I decided to go bargain shopping yesterday and didn’t think I could handle the risks of most growth stocks quite yet. Instead I looked for an old dividend payer and came back to AT&T (T). T is down 10% from its early May high and this decline has pushed its dividend yield up to 6%. Admittedly, T’s earnings are slowing, but with such a high dividend yield I think it has limited downside from here. With that in mind I entered a limit order yesterday afternoon, slightly higher than the ask price. This morning, while T was trading at $28.56 I sold three T October $28 naked puts for $1.10 each and received $327.83 after commissions.
If these puts are assigned and T drops down to my cost per share ($26.91) the yield would go up to 6.4%. From there the position is easy to manage. I’ll keep it as a long term position, take in the dividends and sell out of the money covered calls to push my return over 12-15%, depending how far I sell out of the money. If this positions works as I plan, T will not drop below its August 9th low and I’ll be able to take a profit and move on. If the options are not assigned I’ll make a 4.1% return in less than 10 weeks. That’s the equivalent of 21.6% annualized.
I’ve sold naked puts on T in the past (2009 and 2010) and have been able to exit both times with a full profit. In both cases I did not get back into T again for a long time afterwards, but probably should’ve based on the increase in price since then.
In other news, if you read my Dow Jones Chart analysis from Sunday you would’ve seen my warning not to buy into this rally quite yet. I suggested waiting into Tuesday (today) to see how the index moved for a few days. If you waited you saved some money. Now I have exposure to a Dow component and have to hope I didn’t jump the gun on my trade. I was planning to sell a new naked put on UCO today if it was higher, but instead it has fallen down to being at the money with my August $34 put. I’ve decided to wait until Friday to see how this plays out before adding a new naked put. I could be buying 300 more UCO shares after Friday’s close from my current naked puts as it stands now in addition to the 200 I’m already long. Expect to see a few option strangles coming up soon from me on UCO.
Personally I like vz better. I think the premium is better with vz.. I did pretty good on some naked put earlier this year. Waiting for another entry.
VZ is very similar. I just know T better. That was probably the only reason I went this way.
Yeah, I think high yield is the way to go in todays market. I’ve just put a limit order in to sell 2 INTC September 19 Puts at $0.61 each. This should hit if INTC breaches the $19.50 mark today and gives a 4.6% yeild if assigned.