Thursday, August 4, 2016

Wrote new covered calls on $SBUX.

This is an update on my existing Starbucks position.  To see my last moves on this stock check out the link here.

Starbucks has dropped quite a bit the last few days.  Because of this, I am pretty confident this time around that the AUG5 58 covered calls are going to expire tomorrow worthless.  So today I chose to write new calls that will take their place after they do expire.  I generally want to collect about the equivalent of a dividend payment each 3-5 weeks.  This is just a rule of thumb and there isnt any real magic behind it.  I try and make writing covered calls worthwhile and I figure about 100-200 bucks a month make it worth the effort.  Today I wrote 6x SEP2 calls (soon to be covered) at 58 strike for $120.50 after fees.  This reduces the cost of the overall position to $33109, or 55.18 per share.  The stock finished at 55.43 today so event though the stock is down since I bought it, by reducing the cost using covered calls, I am still ahead on the position.

Current position:
Long 600 shares of SBUX
Short 6x AUG5 58 calls (these will expire tomorrow)
Short 6x SEP2 58 calls
Total cost of the position: $33109.
Yield of dividends on cost: 1.45%

In October, I expect Starbucks to raise its dividend, so while the stock has shown some weakness lately I will be looking towards that month and the dividend announcement with some anticipation.  SBUX has been aggressively raising its dividend the last few years so I hope to see a similar move in a few months.

Thursday, July 28, 2016

What I'm doing with the Canada Child Benefit. $PWF

Last week, we received our first Canada Child Benefit deposit into our chequing account.  The CCB is a tax free benefit given to parents and guardians of children as a way of the government supporting families with related expenses.  We've been anticipating it since Justin Trudeau became our Prime Minister last Fall and have been discussing amongst ourselves what we should do with the money.  The amount paid out is based on a parents/households net income as reported to the Canada Revenue Agency.  For us, the amount is about $225 a month or about $2700 annually.  For other parents the amount will be more or less or nothing.

When the government sends us money of any sort, we usually try to save it and build some sort of legacy fund for ourselves so that the money can become larger and we can benefit from it well into the future.  Benefits come and go with different governments so we never want to come to rely on a benefit like this because when at some point the CCB may not be there.  So in this case we decided to set up an account in our name that would generate monies for our kids.  We have two boys ages 9 and 6 and while they dont cost a lot of money now, they will begin to cost us more into the future as they become slaves to fashion, start dating, want to fund a TFSA, need money for school etc...  The goal is to create an investment portfolio that spins off some money that we can use from time to time on the boys as need be, but most of the time the objective will be to grow the pot for a future rainy day.

Today, I moved the CCB money plus an additional 110 dollar into the account.  The pot starts at $335.  Most people who follow me know that we like to use leverage in our investments under the right circumstances.  We're very comfortable using leverage and see no reason why we can't apply that investing principle in this case well.   By using leverage and adding money every month we expect this account to compound nicely over the next 15-20 years..  At the moment, in this new account, we can borrow on margin at an interest rate of 4% which is historically low and while the stock market has had a great rally these last few years, there are still bargain buys to be found.

With the money Justin Trudeau sent us, plus the seed money we added, plus with $279.80 of leveraged money we bought 20 shares of Power Financial for 604.80.. an average price per share of $30.24.  The stock pays a dividend of 1.57 per year, which works out to be about a 5.2% yield.  Total dividend amount paid to us on these 20 shares is $31.40.  On the borrowed $279.80, we will pay $11.20 in interest a year so if we do nothing, the dividends will continue to pay down the borrowed amount over time.  This is one of the rules we follow when using leverage.. the position must be cashflow positive and/or pay for itself.   At the current ratio, the position is 46% leveraged... although this number will swing wildly as more money is added monthly.

We'll be adding Justin's $225 cheque each month and the account will increase at a high percentage to its previous months balance so using leverage wont be a huge risk for awhile.  We'll continue to add to the PWF position if the price is reasonable... or will look to buy other stocks...
As time goes on, we will look to use leverage to buy undervalued stocks when they are beaten up.. and when stocks seem overvalued, we will use the CCB cheque to pay down the leveraged debt.

Saturday, July 23, 2016

They see me Rollin': An update on my $SBUX position.

This is an update on my Starbucks position.  For my most last trade on the position go here.  For background on the original position go here.

