Another Way to Making Money in the Markets - Pt #2

This post will discuss a second way to make income besides dividends.  Part #1 was about  selling puts .  

A second way to make more money in the markets would be to sell covered calls.  If you own 100 shares of a stock, you can sell a call option, which makes it a covered call, against the stock. The investor receives an option premium minus commissions upfront as they will be obligated to sell the stock at the strike price if the option is exercised.  The downside is that the stock could increase a lot and the investor misses out the option is exercised at the strike price.

Figure 1

 In the diagram above (Figure 2 ), the profit is limited to the upside which occurs at the strike price. This max profit equals the the capital gain from sale at strike price plus the option premium. The downside risk is lowered by the amount of the option premium. In the diagram above, if we sold the stock at $760.00 without selling  a covered call the profit would be lowered by an amount equal to the option premium.

NOTE: If you sell a call option without owning the underlying stock this is called selling a naked call. The premium is still received up front. If the option is exercised, the loss is unlimited as the individual would have to buy the stock in the open market and then sell it at the strike price. Selling naked calls is one of the most riskiest option strategies and definitely only experienced option traders should use.

Photo Credit : en.wikipedia.org

DISCLAIMER:

     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk

    

Dividend Increase

On February 20th, 2014 Tim Horton's reported earnings for their 4th quarter.   Some of the results of the forth quarter are as follows:

• net income of $100.6 million, or $0.69 a share which is up from 0.3 % from the year earlier quarter.
• below analysts estimates of by $0.07 a share
• Revenue increases 10% to $898 million for the 3 months ending Dec 31, 2013.
• For the full year, net income was up 5 percent to $424 million with revenue of $3.3 billion, an increase of 4%.

Tim Horton's opened 168 new stores in Canada and closed 16. In the United States Tim Horton's opened 79 stores and closed 24. During 2014, the company aims to grow by opening over 200 stores in  Canada and over 40 stores in the United States.

Under pressure in recent quarters to return  value to their shareholders, Tim Horton's has boosted its payout by 23% to an annual dividend of $1.28 a share. The increase has $24.00 to my annual dividend income as I own 100 shares.

 

Tim Horton's is planning on making changes as they try to compete with the major coffee competitors. They changes should start to be announced in the near future. 

Disclosure : Long THI

                   My shares were bought on the TSX in Canada

DISCLAIMER:

     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk

Another Way to Making Money in the Markets - Pt #1

Is there a way to make money in the market besides dividends and interest.  Another option to make money in the market is to sell puts. An an investor or trader sells a put, they are obligated to buy  the underlying stock if the stock falls below the strike price prior to expiration of the option. An investor can used this idea in a couple of scenarios.
 
First Scenario : An investor that is bullish on the stock can sell a put and collect the premium. The maximum profit from this occurs when the price of the stock stays above the strike price.  The break even point for the investor and trader  is  occurs at (strike price - premium that was collected.

 

In the above image, the strike price is  $25.00 and the option premium is $5.00. So the break even point is therefore $20.00. Basically the profit decreases at the strike price. As the stock price falls as indicated in the above diagram the amount of profit decreases.

Second Scenario

If an investor wants to invest in a stock but wants to buy it had a cheaper price. They can make money why they wait. For example, if Johnson and Johnson (JNJ) is trading at $50.00 currently and I want to buy it at $45.00. An investor can sell a deep out of the money put and collect the premium. So if the stock stays above $45.00, the investor will make maximum profit which is the premium minus the commission. If JNJ falls below $45.00, the investor will buy the stock at the strike price. So the investor wins by buying the stock at a cheaper price which means their yield on cost will be higher as the stock is purchase at a lower price.

An investor should only sell naked puts when they are willing to own the stock in question. Naked means the investor does not own the underlying stock. An investor needs to get permission to sell puts from their broker.

This is a high risk as the stock can go to zero theoretically.

My next post will go into another way to make money besides dividends.

