Buy/Write Idea

Depending upon the size of ones portfolio, your age, one should think of diversification across the speculative and income.  Many a financial adviser has bonds as the conservative income portion of the portfolio. The old 60/40 asset allocation portfolio.

I do not read much about option writing on income producing stocks for this portion of the portfolio and I have often wondered why.  That of course is neither here nor there.

Often the highest yielding stocks are REIT, that is Real Estate Investment Trusts. A REIT pays no income tax as long as it pays out at least 90% of its income to shareholders. The tax is transferred from the company to you the shareholder.  The REIT I’m going to pass on today comes from an I.B.D. article.

Realty income (O) pays dividends monthly and has raised the dividend every quarter for the past 16 years. The current annual dividend ($2.19 / share) is about a 5% yield. Not easy to find in today’s investment world. The options can be tricky in that they are relatively thin and the bid/ask spreads can be wider than you might like.

Looking at a longer term weekly chart:

O_weeklyApplying the Chandelier on the weekly you would have been long since the beginning of February 2014. The price is roughly the same today, not capital gain but 6 months of dividends that could be invested elsewhere.

An even longer term look at the monthly chart:

O_MonthlyThe monthly shows our Chandelier above the market at $48.17,

I am not suggesting you wait for that price but you might look to add above that price on a monthly closing basis.

On some of these income stocks you have to go out in time to get a price. In this instance:

Call OptiomsSince the annual dividend is $2.19 that $1 option price at a slightly out of the money call represents 45% of the income you would have received by not writing the call.  To put this another way your dividend is about $.18 per month the $1 received for the December call represents 5.5 months worth of dividends. Perhaps less if they raise the dividend again.

You of course run the risk of having the stock called away but you’ve collected your dividends up front. Not bad  😎

I am not going to include O in our portfolio as it will be too difficult for me to follow and guess whether or not it would have been called. That of course should not deter anyone, after you have of course completed your own due diligence.



Talking Points and Where Is the Price of Gold Heading?: 

Why active managers underperform (Cam Hui)
4 signs this bull market is on its last legs (MarketWatch)
Investors Pay for Hedge-Fund Illusions (Bloomberg)
10-year Treasury yield marks fresh 14-month low (MarketWatch)
AQR’s Cliff Asness on the Mostly-But-Not-Always Efficient Market (Barron’s)
Nearly 1 in 3 adults have no retirement savings (MSN Money)
O’Shaugnessy: What I’ve Learned in 30 years of Investing: Part 2 (Yahoo Finance)
The Sotheby’s Indicator Points to Caution (Prag Cap)
By Any Measure, the Job Market Is Getting Better (FiveThirtyEight)
Workers of the world, log in (Economist)
States Are Turning Down an Insane Amount of Free Money by Refusing to Expand Medicaid (Slate)
Everyone’s a Financial Expert During a Raging Bull Market (Pragmatic Capitalism
The Professional’s Guide to a Stress-Free Vacation (HBR)
The Two Amazons: The Disruptor and the Architect (Digitopoly)
How Maine Saved the Internet (Bloomberg View)
World Awash in Oil Shields Markets From 2008 Price Shock (Bloomberg)

Where Is the Price of Gold Heading? 

Have a Great Day!