Steady Money

Steady growth, steady income

Thinkin’ bout Exxon Mobil (XOM) 9-25-10

XOM 1 yr chart

Pretty exciting day in the Friday market.  I have been watching XOM for a while.  Was able to pick it up 58ish in the July sell off, was able to sell 5 Sep65 covered calls (.45) for a nice $225 to pad the $220 dividend paid this month. $445/29k basis represents a 1.5% income return… not bad for one month.  That does not even include the price appreciation from 58-62.  The Sep65 expired  OTM (out of the money) as it never reached the 65 strike price.  So now I am looking to resell another covered call to generate additional income. 

I would be remiss not to mention that I sold 5 Aug55 puts for $917 (expired OTM) and then resold 5 Oct55 puts for another $507.  The total income generated from selling both puts and calls equals ($1869/29k) 6.4%.  Now we’re talking!  Of course, I have the risk of having the stock put to me at $55, should it close at October expiration at or below that strike price. A risk I am willing to take. 

XOM has appreciated and closed near $62 on Friday.  Time to consider reselling the expired Sep65 covered call.  Recent highs on 6/21 were 64.5 .  Also, note the 200 day moving average has descended to approx. 64.  The 200 day moving avg. served as a nice top of 69.5 back on 4/26.

Sooo, I am going to use that 200 day avg. and look at selling another 65 covered call. Oct65’s are only paying .08, Nov65’s are at .40 and would pay $200 for 5 puts.  My risk would be that XOM climbs above 65 by November expiration and I would have to surrender my 500 shares at 65.  Of course I could always buy the position back and roll it forward a few months and pick up additional premium or move it up to a higher strike price.

Friday price action was interesting.  In a market that accelerated up nearly 200 points, XOM closed up .60 at $61.75.  It seemed unable to break out above $62.  So a 65 covered call may be the level. 

As of yet, I haven’t pulled the trigger, but will be watching closely this next week so see how XOM trades.  If the market and XOM take off to the downside, I may have missed an opportunity.

Opportunities come and go. Will keep you advised.

Disclaimer:  Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, may not reflect actual investment results (unless otherwise indicated), do not take in consideration commissions, margin interest and other costs, and are not guarantees of future results.

At the time of publication the author owns shares in the underlying equity or asset and has sold option put/covered call positions in the underlying equity.

*covered call option – an option strategy where one owns underlying shares in an asset or equity and sells a contract/option to another at a specific strike price for a specific premium, whereas the buyer may call the asset away from you at the strike price during the term of the contract ending on the expiration date of the contract.

Advertisements

September 25, 2010 Posted by | investing | Leave a comment

Nucor update… this & that

What a market..  difficult to watch. no real themes,  but definitely responsive to headlines.  Job data was down, market sold off 100.   took Nucor down to 37 and I was able to sell the Nov35  put for $1.14, 5 contracts for $570.  volatility ticked up to 35 (as you would expect) that made that premium possible.  Midday NUE has recovered, but the trade is done.  now just watch and wait for expiration to see if it expires worthless ( I get to keep it all), or I get exercised and buy some more NUE at 35, or I just roll the position forward for another premium.  Of note, last month I had sold the opposite end of the trade Oct43 covered calls for .46 or $230.  so my total investment income plus the $180 dividend equals approx $960 for this qtr. alone.    My basis in the stock is approx 22k, so the return this qtr is 960/22k = 4.4% .  run this out to a year and it would yield over 16%.  not bad for a stock that yields a yearly 3.86 % dividend.. 

watching XOM, but not seeing anything exciting, yet.

Disclaimer:  Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, may not reflect actual investment results (unless otherwise indicated), do not take in consideration commissions, margin interest and other costs, and are not guarantees of future results.

At the time of publication the author owns shares in the underlying equity or asset and has sold option positions in the underlying equity.

September 23, 2010 Posted by | investing | Leave a comment

Thinkin’ bout Nucor Steel

NUE 1 yr chart

Today was a little more exciting than Friday’s expirations.  Several of my option positions expired OTM (out of the money) meaning I got to keep all of the money I had received from selling covered call positions 30 – 60 days ago. I highlighted Arch Coal covered calls that expired on Friday. Well, today the market opened up and I was able to resell the Arch covered calls at a new and higher strike price of 26 and an October expiration; receiving another $295 for the 5 contracts. So that is a total of $475 over the past two months.  Will see where ACI ends up at October expiration.