Going into Friday my SBUX position was as follws:
Long 600 shares of SBUX stock
Short 6x JUL22 57.5 covered call contracts
Total cost of the position: $33422.5

Earnings came out on Thursday July 21, and were a bit of a disappointment, but it didn't seem to phase Starbucks Investors as the stock pretty much stayed flat for the next few days.  I see more upside on Starbucks given the strength shown even after the weaker than expected earnings results.

On Friday July 22 (yesterday) I rolled my existing covered calls up and out to a later date.  The calls were In The Money (ITM) by about 40 cents (stock price at 57.90).  At 3pm on Friday I rolled from July22 57.5 to AUG5 58 for a credit of 73 bucks.  By rolling up and out for a credit, I have reduced my cost basis of the overal position to $33349.5 (or 55.58 per share) and have raised my max profit to $1450 on proceeds of $34800.  My Rolling rules are pretty simple... Roll up and out when necessary up to two months out, and always roll for a credit.

One thing that I will be watching for is the price on ex-dividend date.  The company pays a 20 cent dividend per share to shareholders as of Aug 2.  This means that on August 1st if the stockprice is ITM by a lot I many need to roll the covered call early if I really want to keep the dividend.  This earlyt roll woould be to prevent someone calling away the shares early.  At 600 shares, the dividend payout would be $120 so its not huge, but if a roll for a credit will help me keep a sure thing dividend, then I'm on it.  The stock price closed yesterday at 57.91 so its pretty close to At the Money (ATM) at the moment.

Current Position:
Long 600 shares of SBUX
Short 6x AUG5 58 covered calls
Cost of position: $33349.50

I expect to be rollin' on Aug 1 or Aug 5.  See you then.

Update August 1st.
As of 11:10 today, the stock is at 57.70, which is 30 cents OTM.  The AUG5 58 strike covered calls I have on will not need to be rolled and the shares will not be called away.  I will collect the $120 dividend.  This will reduce the cost of the overall position to $33229.50.

Monday, July 18, 2016

I've got the Power! New Covered Calls on Power Corp. $POW $POW.TO

Today I wrote new covered calls on my existing stock position on Power Corporation, listed at $POW on the TSX.  The July covered calls that I had expired worthless last Friday and today I was able to write a new covered short call position.  To see my original post where I initiated the position go to the link here.

The stock has dropped since my original purchase at 29.31 to 28.20 this morning.  Since I had written a covered call at the strike of 29 and had collected a fairly large premium the first time, I'm pretty close to being even on the position overall.   Today I wrote 30x AUGust covered call contracts at 29 strike on the 3000 shares I have at a price of 0.20.  After fees, I collected a total premium of $553, thus reducing the total cost of the position to $84772, or about 28.24 per share.  Coming up in early August is the earnings announcement for POW so that will be a date to keep a watch for.  If the shares are called away, I will make a profit of $2228 since June 4th on the position if I let the shares be called away.

If its possible to roll the shares for a generous premium, I would like roll the covered calls out another month.  If the calls expire worthless on the August 19 expiry, I will look to write more covered calls the following month.

TL:DR version:
Current position:
Long 3000 shares of $POW
Short 30x AUG 29 Covered Calls.
Total cost since initiating the position: $84772

Monday, June 27, 2016

An update on my $SBUX position... Added some uncovered calls.

This is an update on my existing $SBUX position.  If you want to read about the position up til now, go here.

Long 600 SBUX shares
Short 6x JULY8 57 covered calls

Sometimes it become apparent that some covered calls I have wont be close to being ITM by Options Expiry day... This is the case for SBUX.  Before the #Brexit vote last week, Starbucks was trading at $56.13.  After the vote, the stock took a tumble along with pretty well every North American stock.  Near the end of the trading day today the stock is trading at 53.60, which is 3.40 or 6% below the Covered Call strike.  With all the doom and gloom in the market at this point in time, it looks like chance of SBUX trading above 57 by July 8 is very close to nothing.  The delta on the call is 0.08 with 8 trading days til OPEX.  I decided to assume the calls will expire worthless and sell more calls in SBUX further out and up.  Today I sold 6x JULY22 57.5 calls for a total of $180.50.  This reduces the cost of the position to $33189.50.

SBUX would have to follow arrow to go In The Money by July 8... something I think is very unlikely.

Current position:
Long 600 SBUX shares
Short 6x July8 57 covered calls
Short 6x July22 57.5 covered calls

Given that I now have uncovered calls in SBUX until next week, I cannot just ignore this position.  If there is a surge in SBUX, I may need to close the 57 calls early just to be safe.  If the stock moves above 56, I would close the July8 calls.

