Hi Steve -
How do you play the flip side of that capture play? Somebody is making money on that trade?
I like to sell a naked Put for a dividend payer I want to own (based on my value analysis) and eventually have the stock Put to me. Sometimes I will write some covered calls on the position to "juice" the returns.
I have been successful selling covered calls on BMY at prices above $27.00/share since 2005 in my IRA account. I will sell the $30.00 six months out. I have done this a few times since I acquired the stock in Sept. 2005. I had the stock called away in June 2007 but bought it back in 2008 10 points lower. I am looking at selling the calls again if the stock can rally 1.5 points.
This strategy has worked well for BMY but there are other stocks where I would have been better off to just let the stock pay its dividends and not bother with writing covered calls. I generally do not buy the stock back unless I can get it cheaper than when it was sold. I left a few $'s on the table not buying the stock back or covering the the call position.
On your VFIIX example (which I own), I use the fund as a holding account for my liquid cash funds. I no longer buy new shares (since it is near an all time high) and have two other funds where I park money now (TPZ & PFD). If you recall the 2008 Market Melt Down, I used funds from VFIIX to buy beaten down utility stocks, preferred REITs, and other pennies on the dollar once-in-a-life time Buys. I try to keep at least 10% cash liquid funds in these holding buckets, more when I feel the market is over valued or when I take profits on stocks that are fairly valued and/or harvest losses in my taxable account(s).
It's a little easier to hold money in the VFIIX, PFD or TPZ waiting to be invested in a beaten down dividend payer and/or to buy back a position sold in 31 days such that you "book" (or harvest) a tax loss. Sometimes I will wait 6-8 months before I reinvest. Typically, when one sells, they immediately want to invest the proceeds. When I do decide it's time to buy, I will do it in stages (usually 3-4 different buys)staggered by time, dollar value and/or price decline.
Lately, I have been working on using the "portfolio turn over rate" metric. My portfolio turns over every 5-8 years (8%-20% annual turn over rate). My goal is to get it up to a 33% annual turn over rate. That is where you turn your portfolio over once every three years. This makes me book profits (or harvest losses) and move the money into current holdings (which reduces my cost basis), buy new dividend payers (companies that have started to pay dividends or resumed their dividends) and/or park the funds in a holding bucket ready to deploy on another market melt down.
Therefore, there are a lot of derivative strategies that can be deployed with simple dividend investing. All help reduce the portfolio risk, provide flexibility in money management (using holding buckets) and allows one to build core positions that achieve a low cost basis with a high dividend yield (using a simple portfolio turnover metric to harvest losses when available). Note: You get no tax advantage in harvesting losses in an IRA account, so do not do it. Just sell the position and move on.
You can make it as simple or complex as you want. The key is to know your strategy and implement it accordingly.
EKS |
