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Strategies & Market Trends : Dividend investing for retirement -- Ignore unavailable to you. Want to Upgrade?

To: robert b furman who wrote (30371)	1/14/2019 8:32:07 AM
From: spindr00	Read Replies (1) \| Respond to of 34328

Hi Bob, The Repair is feasible for a stock that is down 10-20 pct down but there's no reason why you can't use it when you buy the stock in order to increase upside gain somewhat. For every 100 shares long , add a 1x2 Ratio Spread (buy one call at a lower strike and sell two calls at a higher strike). The total position will be equivalent to a covered call and a bullish vertical call spread. All short calls are covered (use a combo order for opening rather than legging in). (1) The higher strike premium should be at least 1/2 the cost of the lower strike so that the Ratio costs nothing. A credit is even better. If the Repair does not work out, you'll have the same downside potential as if you had done nothing, namely just holding the stock and hoping for a recovery. To the downside, a failed no cost Repair has no impact on the overall equity position. (2) To break even, if using an ATM long call, the short strike should be approximately midway between the current price and your break even price. IOW, the width of the vertical spread (the difference in strikes) should be about 1/2 the amount of your paper loss for you to break even. To select a Repair, look at a near expiry. Go out a week (or a month) at a time until you find a pair that meets the no cost requirement (1) and provides break even (2). These criteria are not etched in stone. If you want to pay a small premium for the Repair or if you want to shoot for a price less than break even, go for it. Implied volatility affects Repair's cost. The lower it is, the more costly the Ratio. If higher (for example, pre earnings), the larger the credit which may then enable you to use lower strike and have a higher probability of the upper strike being reached and the Repair succeeding. You DO NOT want to go out many months with a Repair because prior to expiration, short calls retain time premium and they will be a drag on the long call gain, hindering the Repair from achieving its full value prior to expiration. To get the maximum amount from the Repair at expiration, the underlying would have to be at or above the upper strike. To get the maximum amount from the Repair prior to expiration, the underlying would have to be well above the upper strike in order to drive the short calls to parity (no time premium remaining). You can also use this strategy for brand new stock purchase. This is not a Repair since you aren't underwater (paper loss). For example, if XYZ is $70, if you could execute a $70/75 ratio combo for no cost and if XYZ was above $75 at expiration, you'd net $80. From $70 to $75 you would make $2 for every dollar that XYZ rose ($1 on the stock and $1 on the long call). So at $71 at expiration, you'd net $2. At $72 you net $4, all the up to $75 where you'd net $10. You can read more about this by Googling "Repair Strategy" I'll get back to you on the AT&T later.

To: robert b furman who wrote (30371)	1/14/2019 11:53:15 AM
From: JimisJim	Read Replies (1) \| Respond to of 34328

I disagree only slightly, bob... my primary purpose for a Dividend Growth stock is the increasing stream of income whereby with our "foundational" stocks for example (regulated utes) are very bond-like except with good starting yields and those yields increase yearly faster than inflation. Share price gains are icing on the cake for me... That is said recognizing that we all have different goals and means of obtaining those goals. Ours was income replacement in retirement (we both are) that increases faster than inflation -- not hard to do considering most of the past decade or so, the FED has been flighting deflationary forces, not inflationary.

To: robert b furman who wrote (30371)	1/15/2019 5:35:04 PM
From: spindr00	Read Replies (3) \| Respond to of 34328

Bob, I think that we may have two topics intertwining in our conversations... "In your example of T there is a loss in the past year of $5.61. That is a function of the strike price you sold the put at." That example did not involve options, merely buying the shares and holding them for the past year. "If I can buy the stock at that low price, then the dividend is usually a return of company earnings and not a return of my capital." Share price appreciation is where profit comes from, not from receiving dividends. There are two aspects to dividends, the corporate side (return of company earnings) and what happens in your brokerage account on the ex-dividend date. Rather than go through a long explanation, I'd just ask, are you aware that the stock exchanges reduce share price by the amount of the dividend on the ex-dividend date and that because of that, dividends do not produce Total Return? I'm not a fan of selling one LEAP options because you get less premium per day and a lower ROI. One could make the case that the total premium is larger and provides more downside protection but that doesn't sway me enough to do it. The sale of puts with over one year until expiration does not get LTCG treatment if they expire unexercised (short-term gains).