Sunday, August 21, 2016

Closing Three More Positions

Regular readers will know that I'm busy preparing DivGro for options trading. I'm hoping to boost dividend income by selling call options against stock I own. The strategy is called covered call writing – typically, you sell one contract for every 100 shares you own and collect an option premium in return.

In the past 2 months, I've been closing some DivGro positions and using the cash to round out the number of shares of other DivGro positions. The idea is to own 100 shares (or multiples of 100 shares) of stocks so I can sell call options on these stocks and boost my dividend income.

Recently, I bought additional shares of 3 stocks and increased my share count to 100 shares, making these stocks eligible for options trades.

I'm reporting 3 additional sell transactions today. I'll use the cash to continue rounding out other DivGro positions, or to open new positions when opportunities arise.

Recent Sell: Dr Pepper Snapple Group, Inc (DPS)


Since first initiating a position in DPS (green circle), the stock has performed nicely!

Trading Summary

2014-03-25
 Bought 38 shares of DPS at $52.56 per share:
 $
1,997.28
2014-07-03
 Cash dividend on 38 shares:
$
15.58
2014-10-03
 Cash dividend on 38 shares:
 $
15.58
2015-01-07
 Cash dividend on 38 shares:
$
15.58
2015-04-07
 Cash dividend on 38 shares:
 $
18.24
2015-07-07
 Cash dividend on 38 shares:
$
18.24
2015-10-02
Cash dividend on 38 shares:
 $
18.24
2015-11-16
Bought 32 shares of DPS at $86.86 per share:
$
2,779.52
2016-01-06
 Cash dividend on 70 shares:
$
33.60
2016-04-05
 Cash dividend on 70 shares:
 $
37.10
2016-07-07
 Cash dividend on 70 shares:
$
37.10
2016-08-09
  Sold 70  shares of  DPS at $95.86 per share:
$
6,709.85
Capital gain:
$
1,933.05

Dividends received:
$
209.26

Commissions/fees/taxes:
$
21.14

Net gain:
$
2,142.31

The net gain is 31.6% on the original amount invested, or 32% annualized.

DPS is trading about 7% above my fair value estimate, so its a good time to sell. I still like the stock, but I'm sacrificing it to enable option trading of other DivGro stocks.

Closing my DPS position removed $148.40 from DivGro's projected annual dividend income (PADI).

Recent Sell: HCP, Inc (HCP)


HCP dropped after my original entry (green circle), then recovered considerably to where I could sell it for a very nice gain (red circle):

Trading Summary

2015-11-06
 Bought 75 shares of HCP at $34.00 per share:
 $
2,550.00
2016-02-17
 Bought 90 shares of HCP at $27.58 per share:
 $
2,482.19
2016-02-23
 Cash dividend on 75 shares:
$
42.13
2016-05-24
  Cash dividend on 165 shares:
 $
94.88
2016-08-09  Sold 165 shares of HCP at $38.83 per share:$6,406.99
2016-08-23
 Cash dividend on 165 shares:
 $
94.88
   Capital gain:$1,374.8
   Dividends received:$232.89
   Commissions/fees:$0.00
   Net gain:$1,607.69

The net gain is 32.0% on the original amount invested, or 83% annualized.

Finbox.io has a fair value estimate of $35.73, which means HCP is trading at a premium of about 9%.

The main reason I'm closing my HCP position is that the REIT is spinning off HCR ManorCare into an independent, publicly-traded REIT. While I think the spin off is a good idea, I don't want to deal with how the spin off might impact my portfolio. Perhaps I'll look into buying HCP when the dust settles on the spin off.

Selling HCP removed $379.50 from DivGro's PADI.

Recent Sell: Macquarie Infrastructure Corp (MIC)


Finally, I'm selling MIC for a small gain. My timing on entering this position (green circle) was poor. Fortunately, I could reduce my cost basis significantly (blue circle) and exit with some capital gains (red circle).

Trading Summary

2015-05-19
 Bought 30 shares of MIC at $85.97 per share:
 $
2,579.12
2015-08-18
 Cash dividend on 30 shares:
$
33.30
2015-11-18
 Cash dividend on 30 shares:
 $
33.90
2016-03-08
 Cash dividend on 30 shares:
$
34.50
2016-03-16
 Bought 40 shares of MIC at $65.08 per share:
 $
2,603.19
2016-05-17
Cash dividend on 70 shares:
$
84.00
2016-08-09
Sold 70  shares of  MIC at $78.53 per share:
 $
5,497.05
2016-08-16
  Cash dividend on 70 shares:
$
87.50
Capital gain:
$
314.74

Dividends received:
$
272.60

Commissions/fees:
$
3.00

Net gain:
$
587.34

The net gain is 11.3% on the original amount invested, or 14% annualized.

