I don’t have much to expound on this week, except for one piece of advice that I myself am trying to heed in the current market.
We’ve been in a bull market for a bit now. And as I look at some of my more successful positions, I have to remind myself of that saying that goes “Don’t confuse a bull market with brains.”
Meaning, just because you are making money on paper, don’t assume that you are the reason and don’t assume it will continue forever. Whatever method you are using to pick your stocks might just turn around and bite you when the bull turns into a bear.
Inflatable Dividends Real Time Example Trades
ALSK has stayed above our stop loss of $14.45, so there’s not much to do there other than hold and wait for the next dividend.
AEE on the other hand is paying a dividend on Monday, which means that Friday may have been a decision point for the person holding the call we sold. If the premium in the call is less than the dividend payment, then the holder of the call can make more money by exercising the call and becoming entitled to the dividend on the ex-dividend day. In this case the option premium at Friday’s close (using the option bid price) was $0.43, and the dividend payment is going to be $0.635.
The call holder could make an extra $0.205 per share on Monday if they exercised the call at the close on Friday, so we’re going to assume they did. We paid $44.31 per share to get into this position. When called, we would have received $45 per share. So we would have made $0.69 per share, or 1.55% on our invested capital. We bought in on May 18, so we held the position for 2 weeks. If we annualize that return we get (1.55% * 365 / 14) 40.5%. So if we can do this every 2 weeks, we would generate a return of 40% on our invested capital. Note this is before transaction costs.
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