If I need to close the position early, I will blog about it...
Update June 29

Well that didn't work out as planned.  The very next two days after I wrote the JULY22 57.5 calls, the stock goes up 6%.  I got an alert on my phone mid morning saying the stock price had gone through 56.32 which was the price I set to buy back the JULY8 covered calls... which I did for $233, which at least was less than I sold them for... so there was a small profit of about $20.... whoop whoop! I wouldn't call the addition of the July22 calls as a complete bonehead move, but in retrospect it doesn't look all that smart.  I'm not all that fussed about it... I took the chance, was wrong and got out before the pain became too much.  Lets move on.

So the price of the position is now $33422.5.  My learning here is to expect volatility in both directions after big global political events.  I was happy to close the position before the JULY8 covered calls became losers.

Current Position
Long 600 SBUX shares
Short 6x JULY22 57.5 covered calls

Wednesday, June 8, 2016

New stock position on Starbucks. $SBUX

Yesterday, I initiated a full position on Starbucks in my US funds investment account.  I had some money free up in January when I had some AT&T shares called away and I've been trying to decide where to put it for some time.  I have been interested in $SBUX for a few years but have never been able to pull the trigger on it.

Yesterday I was looking at the stock again and liked its profile as a aggressive dividend grower.  PE is lowest its been in over a year and a half.  EPS continues to grow and Starbucks is still finding locations such as Asia to expand.  I only drink Starbucks maybe once every couple of months but whenever I go there, there is always a line-up and rarely a place to sit... so my field testing supports the data... suggesting Starbucks has some good traffic even if you have to pay a premium for their coffee.  Starbucks has marketed itself as one of those simple luxuries that people will pay extra for.

I decided to jump in and buy 600 shares at 55.60.  Total cost of $33370.  I then wrote 6x July8 covered calls at 57 strike for 0.45.  Total premium collected was $252.50.  This reduces the cost of the position to $33117.50, or $55.19 per share.  I plan on holding this position for some time and will continue to write covered calls every 4-8 weeks til the end of this year and then reevaluate the position.  SBUX can be a volatile stock so I wont be too fussed on the day to day stock price.  The company pays a 20 cent dividend per quarter which tat he price I paid is about a 1.4% yield.  I will update this position as I roll or open new covered calls on it... with the main objective being to reduce the cost basis of the stock... but I wont be unhappy if the stock is called away at a profit.

Saturday, June 4, 2016

New buy-write on Power Corp of Canada: $POW

A few weeks ago, my $TRP shares got called away.  I was pretty happy with that position and was looking for another similar position for my TFSA to open up with the proceeds.  Something that was fairly conservative.  Yesterday I opened up a Buy-write on Power Corporation, ticker $POW on the TSX.  Power Corp is a holding company with a couple major holdings in Canada (IGM and GWO all within PWF) and a bunch of European holdings.  Its a steady company with a solid dividend.  The stock yields about a 4.5% annual dividend.

I bought 2000 shares of POW at $58629, a price per share of about $29.31.  I then wrote 20x July15 covered calls at 29 strike for $1165, or about 0.58 per share.  This reduces the cost of the purchase position to 28.73 per share or $57464 in total...

The stock pays a dividend of 33.5 cents to shareholders as of June 7 which is in 2 business days.  I expect to collect this dividend.  This will reduce the cost of the position by an addiational $670, making the cost of the position $56794.

At the time of opening the position there is 42 days til expiry of the option.  Time decay will be fast.

Scenarios at expiry:
1)Stock finishes above $29 and shares are called away.  Proceeds collect is $58000, resulting in a profit of $1206.  This would represent a 2.1% profit in 42 days.  Not huge, but reasonable for a stock that I'm happy to hold for awhile.  I would likely try and roll the covered call out and up for a credit if possible... I will make this decision on the Friday before expiry.

2) Stock finished below $29 and shares are not called away.  Cost of the postion is reduced by the covered call premium collected and by the dividend collected.  Cost per share is $28.39.

3) Share called away early to for dividend capture by the call buyer.  This wont happen.

Update June 13.  
On June 7 I added 1000 MORE shares for 29110 and wrote 10x covered calls at 29 strike for $627.50.  This makes my total position in $POW equal to 3000 shares with 30x July Covered Calls.  Total cost of the position is now $85276.50.   If all shares are called away on July OPEX, the profit (proceeds - cost) would equal $1723.5, or a 2% rate of return in about 42 days.  I am happy to keep the shares and will try and roll the shares at OPEX if possible.   Break even is around 28.35 or so.