By Warren Kaplan
The Stock Option Writer
© Warren Kaplan 2011-2017
August 22, 2017
We have had my share of winners and losers so far in 2017. At this moment, we are hurting on DDD and various Canadian oil/gas companies. And we have a number of winners including CCL, BAC, VZ and T. Some of the winners include stocks on which we got put at lower prices than the current market and the continual premiums we receive by selling covered calls on top of dividends. Even where we are behind on a stock like DDD, we continue to sell covered calls. The bad thing is that DDD does not pay any dividends. The good thing is that the option market is active in this stock. Because I believe in the future of the 3D industry, I tend to write call options at a strike price that is well above the current price. That means less premium income. That is one of the decisions that option writers must decide. The potential of capital gains vs. current premium income. In the case of CCL, I wrote about the company and why I felt a brokerage analyst was dead wrong about being negative for a bunch of reasons I felt were foolish. However, his write-up caused CCL to sell down to an extremely attractive price, $44.00. I wrote many put options and bought the stock in case I did not get put. I forecasted a $100+ price within 5 years. My position is less than two years old and the stock is selling at $67.40. The company has recently raised its annual dividend rate from $1.40 to $1.60. Then there is a wonderful bonus. The company will give a stockholder who owns 100 shares or more On Board Credit to be spent on any of the cruise lines brands. The amount of the OBC depends on the length of the cruise. One point that I am trying to make is that not all brokerage analysts are right. I have never seen an analyst report that stated that a Carnival (CCL)shareholder gets extra benefits.
What is in store for investors in 2018? I have no idea. Neither does anyone else. No one can control the markets but to a certain degree, you can control your life. Have you made plans for New Year’s Eve? Judy and I have planned a series of cruises on exciting ships for 2018 and even into the Spring of 2019. Outside of health, you can plan for certain events. As to investments, I am relaying more on ETFs for income. I drag most of the premiums I receive from writing options and “leak” it slowly into selected ETFs. Most brokers have a list of ETFs that you can buy through them without paying any commissions. I presume those ETFs buy and sell shares through the brokerage firm. Depending on your circumstances, your age, and your outlook, you can let your dividends be automatically be reinvested (DRIP) or take the dividend and put in a buy order at a price you are comfortable at. Not all ETFs are optionable and those that are have a very inactive market. However, (there is always an exception), SPY has an extremely liquid option market. The SPY reflects the S&P 500. Even in the horrible crash of 2007-09, the SPY paid dividends and stockholders never got wiped out. Depending on your age, you may never see another wipe out like that again. By the way, that wipe out set up opportunities for huge future gains. CCL sold for $18.00 on March 10, 2009.
If you really want to learn about options, you should buy the book Understanding Options by Michael Sincere. It is the clearest book that I have read about the subject. The retail price is $20.00. Mr. Sincere reviews many of the strategies that option buyers and writers use. I am confident that you will eventually find several that fit your desires and objectives.
Need to find outstanding stocks? Ben Reynolds (firstname.lastname@example.org) monitors the S&P Aristocrats. That is the list of companies that have raised their annual dividend for at least the last 25 years in a row. That translates to dividend raises since at least 1992 and think of all the declines in the stock market and the economy since then. Only the best of the best can continue to grow and that is what those companies have done. There have been companies that have been dropped out including GE, PFE, PBI and HCP. That is way it is important to have a contact like Ben Reynolds.
Warren Kaplan has been writing options for 50 years. He has been a stockbroker, investment banker and brokerage owner. He currently owns and operates Kaplan Asset Management, a provider of financial assistance for small to middle market businesses. He has more than a half-century of experience in dealing with financial markets, giving guidance and consulting with management, and assisting in the development of business strategies and solutions. The Company has assisted and consulted many successful companies, such as Natures Bounty (NBTY) and Action Products International (APII), helping them to go public and trade on the NASDAQ stock exchange. His philosophy is to “do something with the profits.” “If you make $100 in the stock market, take 50 percent and invest it back into the market. Then, take the other 50 percent and buy yourself something.”
Additional disclosure: I am not a registered investment adviser and I do not give investment advice. Nothing in this article should be construed as investment advice. Investors are encouraged to do their own research and seek the advice of an investment professional before investing. Writing options is not for everyone. This article was written for informational purposes only.