Monday, November 29, 2010


Waste Management, ostensibly bought by Warren Buffett, had been vascillating between a C and D at Schwab (sell and hold). DITM position was called away Friday before today's ex-d date, with the January call being exercised. Total annualized return based on a 10-month holding (sans this dividend): 10.8%, just about the average (minus the plungers like BP). Glad to get rid of that position, as it has been falling well before the market.

Nota Bene: Jeremy Siegel, of Stocks For The Long Run fame, stated in his book that for over a century no 20-year slice of market history ever contained a lower level than at the beginning- that string broke as of 2000.

Today on CNBC Michael Thomson of Standard and Poor's mentioned that dividend increases on S&P500 stocks doubled year-over-year ; he said people are buying stocks for INCOME now, not bonds!

New position taken today (don't try this at home) - I noticed MAT, on a nice uptrend, going ex-D this week with an ANNUAL dividend of $.83 and over $.50 extrinsic call value on the April call, would return an annualized 12.8% if all goes well (no special adjusted option, etc.)

Tuesday, November 16, 2010


The question I have to ask myself today is "Which is worse - taking my third loss out of 70+ trades so far in the DITM strategy, or getting a root canal?" Actually I did both, one leading to the other. Since the TLT was tanking and I had made the error of not selling a 10% ITM call, rather one that was right at technical support, as well as "insured" by Uncle Ben's QEII, I had to put a stop on it since I was in the dentist chair at 7:30 a.m. Tuesday, and all market reversals really looked cascading the last couple days, including the Calif. Muni Bond funds I so dearly love - NCA,NCP, TFI, MUC, etc. Luckily I hedged the TLT with the Ultra (2X) TBT and got 1/3 of the loss repealed:
Bot 300 TLT at $102 - $30,650
sold 3 Mar. 98 calls for $1650 (bot back at $520)
got 1 dividend - $100
closed out TLT at $28250, whereupon it bounced back immediately whilst being drilled on.
Net on the TBT -$375, also stopped out at open.

Sunday, November 14, 2010


This update illustrates an egregious exemplum (e.g.) of why I like DITM covered calls in this investment environment: NUE
Although the SPX has run from 1115 to 1200 YTD (UP 7.6%),Nucor Steel, a DITM candidate with over 3% dividend and liquid options, has dropped from $46.65 to 40 YTD (14.3%). The buy/write occurred on March 26 with the stock at $45.93.
In sum, with dividends and call premiums, if called away at yearend at 37-strike(next ex-D), it will have returned an annualized +6% while the stock dropped 6%.
Bot stock 200 shares: $45.94 or $9196
Dividends rec'd (3): $216
Call premiums (3): net $2007
Net profit at 37: $416, or 6% annualized over 9 months. (10 months if not called away).

Wednesday, November 10, 2010


I just got the dreaded (?) phone call from Schwab's auto-phone that my DD (Dupont) was called away prematurely yesterday. Bot in August, the Call was due to expire in the 3rd week of January (ex-D is today). Unlike the previous callaway - DUK- I timed this correctly, so sans today's dividend, my net profit (net of my commissions) was an annualized 12.4%, much better than the SIR DUK.
Cost: $4174
Call sold:$571
Stock called:$3691
Net:$129 for 3 months

Tuesday, November 9, 2010


DUK, Duke Power,was called away today just before ex-Dividend, by a Call due to expire Jan.22, 2011. Even with the compressed time (and poor decision-making in my "trial period" of DITM) the return was only 4.75% annualized - still better than a year's CD or T-Bill. It is best to do the Buy/Write 1 or 2 weeks ahead of the first ex-D date, to ensure at least 1 dividend, plus Call premium ( I received 3 dividends).
TLT has slipped below my call price and bears watching, or even hedging with TBT. Down 12%, it might be a good B/W candidate, unless the dollar rebounds greatly.

Monday, November 8, 2010


My EIX (Edison) DITM position was called away on October 12, when I was away on vacation. I naturally assumed it was just prior to ex-dividend; it was a pleasant surprise to receive an additional dividend of $63 which was from an ex-D in late September.

So my annualized return for the 4 month holding was 9%, not 6.1%.
Although Utilities pay high dividends, their options are not that attractive for selling calls, nor is this a great environment for the Sector. Telecoms are better - VZ, T.

Standard and Poor's reports that for the decade just past, stocks' dividends comprised 84% of Total Return. Morningstar has an attractive rating for EXC -Exelon, and Leggett -LEG.

Wednesday, November 3, 2010

Pleasant Correction II

Received from EIX an extra Xmas present - a dividend of $63, although I had thought being called away on October 12, while away on vacation, I would receive none. EIX actually went ex-D in late September, so I was surprised that it was called away early. Still, the extra dividend makes it a 9% annualized return on the 4 month holding, not 6.1%
Standard and Poor's notes that 84% of the Total Return from stocks in the past decade 2000-2010, was from dividends.