Hi, Sarmad!
I hope ACK does well for you. I can't see it, but that doesn't mean anything. My fear with stocks paying dividends > 10% is that the dividend gets cut. That's not a prediction about ACK, just an observation of other stocks I've seen in the past. MO pays a high dividend too, but nobody knows how much they ultimately will pay in ligitation wars, for example. LMT had a good yield last year, then cut it in half.
I have been exploring the strategy of selling covered calls during trading range periods like now. I mention this to you because I think of it like a dividend.
With some of the volitile stocks I like, JNPR, BRCD, BRCM, CHKP, etc., you can get 3%-7% a month, selling calls at strike prices 10% or so above the current value. So, for example, when SDLI was $375, I sold Sep/400 calls for $20. SDLI went above $400, and had it stayed there, I would have had $55 for 1 month, giving up the stock. But, it is down again, and I covered the call yesterday for $2.5. Should the market rebound next week, I'll sell the OCT/400 and maybe get $20/s again.
Now, SDLI might keep going down. But I own the stock because I think it is a great company. So I use the volitility to generate funds in the meanwhile. I'm not worried about the long term. If it gets called, I'll get it back on the next dip. If I'm totally wrong, and it dies, well, at least I got some cash back for selling the calls.
With JNPR, I have sold calls against shares I have several times. In early August I sold Aug/170s twice, covering once on a dip, and covering again on expiry day for a $1.5, netting $10/s for the month. Then I sold SEP/190s for $7.5. Now I could lose the shares next week for $190, but they were at $145 in early Aug when I started this.
I won't sell calls past OCT, even though many of the high flyers have Jan calls selling at 10-15% premiums to today's price, for strike prices another 10-15% higher. For example, BRCM is $230 today. You can sell Jan/260s for about $27, about 12% above today's price. If BRCM runs away, you still will get another $30/13% ($260 in Jan is $30 higher than today). If it doesn't run away, well, as a long term BRCM investor you just stay pat. And option prices are actually blunted today because we had a bad week. Wait for an up day and the premiums will expand some as a % of price.
But, as I say I won't sell calls past OCT, because, unless the gas thing becomes fatal, I believe that from Halloween thru Epiphany we'll get a tremendous run with lots of opportunity for profit. I gained nearly 200% in this period last year, and 100% the year before. September and October are the times for bad news. Gas prices have been going up for about 6 months now, and been ignored because this is the time of when people are ready to listen to bad news. The mood might even get really bleek by mid-October. A perfect set-up for a Xmas rally.
Not a prediction. This is just my expectation and plan I am following for myself.
Good luck!
Tom |
