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Posts Tagged ‘dividend’

Dividend Investors Will Love Alexandria Real Estate (ARE)

Monday, June 8th, 2020

This week we are looking at another of the Investor’s Business Daily (IBD) Top 50 List companies.  We use this list in one of our options portfolios to spot outperforming stocks and place option spreads that take advantage of the momentum.

With many tech stocks entering overbought territory, the appeal for REIT stocks is rising. Take a look at what the following two analysts had to say about Alexandria Real Estate – Why Should You Add Alexandria (ARE) Stock to Your Portfolio? and This is Why Alexandria Real Estate Equities (ARE) is a Great Dividend Stock.

Technicals

The technical outlook for ARE looks promising. The stock has rallied above its 200-day moving average after sellers stepped in to protect a rising trendline that is drawn from the March low. Further, ARE is seen attacking to a resistance level at $158 with strength and is on the verge of a bullish breakout. The moving average and trendline offer strong support for near-term dips.

ARE Chart June 2020 real estate stock options

ARE Chart June 2020

If you agree there’s further upside ahead for ARE, consider this trade which is a bet that the stock will continue to advance over the next six weeks, or at least not decline very much.

Buy To Open ARE 17JUL20 150 Puts (ARE200717P150)
Sell To Open ARE 17JUL20 155 Puts (ARE200717P155) for a credit of $1.43 (selling a vertical)

This price was $0.02 less than the mid-point of the option spread when ARE was trading near $159.  Unless the stock rallies quickly from here, you should be able to get close to this amount.

Your commission on this trade will only be $1.30 per spread.  Each contract would then yield $141.70 and your broker would charge a $500 maintenance fee, making your investment $358.30 ($500 – $141.70).  If ARE closes at any price above $155 on July 17, both options would expire worthless, and your return on the spread would be 40% (374% annualized).

Changes to Investor’s Business Daily (IBD) Top 50 This Week:

IBD Underlying Updates June 6, 2020

IBD Underlying Updates June 6, 2020

We have found that the Investor’s Business Daily Top 50 List has been a reliable source of stocks that are likely to move higher in the short run.  Recent additions to the list might be particularly good choices for this strategy, and deletions might be good indicators for exiting a position that you might already have on that stock.

As with all investments, you should only make option trades with money that you can truly afford to lose.

Happy trading,

Terry

How to Make 40% in 45 Days With a Bet on Ford

Monday, March 13th, 2017

Last week I suggested a bearish spread on Tesla that would make 67% in 49 days.  The stock has fallen about $7 since then, and the spread that I placed has already picked up 30% in a single week.  I am tempted to close it out and take the profit, but I think I will wait it out and happily collect the entire 67% in six weeks.

Today I am reporting on a spread I placed on Ford (F) on Friday when the stock was trading at $12.54.

Terry

How to Make 40% in 45 Days With a Bet on Ford

Several articles have been published lately which are bullish on Ford, including Ford and Its 4.8% Dividend Yield, and Ford: Break-Out Ahead

On Friday, when F was trading at $12.54, I made a bet that this high dividend yield would at least keep the stock where it is right now for the near future.

Here is the trade I made:

With F trading at $12.54:

Buy To Open # F 28Apr17 11.5 puts (F170428P11.5)
Sell To Open # F 28Apr17 12.5 puts (F170428P12.5) for a credit of $.30 (selling a vertical)

This spread is called a vertical put credit spread.  I prefer using puts rather than calls if I am bullish on the stock because if you are right, and the stock is trading above the strike price of the puts I sold on expiration day, both put options will expire worthless and no further trades need to be made or commissions payable.

For each contract sold, I would receive $30 less commissions of $1.00 (the rate that TastyWorks.com charges).  By the way, you should check out this new brokerage firm because their commission rates are just about the best you will find anywhere.  Here they are:

TastyWorks commission rates

TastyWorks commission rates

Yes, that’s true.  Absolutely no commissions when you close out a trade.  TastyWorks was started early this year by the same people who started thinkorswim (which was later sold to TD Ameritrade).  They haven’t quite set up everything yet, but the commission rates and great trading platform is bound to attract many new subscribers (tell them we sent you, by the way).

The broker will place a $100 maintenance requirement on the above spread.  Subtracting out the $29 you received, your net investment is $71 per spread ($100 – $29).  This is also the maximum loss you would incur if F closes below $11.50 on April 21, 2017 (unless you rolled the spread over to a future month near the expiration date, something I often do, usually at a credit, if the stock has lost a bit since the original trade was placed).