Looking for another trade in my portfolio, I noticed Nucor Steel which also had developed a band pattern trading between highs of 48 and lows of 38, however has trended lower over the last three months and appears banded between 36 and 41.  Not great price action but I am getting a nice little (.36) or 3.72% dividend for my patience (goes ex-dividend 9/28).  Once again beating my 0.2% money market return.   NUE closed up a few pennies today at $38.76 – no participation in broad market rally.  This represents essentially a mid-point in the 36-41 band.  US Steel was downgraded today, and the industry is languishing in general.  My guess is the broad market will pull back from the recent rally and NUE will sell off approaching the $36.50 

August lows.  I set an alert to be notified when NUE drops under 37.50.  Selling a 41-42 covered call as it approaches lows will not yield significant option premiums, but selling an Oct or Nov 35 put* should be handsomely rewarded. I am guessing the Nov35 may be worth $1 or more under that scenario.  5 put contracts would net greater than $500.  If NUE closes greater than $35 at expiration, then the put would expire worthless, and I get to keep the $500.  If it closes under $35 (strike price) at expiration (or any time during the term of the contract), the buyer has the right to “put” that stock to the option seller (me) at $35, regardless of prevailing, underlying stock price. That is my risk; owning the stock at $35, for which I was paid the $500.   

Of course I can always buy back the option at the prevailing option value (probably greater than the initial $500) and take a loss, or sell it again forward to December or January at same or lower strike price and recoup the $500 and probably pick up an additional premium as well. This is termed “rolling the position forward”.

*put option – an option strategy where the put option owner/buyer  may “put” or sell the underlying asset or equity to the option seller at a specific strike price during the term of the contract.  The buyer pays a specific premium to the seller for this option “right”, ending on the expiration date of the contract.

Disclaimer:  Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, may not reflect actual investment results (unless otherwise indicated), do not take in consideration commissions, margin interest and other costs, and are not guarantees of future results.

At the time of publication the author owns shares in the underlying equity or asset and has sold covered call option positions in the underlying equity.

September 22, 2010 Posted by | investing | Leave a comment

Options Expiration 9/17/10

What a yawn…….  For fast money traders today’s market was a perfect waste of a clean shirt and a cab fare. However, for us steady money folks, today was a very good day.  Often.. boring is good. The S&P was up 93 pennies; essentially flat.  But today several of my option positions expired OTM (out of the money) meaning I got to keep all of the money I had received from selling covered call* positions 30 – 60 days ago.  I have owned ACI – Arch Coal for quite some time.  Hoping for a big boost upward from the China needs coal trade.  Well, that hasn’t quite worked out as planned, nevertheless, the stock price has developed a nice pattern of band trading between highs of 28 and lows of 20.  Besides, I am getting a nice little 1.62% dividend to stick with it.  Sure beats my 0.2% return of my money market account.   Not being satisfied with 1.62%, I decided to make a little additional income on this stock.  On 7/22 stock was trading @ $22 having recently bounced off a $20 bottom.   I sold 5 September expiration covered call contracts at 25 strike price and received a payment of $180 ($36/contract) which I pocketed.  Cha ching.   Then I just watched and waited.

So what happened?  Today the stock traded in the 24’s and closed at $24.77 just under the $25 strike price.  If the stock would have closed above the $25 level, then the person who paid me for the contracts would have had the “option” of calling the stock away from me at $25, regardless of final closing price.  But, it didn’t.  Sooo, I still own the stock, pocketed the $180, and (by the way)  received my quarterly dividend of $50, total of $230 for owning this stock. Let’s say I was able to do this trade just once every three months,  I would receive a total of ($230 x 4) or $920;  a 9.2% return on my initial $10,000 investment (500 shares initially purchased @ $20). Next week we will look at another option trade we might be able to make on this same stock.

*covered call option – an option strategy where one owns underlying shares in an asset or equity and sells a contract/option to another at a specific strike price for a specific premium, whereas the buyer may call the asset away from you at the strike price during the term of the contract ending on the expiration date of the contract.

Disclaimer:  Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, may not reflect actual investment results (unless otherwise indicated), do not take in consideration commissions, margin interest and other costs, and are not guarantees of future results.

At the time of publication the author owns shares in the underlying equity or asset and has sold option positions in the underlying equity.

September 20, 2010 Posted by | investing | 2 Comments