Retirement Income

Stocks and Options

December 15th, 2015 at 2:04 pm

BP plc (ADR) (BP) – Sold Dec15 Put

Today, 12/15/15, I sold 1 BP Dec15 $30.00 Put for a net deposit of $14.22 in IRA account. My basis for these BP shares, if put to me, would be $30.20, excluding trading costs. This transaction represents a simple return of about .47% and an annualized return of about 43.11% on my purchase price. There are 4 days to expiration.

I already own 1100 BP shares in various IRA accounts and would not mind owning more. I like BP for its dividend and believe it is still recovering from the Gulf of Mexico oil spill. It currently pays .595 per quarter for about a 7.89% yield on the current price of $30.77 as I write this. My yield will be a bit higher because of my lower basis. BP paid as much as .84 per quarter in February 2010. Then, the oil spill in the Gulf of Mexico happened. Dividends were suspended until February 2011 when the resumed at .42 per quarter. They have increased each year since then to the current level. With the current low price of oil, I suspect they will not increase the dividend in 2016, at least not until later in the year when falling production and increasing demand should cause the price of oil to increase. Selling this put is, at least partially, a bet on increasing oil prices.

I note that it has been many months since I have actually sold a Put on any stock. The last time I sold one on BP was in March of this year.

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December 14th, 2015 at 12:00 pm

BP plc (ADR) (BP) – Sold December 11, 2016 weekly Calls

On Friday, 12/11/15, I bought 100 BP at a net price of $30.98 per share. I then sold 1 BP December 18, 2015 $31.50 Covered Calls for a net deposit of $26.22 in an IRA Account. My basis for these BP shares is now $30.72. This transaction represents a simple return of about 1.65% and an annualized return of about 75.40% on my purchase price. There were 8 days to option expiration.

I set this up with a near strike thinking that the price of oil continues to drop with no apparent increase in the near term. If called, the simple return is about 2.68% and the annualized return is about 122.46%.

BP pays a good dividend; currently .595 is about a 7.75% yield on its current price of $30.11 as I write this. BP paid a dividend of .84 prior to the oil spill. The dividend was cut in half to .42 after the spill and has been increased twice since then to .48 then .54, .585 and now the current .595. I expect that BP will continue to increase its dividend and may reach the prior .84 again in a few years although I don’t expect that in 2016 due to the depressed oil price.

I note that I had two other BP contracts expire worthless on Friday, 12/11/15. BP is down today. I would normally write new Covered Calls on those shares, but I think I will wait a bit to see if they rebound to a more favorable price.

S&P has a 12-month price target of $38 with a Hold recommendation. MarketEdge continues a price opinion of $30.79 and recently downgraded to an Avoid recommendation. The 9 Yahoo! Analysts have a mean 12-month price target of $37.51 and a recommendation of 2.5 where 1.0 is a Strong Buy and 5.0 is a Strong Sell.

December 10th, 2015 at 2:16 pm

Bought DDR, Sold BP, TK, DDR, Covered Calls

On Tuesday, 12/1/15, I sold 2 BP December 11, 2015 $35.50 Covered Calls for a net deposit of $40.45 in an IRA account. My basis for these shares is now $34.61, excluding dividends received. These transactions represent a simple return of about .58% and an annualized return of about 19.28% on my prior basis. There were 11 days to expiration.

I like BP for its dividend and believe it is still recovering from the Gulf of Mexico oil spill. It currently pays .595 per quarter for about a 7.63% yield on the current price of $31.27 as I write this. My yield will be a bit lower because of my higher basis. BP paid as much as .84 per quarter in February 2010. Then, the oil spill in the Gulf of Mexico happened. Dividends were suspended until February 2011 when the resumed at .42 per quarter. They have increased each year since then to the current level.

On Tuesday, 12/1/15, I sold 1 TK Jan16 $50.00 Covered Call for a net deposit of $16.22 in an IRA account. My basis for these shares is now $47.89, excluding dividends received. These transactions represent a simple return of about .33% and an annualized return of about 2.62% on my prior basis. There were 46 days to expiration.

TK is a stock I bought the day before its ex-dividend date to capture the dividend and some option premium. I never intended to hold it long term, expecting to for it to be called away in short order. However, I have owned it since mid April, have collected 1 dividends of $31.63 and 2 dividends of $55.00, and suspect I will own it a bit longer. Not so bad, but not what I anticipated.

On Monday, 12/7/15, I bought 200 share of DDR and sold 2 DDR Jul16 $17.50 Covered Call for a net deposit of $90.45 in an IRA account. My basis for these shares is now $16.21. These transactions represent a simple return of about 2.71% and an annualized return of about 4.46% on my prior basis. There were 222 days to expiration.

I bought DDR for its dividend and for occasional option premiums. One of my newsletters reported that DDR is a company that often raises its dividend in the first calendar quarter. Looking back at the past five years confirmed that. The fourth quarter dividend is .1725 or about 4.15% at the current price of $16.42 as I write this. Buying the stock now, and with a little patience, I think I will benefit if they increase the dividend once again in the first quarter.

On Wednesday, 12/9/15, I sold 2 BP Apr16 $37.00 Covered Calls for a net deposit of $54.45 in an IRA account. My basis for these shares is now $32.93, excluding dividends received. These transactions represent a simple return of about .82% and an annualized return of about 2.32% on my prior basis. There were 129 days to expiration.

See my comments above regarding why I like BP. In this case, I sold further out to be able to sell the $37 strike price at a better premium. I could have sold a lower strike but want to sell above my original purchase price of $35.79. I intend to buy more shares of BP as I have available cash to invest, both for the dividend and option premiums.