Photo Credit : mozcool.com

DISCLAIMER:

     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk

Dividend Increase - Bell Canada Enterprises

Bell Canada Enterprises is the largest communications company in Canada servicing the residential and business customers. Bell Canada Enterprises in involves in television, wireline and wireless phones, wireline and wireless Internet and satellite TV.  Some of there specialty channels are TSN ( The Sports Network ) and BNN (Business News Network)

On February 6, 2014, Bell Canada Enterprises ( BCE) reported Q4 and 2013 results.

Some highlights are as follows: from BCE News Release Feb 6, 2014

•     BCE Q4 net earnings attributable to common shareholders of $495 million ; Adjusted net earnings of $540 million, up 16.4 % ; Adjusted net earnings per share of $0.70 which is up 16.7%
• Strong 11.4% growth in free cash flow in Q4 to $674 million
• Double- digit Wireless and Media EBITDA growth of 10.4% and 33.7% respectively, drives 7 percent increase in total BELL EBITDA.
• Bell Wireline EBITDA growth positive this quarter on stronger residential Wireline revenue growth and improving year-over-year Bell Business Markets financial performance.
• Healthy Q4 Wireless postpaid net additions of 119520; 2.1 % higher Wireless blended ARPU reflects increased data usage driven by steady smartphone growth; Consumer mobile roaming rates significantly reduced.
• Bell Fibre TV momentum continues with net additions of 60, 301, up 25% as service footprint expands to more than 4.3 million households; high speed  Internet activations more than double to 15,960; residential local access line losses improve 27.3 % year of year
• All 2013 financial guidelines targets have been achieved

BCE has announced a dividend increase of 6% to bring the annual dividend rate up to $2.47 CDN per share. Since 2008 Q4, the dividend for BCE has been increased 10 times for a combined increase of 69%. That definately beats most wage increases from a job in the same amount of time.

My shares of BCE were purchased on the Toronto Stock Exchange as I am from Canada.

Photo Credit : www.betterglobe.com

Disclosure : Long BCE


DISCLAIMER:

     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk

Dividend Update - Jan 2014

We are now into a new month.   Several companies that I am invested paid me dividends this month. A large percentage of my investments are currently with companies  that pay dividends monthly.

Non-registered Account

• Killam Properties (KMP)  - $5.56
• Shaw Communications (SJR.B)    - $17.00
• Just Energy (JE) - $47.11
• Enerplus (ERF)  -$ 45.00
• Bell Canada (BCE)- $  58.25
• Bank of Nova Scotia (BNS) - $7.00

TFSA

• Killam Properties (KMP) - $  13.53
• Dundee REIT   (D.UN)  - $ 16.61
• Boston Pizza  Royalties Fund (BPF.UN)   - $23.87

Total = $233.93

This total represents a 1.93% increase from 3 months ago and 30.94%  year over year.


I also received another distribution payment of $56.00 for my swing trade in Dundee REIT in my non-registered account. This is not listed above since it is a trade, so I keep the money in the account and do not pay myself first with this payment. I have received $371.47 in distributions so far on this trade.

I will update my dividend income tab with the new amount.

Disclosure : Long all securities above.


DISCLAIMER:

     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk

Portfolio Update Jan 2014

The first month of the year 2014 January is now behind us. It is time for the monthly update. During the month I successfully completed a trade in Sherritt International Corporation for a profit of $88.10 after commission.

On  January 24th, I initiated a position in Tim Horton's on the Toronto Stock Exchange. As the dividend yield is low and am trying to write a covered call with a $60.00 Strike price. When writing a covered call, the seller is paid a premium. This is because as the seller, I will obligated to sell my shares at $60.00 if the price rises above $60.00 before or on the expiration date.

The following stocks were DRIPPED.
 - Enerplus 2 shares @ $20.35
 - Just Energy 6 shares @ $7.76
 - Bank of Nova Scotia  0.113637 shares@ 61.5995

The current value of my portfolio is $58198.06. This represents an increase of 5.62 percent.

I will update my investment tab spread sheet.

Disclosure:  Long ERF, JE, BNS, and THI.


DISCLAIMER:

     I am not a financial planner, financial advisor, accountant or tax attorney. The information on this blog represents my own thoughts and opinions and should NOT be taken as investment or business advice.  Every individual should do their due diligence to make their own financial decisions based on their financial situation and tolerance for risk