higher in early 2017!


Filling in the holes….

soldToday I sold some shares of one of my best performers and picked up a few shares of a couple new names. Over the last few months I’ve been mostly focused on adding new names to the DDI Portfolio in an effort to “Fill in the holes”. After all, the goal is to generate income *EVERY* day!

Looking back over the last 8 years while building the DDI portfolio, I believe I’ve built a good base of companies that have worked hard to provide an increasing stream of monthly income. After watching the destruction of the 2007 Global Recession it’s not unfathomable that the DDI portfolio could take a 60% haircut or more from current levels. And I know we’ll see a pull-back in the market sometime in the future, it’s just part of how the market works, but my intuition tells me that what we saw starting in 2007 was likely a “once in a lifetime” event.

When to sell?

One of the things I’ve struggled with in building the DDI portfolio has been if / when to sell a position. Way back in the day, I proclaimed that my holding period was much like Warren Buffet – that is “forever”. But then just a year or two later after seeing some fantastic gains, I panicked and ended up selling a good number of positions. I sold my position in Costco (ticker: cost) a few years back for around $110/share only to buy it back last October for $150/share – whoops!health-care-trust

Today I sold 100 of my 300 share position in Health Care Trust of America (ticker: HTA). This was originally a private REIT that was sold to accredited investors back in 2007 at between $9 – $9.50/share. Today the share price is near the $30 mark and so I decided to sell a portion of this holding to redistribute into other companies. My thinking moving forward is to start “harvesting” the DDI Portfolio of any holdings that reach 100% appreciation. My plan is to take some percentage, probably 100% of the original investment, and cash it in. I’m still working out the details, but my intention is to have a “hard and fast” plan that I can stick to.

As I’m now focbingo-ddi-investmentsused on filling holes in the portfolio, I’m looking for companies that will pay out on days that my current holdings don’t. The goal here is to try and reach “BINGO!” each and every week. BINGO! is a catchphrase I came up with to describe any week that I get a dividend payment everyday, Monday through Friday.

Past Mistakes

WARNING! There is an inherent flaw in what I’m proposing to do here by owning companies that will pay each and every weekday – and I’m guessing you’ve already figured it out. By buying companies based on their payout dates, and not completely on their financial worthiness, I could be setting the DDI Portfolio up for some oversized losses.

For now, it’s a risk I’m willing to take. What I often find when searching for companies that payout on a certain day is that there are several to choose from. Many of these companies tend to be smaller niche-y firms that have been around for 20, 30 or more years and have a good record for dividend payments. Also, by the sheer fact that the DDI Portfolio is over diversified, a hit taken by any one company isn’t going to sink the over all income stream or capital gains of the DDI Portfolio.

Case in point – in 2015 I purchased about 20 shares of United Development Funding IV (ticker: UDFI) and started collecting some nice oversized 7%+ dividends. By early 2016 UDFI had been accused of fraud and possibly running a ponzi scheme – both the dividend *AND* the shares were halted! Now I not only lost my income stream but couldn’t even get what was left of my principal out! I originally paid $1768 for 100 shares in August 2015 and sold those same shares after trading resumed in December 2016 for $429.00 – taking a little over a $1300 loss. With the DDI Portfolio currently valued near $550,000.00, this loss represents less that 2 tenths of 1% of the total portfolio value. I believe it’s a small price to pay and really, short of not buying the shares, I don’t think that I could have foreseen the problems before they happened.

So, what did I buy?

Today I bought:

  • 100 Shares – Bluerock Residential Growth REIT: ticker BRG -next payout Thursday Feb. 3rd
  • 20 Shares – MASCO Corporation: ticker MAS – next payout Monday Feb. 13th
  • 50 Shares – Vodafone Group PLC: ticker VOD -next payout Thursday Feb. 3rd

I’m too late (past the x-dividend date) to get the payout for each of these companies this month, but I’ve planted the seeds and will begin to reap the benefits next quarter.

I’m always interested to hear what you are buying and why? I’d love to hear from you in the comments below – thanks for following along on the Daily Dividend Investor journey!