Making a gain of $29 on an investment of $71 works out to 40% for the 6 weeks you will have to wait it out.  That works out to over 300% annualized.  Who says options can’t be fun?

As with all investments, option trades should only be made with money that you can truly afford to lose.

Happy trading.

Terry

Calendar Spreads Tweak #4

Wednesday, September 21st, 2016

Today I would like to discuss how you can use calendar spreads for a short-term strategy based around the date when a stock goes ex-dividend. I will tell you exactly how I used this strategy a week ago when SPY paid its quarterly dividend.

Terry

Calendar Spreads Tweak #4

Four times a year, SPY pays a dividend to owners of record on the third Friday of March, June, September, and December. The current dividend is about $1.09. Each of these events presents a unique opportunity to make some money by buying calendar spreads using puts to take advantage of the huge time premium in the puts in the days leading up to the dividend day.

Since the stock goes down by the amount of the dividend on the ex-dividend day, the option market prices the amount of the dividend into the option prices. Check out the situation for SPY on Wednesday, September 14, 2016, two days before an expected $1.09 dividend would be payable. At the time of these prices, SPY was trading just about $213.70.

Facebook Bid Ask Puts Calls Sept 2016

Facebook Bid Ask Puts Calls Sept 2016

Note that the close-to-the-money options at the 213.5 strike show a bid of $1.11 for calls and $1.84 for puts. The slightly out-of-the-money put options are trading for nearly double the prices for those same distance-out calls. The market has priced in the fact that the stock will fall by the amount of the dividend on the ex-dividend day. In this case, that day is Friday.

SPY closed at $215.28 on Thursday. Friday’s closing price was $213.37, which is $1.91 lower. However, the change for the day was indicated as -$.82. The difference ($1.09) was the size of the dividend.

On Wednesday and Thursday, I decided to sell some of those puts that had such large premiums in them to see if there might be some opportunity there. While SPY was trading in the $213 to $216 range, I bought put calendar spreads at the 214.5, 214, 213.5, and 213 strikes, buying 21Oct16 puts at the even-strike numbers and 19Oct16 puts for the strikes ending in .5 (only even-number strikes are offered in the regular Friday 21Oct16 options). Obviously, I sold the 16Sep16 puts in each calendar spread.

Note: On August 30th, the CBOE offered a new series of SPY options that expire on Wednesday rather than Friday. The obvious reason for this offering involves the dividend situation. Investors who write calls against their SPY stock are in a real bind when they sell calls that expire on an ex-dividend Friday. First, there is very little time premium in those calls. Second, there is a serious risk that the call will be exercised by the holder to take the stock and capture the dividend. If the owner of SPY sold the series that expired on Wednesday rather than Friday, the potential problem would be avoided.

I paid an average of $2.49 including commissions for the four calendar spreads and sold them on Friday for an average of $2.88 after commissions. I sold every spread for more money that it cost (including commissions). My net gain for the two days of trading was just over 15% after commissions.

The stock fell $.82 (after accounting for the $1.09 dividend). If it had gone up by that amount, I expect that my 15% gain would also have been there. It is unclear if the gains would have been there if SPY had made a big move, say $2 or more in either direction on Friday. My rough calculations showed that there would still be a profit, but it would be less than 15%. Single-day moves of more than $2 are a little unusual, however, so it might not be much to be concerned about.

Bottom line, I am delighted with the 15% gain, and will probably try it again in three months (at the December expiration). In this world of near-zero interest rates, many investors would be happy with 15% for an entire year. I collected mine in just two days.

Trading SPY options is particularly easy because of the extreme liquidity of those options. In most cases, I was able to get an execution at the mid-point price of the calendar spread bid-ask range. I never paid $.01 more or received more than $.01 less than the mid-point price when trading these calendar spreads.

While liquidity is not as great in most options markets, it might be interesting to try this same strategy with other dividend-payers such as JNJ where the dividend is also over $1.00. I regularly share these kinds of trading opportunities with Terry’s Tips Insiders so that they can follow along in their own accounts if they wish.

Happy trading.

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I have been trading the equity markets with many different strategies for over 40 years. Terry Allen's strategies have been the most consistent money makers for me. I used them during the 2008 melt-down, to earn over 50% annualized return, while all my neighbors were crying about their losses.

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