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  • eurfi 22:46 on 2016-08-22 Permalink | Reply  

    Dividend Portfolio – Part 2 

    Last month I started my Dividend Portfolio using options. Since then I sold puts on VZ, VFC, TGT and GM with annualised yields between 4.6 % (VFC) and 7.9 % (GM). This yield is higher, if my strike price is nearer to the current stock price. All these options expire in January 2018.

    Today I sold puts on PSX relatively close to the money (stock at 77, strike 75) and with a much shorter duration (October 2016). The annualised yield is much higher (16 %), but I can only do this for stocks I would buy for the current price (because there is only little distance between the current stock price and the strike price of the option). Currently I do not find a lot of stocks that I consider attractive priced.

    Before today’s transaction my annualised yield of the whole portfolio was 5,6 % and I needed 430k to achieve my goal of 2k a month with this yield. After today’s transaction my annualised yield jumped to 7 % and my needed investment down to 340k. What a difference!

    Of course, if I can not reach the same yield in October, these numbers will go back to the previous level.

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  • eurfi 22:13 on 2016-07-29 Permalink | Reply  

    Starting a Dividend Portfolio 

    My idea of a dividend portfolio is as old as 2014. Back then I wanted to use options to build a dividend portfolio. To buy stocks cheaper than the current price you can sell put options (cash-secured put) and when you have them you can sell calls to increase yield (covered call).

    I had this idea in summer 2014. A few weeks later I met a guy who was doing all of this already (selling options on dividend growth stocks). This gave me a boost. But there are a lot of dividend paying stocks and most of them seemed expensive in 2014. So I just bought a few REITs and concentrated on other things.

    Of course, most stock prices of 2014 seem like a bargain now. I remember McDonalds to be around 80 – now 120.

    But a recent encounter made me think about this again and I started building a dividend portfolio. My goal is to have a portfolio of $600.000 (I mostly invest in US stocks) which should yield $2.000 a month. I’m not so fixated on the portfolio size, the yearly/monthly return is what counts. And Dollar is not Euro, and I also have to pay taxes. So, to really live off it, it has to be more. But if I can bring it to $2.000, I can also bring it to $2.500 or $3.000. I’m willing to use leverage.

    I’m already planning with a portfolio size of $600.000 and 40 – 50 different stocks. So a normal position is 2 – 2.5 %, which is $12.000 – $15.000. This is necessary as I need to buy round lots (usually 100) to sell options. Selling 1 options contract usually means 100 shares.

    I started this week with AAPL (Apple), KO (Coca Cola), MCD (McDonalds) and BP. If you don’t know about options, the following paragraphs might make no sense – just stop reading. 😀

    For AAPL I sold 2 puts with strike 80 and expiration 01/2018. This is an options with a very long duration (1.5 years). These are called LEAPs. I got $6 per contract. If AAPL falls dramatically, I will have to buy 200 shares for 80 ($16.000). I got $1.200 for it. If all goes well I will wait till 2018. I might buy them back when they are at $3. The current price is around $4.5 (AAPL has increased about $7.5 so far). I will not get dividends for this position, as no stocks are involved.

    For KO I bought 300 shares and sold 3 calls with strike 47 and expiration 01/2018. The stock price was at $43.4 and I got $1.4 for the calls. So my entry price is $42. And the maximum I can gain is $5, because if KO raises above $47 (in 01/2018), I have to sell it for $47. This is my obligation as call seller. KO pays a dividend of $1.4 each year, so my dividend yield compared to my entry price of $42 is 3.33 %. The normal yield is 3.22 %. So this is not a big difference.

    MCD is similar to AAPL. I sold 2 puts with strike 100 and got $5.2 each. This is a yield of 3.5 % ($5.2/$100/1.5 years).

    My last position is BP. Similar to KO I bought 300 shares and sold 3 calls. This time the strike is lower than the actual share price: 32 (BP was at 34). I got $2, so my entry price is $30. I assume I have to sell BP till 01/2018. So the yield is about 12 %.

    I’m still looking for a good way to keep track of these trades. Also, I have to build a list of good candidates. It is not so important that the stocks are cheap as I can sell put options at a lower price and still make money of them. I just have to stick to quality stocks, because for selling puts the upside is limited (to your initial premium you receive) and the downside is unlimited and can be a lot more than the premium.

     
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