I'm reporting a couple of trades in the last two days. I'm normally able to post these faster but have been super busy at work. There is a reason I combined both of these trades in the same post.
First I sold a covered call on Waste Management. Many of you may know of WM's latest paltry increase from $.355 to $.365. This was a little bit of a disappointment as it was only an increase of 2.8% (which doesn't even keep up with inflation!) . You can find this announcement on their website here. WM is trading near $34/share (yielding 4.3%) which is at the upper end of their 52-week range of $30.82-$36.35.
The first trade:
I sold 1 covered call, July 20 '13 $34 Call @ 1.30. If I hold onto this call and WM is trading above $34 around July 20th then I'll likely have to sell my 100 shares for $3400 plus $130 in premiums or basically $35.30/share before commissions. My cost basis is $29.33 so this would be a decent profit for the time I've held the stock. However, this would leave me with only 52 shares and I would lose out on $146 dollas in forward dividends that I would need to replace. I would also owe capital gains tax on the profits.
The second trade:
Since WM is sort of a utility type company, I took a look at a few utilities and settled on buying some Southern Co. (SO). I bought 75 shares of SO at $43.38/share. Their 52-week range is $41.75-$48.59 so they are at the lower end. SO has a 4.53% yield and these 75 shares will produce $147 in forward 12-month dividends which would replace the dividends lost from WM. SO is also due for a dividend raise in June. Their last raise went from .4725 to .49 per quarter or 3.7% (which isn't huge but expected from a utility and higher than WM).
I guess I'm just being pro-active here. I could end up keeping the WM shares and SO. I'm also ok with that since I'd keep the premiums from the call and the only other true utility I have is NEE.
I like both of these moves. If my WM position was larger I'd be selling calls like you because I was disappointed with their last increase. I was surprised to see the premium on some KO puts. It's a little longer dated than I'd like, but the May 2013 $37.50 was giving a 12%+ annualized return with a cost basis if executed close to the 52 week low. I would have sold it yesterday but I don't have the capital right now. I need to see if my tax spreadsheet is calculating everything right for my paychecks since my pay is anything but steady.
ReplyDeleteThanks PIP. I'll have to take a look at KO puts. I've wanted to add the company for a while but they always trade at a premium. Selling puts is a good way to get into a company at a lower price. Take care!
DeleteI almost bought SO some time ago. It's a pretty good utility. I've got PPL, so I'm not really in the utility market at the moment.
ReplyDeleteI can't really decide if I like the WM move or not. But if you want to dump the stock, those are probably the best way to do it.
I still think WM will do ok long-term. There will always be plenty of trash, I just don't know at what rate they can grow their earning. For me, I think I can do better elsewhere. However, if their stocks goes back down under $30/share I might be tempted to get back in.
DeleteThanks for stopping by.