My fair value estimate is $66.10, which means MIC is trading at a premium of about 22%. I'm happy to exit this stock for a nice gain. I have some concerns about the sustainability of MIC's dividend in the long run. 

Closing my position in MIC removed $336 from DivGro's PADI.

Summary


Selling DPS, HCP and MIC reduces DivGro's PADI by $863.90 to $10,692.16. While it is not thrilling to see DivGro's PADI drop to below $11,000, I'm excited to get my hands on more cash to continue getting DivGro ready for options trading...

Thanks for reading! What do you think about these sales?

14 comments :

  1. Ciao DGro,
    I am moving towards the same setup in my portfolio, but I am not willing to let go good average prices to rush into options quite yet... I am selling (slowly) and building up from there... Still the strategy is going to be similar, as with options it is possible to have a good added source of income to supplement dividends and such.
    Keep up the good work!
    ciao ciao
    Stal

    ReplyDelete
    Replies
    1. Cool -- I'd be interested to follow your progress and maybe we can learn from each other! Taking it slow is a good approach. With options, volatility plays a big role in the pricing of premiums, so one has to take that into account, too.

      I can appreciate your point of not wanting to buy at inflated prices. The market is tricky right now. Personally, I'm forging ahead because I feel I can make up the difference in good time.

      All the best and keep in touch!

      Delete
  2. Replies
    1. That's what I feel like, yeah! Take care and thanks for the encouragement!

      Delete
  3. I'm thinking of closing some positions in my portfolio as well mainly due to valuation concerns. At this stage of the game it's more about total return than a pure DG focus so I need to take advantage of opportunities when they present themselves.

    HCP is one of those companies although it's not due to the valuation but rather the spinoff. From what I've ready it's not supposed to be a tax free spinoff so it'll be a taxable event and I would own shares in the inferior spinoff that will take time to sort out. For those reasons and possibly a reduced dividend I'm not excited about the HCP position.

    ReplyDelete
    Replies
    1. It makes sense to look into closing positions due to valuation concerns. I don't particularly like moving to cash and cutting my dividend income, though. I prefer to have replacements in mind when I sell. The challenge, of course, is to find good replacements when the markets are hitting all time highs.

      You're stating the concern with HCP much better than I did, but that's exactly why I've exited my HCP position. I really don't want to own the inferior spinoff. Rather, I'll wait until the dust settles on the spinoff and look for an opportunity to get back into HCP, if the dividend is still juicy.

      Delete
  4. Look forward to seeing what you do with the options! Also, cool to see you take in the big gains in a fairly small amount of time.

    -TDM

    ReplyDelete
    Replies
    1. Thanks TDM -- preparing for options trading has given me the excuse to close some weaker positions. Of course, I'm also selling a few solid positions for the ability to increase the number of shares of other solid positions. Thanks for commenting and take care!

      Delete
  5. Looking forward to your options trades. I'll be getting back into the options market over the next couple weeks as well.

    ReplyDelete
    Replies
    1. Thanks Scott -- I've learned from several readers that they're either interested in options or want to get back into the options market soon. I think this is exciting and creates an opportunity for learning. Best of luck and I look forward to hearing what you're up to.

      BTW -- congratulations for getting Johnny to post something again!

      Delete
  6. It's really hard to know what will happen to the SpinCo shares, so it's hard to say if it's adequately "priced in" to the current HCP shares or not.

    I can certainly appreciate the idea of getting out now and just "waiting for the dust to settle".

    There's this voice in my head telling me to get out because HCR is just a horrible albatross and EVERYONE is going to eventually just dump the SpinCo shares and they're going to end up worthless.

    But then I figure, I can't be the only one afraid of that. Surely some substantial amount of the HCR "risk" is being accounted for by the market...right?

    So I haven't done anything yet. I might end up wishing that I'd been proactive like you.

    ReplyDelete
    Replies
    1. You're right that the spin-off action is probably already priced in . My concern is that SpinCo is really the somewhat toxic ManorCare business. HCP will be better off without it, but we'll probably see a dividend cut in the process. I want to see what happens first, and I don't want to deal with SpinCo shares in my portfolio.

      All the best and I do appreciate your perspective! Happy investing!

      Delete
  7. I know I'll probably get persecuted for writing this, but nice job Ferdi! I got beat up for my post about selling 1/3 of my shares. I did it because I wanted to capture gains before switching brokers. But, I also did it because I too want 100+ shares of each stock I own, for options trading.

    ReplyDelete
    Replies
    1. That's a little weird that you got "beat up" for posting about selling shares. Its your shares, right!? Anyway, I don't see anything wrong with selling at the top, no matter what your motivation is. All the best and I'll see you in options land!

      Delete

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