I did a buy-write trade and bought a bear put spread.

music selection:  “Jump (For My Love)” — Pointer Sisters

weigh-in: 217.6 (5.0) – The hard way – intestinal bug!

First the buy-write.  I entered a new core position with Kimberly-Clark (KMB).  The consumer staples company (mostly consumable paper and paper-products) is a Dividend Aristocrat.  It has been left behind in the broad market rally leaving shares attractively priced.  The indicated yield is 3.54%.  Dividend growth has recently been about 4% a year.  That gets us to 7.5% BEFORE the regular share buybacks of about another 3-4% per year.  The position should be the broad market over the long term with just those characteristics so I bought at 128.98 (100 shares).

I also wrote an out of the money covered call.  On the 140 strike and 26MAR2021 expiry, I got 48 cents a share.  That is good for another 3.48% annualized yield even though the call is 8.54% out of the money.  I expect that even when volatility returns to normal, I can earn 2% a year while safely avoiding being called away at an unattractive price.  Total yield for holding KMB should thus exceed 12% long term.  At the same time, I add $456 in truly passive income to the portfolio.

I’ve traded Federal Realty Trust (FRT) with a bear put spread before.  This time, the technical chart is much more favorable.  On Friday, the RSI passed 80, indicating an overbought setup. At the same time, the stock failed to break the resistance line at 102.54.  The stock reversed direction this morning just as it has consistently done over the trailing twelve months when breaching RSI 20/80.  I expect a retracement to 90.

I bought the 105/110 strike spread with 19MAR2021 expiry with the underlying trading at 100.02.  I have 4.98% downside protection in a trade expected to run 32 days.  I got 3.9442 pricing on 12 spreads, putting 4,733 in capital at risk.  Should downside protection not be breached, I will earn the full profit at expiry of 1,267.  That is good for 26.8% or 305% annualized.  That is a great return on a stock with favorable technicals and downside protection to boot.

Devour your prey raptors!

 

Weekly trades with yields up to 305%

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2 thoughts on “Weekly trades with yields up to 305%

  • February 18, 2021 at 5:29 am
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    Can you clarify the return you’re expecting on KMB? A 4% increase in the dividend doesn’t push it up to a 7.5% dividend right? It would just slightly push up the dividend to 1.0354*1.04 if I understand it correctly! Still a nice steady income…

    Reply
    • February 18, 2021 at 2:51 pm
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      The market considers 3.5% or so to be a fair return given the risk. If the distribution rises by 4%, the underlying rises by the same 4% to keep the distribution at the fair market rate. You thus get 3.5% (yield) + 4.0% (div raise) + 4% (buybacks) + 2-5% (covered calls).

      Thanks for reading!

      Reply

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