I hope the raptors all had a wonderful weekend.  I’m back from a trip out of town to visit old friends.

music selection: “Sitting on the Dock of the Bay” — Otis Redding

Today’s Big Cheap Tech selection is QUALCOMM Incorporated (QCOM).  This 113 billion mega cap is a sort of digital utility in that it provides technology infrastructure to the world.  It has a P/E under 17; P/S under 5; and a P/B under 3.  Like Intel from last week, the numbers understate the strength of the company.  You see, QCOM has almost 14% of its market cap in cash and marketable securities.  And get this, there is no – as in ZERO – long term debt.  This is a fortress of a balance sheet.

It gets better.  Gross margin is just a hair under 60%.  Naturally, with that kind of margin, the company gushes cash.  Last year’s free cash flow was 7.7 billion.  Very nearly 70% of this is returned to shareholders as dividends and share repurchases.  The company is clearly very shareholder friendly.  The dividend is 2.8% and has been steadily growing.  You can sleep well at night if you get assigned shares of this company so lets look at put yields.

Today’s price on QCOM150710P00069500 is 1.48.  The trade would be open 40 days and return 19.43% annualized.  This is a rocking return on big, fat slug of a slow moving mega cap.  You get return and safety all in one package.  And the best part is this type of yield is regularly available on the Big Cheap Tech names.

Devour your prey raptors!

Write Puts on Big Cheap Tech – Part 2 of 5

Never miss another opportunity to devour prey!

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3 thoughts on “Write Puts on Big Cheap Tech – Part 2 of 5

  • June 1, 2015 at 7:05 pm
    Permalink

    Raptor,

    What are your thoughts on GE covered calls here? The price seems to have some resistance around $28. I sold a couple of deep in the money Sept $20 calls a couple of months ago and closed when the price fell to $25.50. It gave me a nice $200 profit in only 2 weeks. Now I am thinking about selling a couple of $28 out of the money Jan 16 calls. The profit and risk isn’t as high, but I mainly want to “juice” up my dividend income.

    Thanks for your input!

    MDP

    Reply
    • June 1, 2015 at 7:26 pm
      Permalink

      MDP,

      The first question to ask yourself when selling a covered call is “Would I be happy to sell at the strike?” That is especially true here as I think you have a very high chance of being called away if you spend 6 months at 28. GE is paying 23 cents a quarter (and growing!) in dividends. If the time value on your options is ever below 23 cents just before x-div, you are going to get called. This is only problematic if you want to retain GE for the long term. If you are going to sell and redeploy anyway, near the money calls are a great way to do it.

      Personally, I wouldn’t do it as the annualized yield is only about 6 percent. In most cases, you want to target 12% or better annualized yield on options plays. GE is such a slow mover that it rarely presents strong premiums. An alternative trade that I like big slow growers like this is the “diagonal call”. Instead of holding shares, you hold a long call with the longest term expiry that is deep in the money. This minimizes your expenditure on time value (a decaying asset). You write short term calls a few strikes out of the money. You hope to not get called away and retain your long call until expiry. This way you earn leveraged income on your capital risk and retained leveraged exposure to upside capital appreciation with the long call, which you sell shortly before expiry. The more boring the underlying security, the better for that strategy. If you do it right, the long call is completely paid for by the time expires leaving you with pure upside.

      Reply
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