Friday, September 23, 2016

More Covered Calls on Starbucks...Pumpkin Spice edition $SBUX



Today my SEP 23 Starbucks 58 covered calls expired worthless.  The stock has dropped a few bucks since my last post but that doesn't stop the Covered Call train from rolling along.  To get an update on how we got to this point in time, see my last post here.

Early afternoon today, I sold new covered calls also at 58 strike although I had to go further out than I normally like to, but I wanted keep the call strike at 58 so in order to get a decent premium I had to go 7 weeks out to Nov 4.  I sold the 6 contracts at 0.34 per share, which amounts to $186.50.  This reduces the cost of the position to $32813, or $54.69 per share.   I originally purchased the position for $55.60 per share, but I have reduced the cost of the position by writing covered calls every 3-5 weeks (or in this case 7 weeks) since June.

TL;DR version
Long 600 shares of $SBUX
Short 6x Nov4 58 Covered Calls
Total cost of the position: $32813.50

If the shares get called away at $58, I will collect $34800 which is a profit of $1986.50.

Events to watch for in the next 7 weeks is earnings in early November and a probable dividend increase.


Thursday, September 22, 2016

Trudeau Bucks account update. Added some North West Co. $NWC



I hadn't planned on creating a series of posts on the Canadian Child Benefit (dubbed Trudeau Bucks in our household) investment account that we set up a few months back, but now I am thinking I may update it from time to time or whenever I make a purchase/sale of a stock or if something significant happens.  To see my original post on what we set up and our general philosophy of the account, you can check out the link here.

To date, we've received 3 CCB payments of $225 from the government, plus added $110 of our own to the account.  We're comfortable with using leverage to buy stocks so long as the investment is a sound longterm investment and the portfolio's income pays for the leveraged loan.

We added 30 shares of North West Company $NWC to the portfolio two days ago.  North West Co. owns and operates grocery and general stores in Northern communities, many of which are remote.  In my previous career as a Geologist, I spent some time in a few Nothern Communities and regularly shopped as the NWC stores.  In both Red Lake, Ontario, and Fort Liard NWT, the NWC was the main, if not only, general/food store in the community.  They've created a foothold in many remote communities where shipping costs are very high, which has either chased away many of the bigger store chains or is simply a roadblock to entry.  They've filled this niche well.  At the moment, they generate an estimated (2016) earnings of $1.44 per share and return $1.24 of that to shareholders.  At present the yield is approximately 4.5+%.  Operating margin is about 6% which seems low, but I would consider it safe and stable since in many cases, NWC is the only game in town.   The stock recently got whacked from a disappoint earnings release, but as with most good companies these types of new events tend to often be buying opportunities, rather than reasons to shun the stock.  I think this is one of those buying opportunities.



Total cost (after fees) to buy 30x $NWC shares at 27.14 = 824.49
Added to the cost of the 20x shares of $PWF shares of 604.79, results in a total Adjusted Cost Base of stocks in the portfolio of $1429.28.  As the account has only had $785 of actual money added, the remaining monies came from the margin account loan.  This means that today, $644.29 of the stock purchase value is borrowed using a loan at 4%.

Annual Cashflow Summary of the portfolio:
Dividends from 20 shares of $PWF:      +$31.40
Dividends from 30 shares of $NWC:     +$37.20
Interest owing from borrowed amount:  -$25.77
Cashflow:                                                +$42.83

At this current moment in time, the position pays a positive cashflow of $42.83 annually if no more monies are added.  Obviously since each month we will receive an additional CCB of $225 and could apply it directly to the loan, we could see that interest cost disappear within a few months if need be.  In the mean time if we see other stocks at reasonable or cheap prices with a stable and growing dividend, we have no problem using the Canada Child Benefit to further build up the asset base of the portfolio so long as the cashflow remains positive.

Thursday, September 1, 2016

New (un)Covered Calls on $SBUX.



This is an update to my current Starbucks position.  You can read about my last trade here.

Tomorrow, we make the trip to Ottawa for the biggest racing weekend in Ontario BMX.  I wont be at my computer tomorrow so I wont be able to close any old positions, but most looks pretty safe.  Because of that, I had to make a decision on what to do with my Starbucks covered calls that expire tomorrow.  The stock is at $56.30.... which is 1.70 or 3% below the strike price.  After some thought, I decided to do nothing with the existing 6x SEP02 58 strike covered calls and write 6x new calls on the position that expire SEP23 at the strike of 58.  This means I will have 2 sets of covered calls open at the same time, but one set will expire worthless so long as the stock doesnt rocket above 58 by the end of tomorrow.  I'm prepared to take that chance.  I collected $109 in premium from writing the new calls which reduces the cost of the total position to $33000.

TL:DR
Long 600 shares of Starbucks $SBUX
Short 6x SEP02 Covered Calls
Short 6x SEP23 Calls (will replace the SEP02 at end of tomorrow)
Total cost of the position: $33000 or $55 per share
Yield on cost 1.55%


Tuesday, August 30, 2016

New OCT covered calls on my Power position... $POW




On August 19, my most recent covered calls on Power Corp expired worthless.  To check out my previous updates on this position I initially opened in June go to the link here.  I waited just over a week to sell new covered calls on my POW shares because the stock price had dropped a few bucks and there were no covered call strikes that appealed to me, so I waited for a bit of a move up that increased the call prices a bit.  As I write this the stock is trading at $28.10.  Today, I sold 30x October 21, 29-strike covered calls for a premium collected of $403.  This reduces the cost of the longterm position to $84369.  The company also pays a 0.335 dividend per share to shareholders as of September 7.  This amounts to a payout of $1005 which I am fairly sure I will get.  This will further reduce my position cost to $83364.  The position strategy is working well.  The covered call strategy on POW isnt making me tonnes of money, but its doing exactly what its supposed to do... generate income and reduce the cost of the position.

TL;DR
Current position:
Long 3000 shares of $POW.TO
Short 30x October 21, 29 strike covered calls
Total cost since opening position: $83364 (assuming I collect the dividend.. which I should)

Adjusted Cost Base per share is $27.79. Dividend yield on cost is 4.8%


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.

$PWF
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.