WWDD – What would Dividendium do?

(EDIT: I have consolidated all of the Saturday Selections posts into this post. They are below in chronological order separated by dotted lines.)

In the last post on the recent changes to Dividendium I said I would start posting what I would do with the Investing Strategies data. Note of course that these are just my opinions and let me state for the record that I don’t have any more insight than any other person into how the market is going to move in the future. So take this all with a massive block of salt.

I’ll be going through each Investing Strategy one by one, and referring to the trades by their Trade ID from the data spreadsheets.

These picks are from the 11/13/2009 spreadsheets.

Inflatable Dividends

My disclaimer here is that I do not personally use the Inflatable Dividends strategy. For my own investing goals this strategy is too risky.

I determined a while back that I could save my way to financial independence, and that I was happy with the time frame that saving alone would get me there in. So my focus is on not losing money, rather than on making gains. Any gains I make are just going to get me to financial independence faster, but I definitely don’t want to get there slower. Inflatable Dividends exposes me to too much risk because there is a chance that the market could move against me, and I wouldn’t be able to buy back the call in order to unwind the trade.

But if I put on the hat of someone that is willing to take the risks involved with this strategy, here’s the thought process I would go through to make my picks from the Friday, 11/13/2009, spreadsheet.

I always look at the stock charts for the stocks first. I use www.bigcharts.com. I’m looking for stocks that don’t look like they could fall at any moment. To me, this means that the stock price seems to be in a “range” for the recent past.

Recent past would be maybe double the amount of time to expiration. In this case there are 6 days until expiration, so I’m looking back about 12 days, or about 2 weeks to get a feel for how the stock is moving. Based on this alone I would kick out Trade IDs 1, 4, 7, 9, 12, 13, 14.

This leaves 2, 3, 5, 6, 8, 10, 11.

2 and 3 drop out because their ex-dividend dates are on Monday, so it was already too late to put those trades on when this data was posted. This is a minor bug in the service that I’ll be fixing. It should be figuring in weekends when it determines if you could buy a trade based on the ex-dividend date.

I would also kick out 11 because it has a lot of news around it in the current environment. News can make a stock’s price move erratically. For this strategy I want to have a stock that just plods along and pays out the dividend without stirring up any dust.

So this leaves 5, 6, 8, and 10. Next I verify that all of the stocks are actually paying dividends as Dividendium says they are. Dividendium takes an educated guess at what an upcoming dividend payment will be, so it’s good to independently verify. I use the http://www.bigcharts.com “detailed quote” for this. In this case they all look good.

So those Trade IDs 5, 6, 8, and 10, in that order are the ones I would buy if I was using this strategy.

No Lose Stocks

I do use the No Lose Stocks strategy, but I make sure that I don’t invest in trades that could lose more than 3% annualized.

The data in the spreadsheet is sorted by “Annualized Percent to Profit”, which means I’m looking for the stocks that have to rise the smallest amount per year to give me a gain. Sometimes the gains needed seem really high, like 30%, but again, I don’t know any better than anyone else where that stock will be in 2 years. So as long as I don’t lose money on the transaction, I’m willing to “fish for luck” by putting my money where it might make gains, even if gains don’t seem likely.

For this strategy, the first thing I look at is whether or not the stock has recently shot up in price and come to a very level price range. Trade ID 1 is a good example of this chart formation. If the stock has done this, then it usually means that the stock is a buyout target, which Trade ID 1 is. When I see this chart formation, I will usually check the news around the stock for the last year, and usually there will be an article talking about the stock getting bought out in the near future.

I skip these buyout stocks because the only scenarios I see are that the stock stays at the buyout price, or the buyout falls through and the price drops precipitously. With this strategy, I’m looking to buy dividend stock put combinations that can only go up. Since this situation is very unlikely to go up, it doesn’t really fit. Also, once the buyout happens, the dividend is usually no longer going to be paid out. So skip Trade ID 1 and 3 (same stock for both).

Trade ID 2 is also out. The “Annualized Maximum Percent Loss No Dividend” is -27%, which means that if I do this trade and the dividend is cut or suspended or the stock is bought out during the trade, then I could potentially be losing 27% of my invested funds per year. That’s way above my 3% loss tolerance stated above.

Trade ID 4 looks good. (Full Disclosure, I own an earlier expiration date of this same trade, which I purchased a while back.) I always like to check Dividendium’s educated guesses on whether or not a stock has consistent enough dividends for this strategy, and whether or not the predicted dividends look correct for this particular trade. For Trade ID 4, the dividends look correct to me. Actually they might be a little low as it looks like this company has been raising it’s dividend.

The other thing to look at with Trade ID 4 is the “Interest Rate Where Call Is Better (%)”. For this one, that’s 0.66%. So if you took the money you were going to invest in the Stock and Put and instead put that money in a savings account earning more than 0.66%, you would have enough to buy the call at the same strike price as the Put. The call being better assumes that the dividends are not raised over the life of the trade.

So in this case, if you like this trade, it might be better to stash your cash in savings and use the interest to buy the call. The call could very well expire worthless, so don’t put anything other than the interest earned into the call. Also note that if you buy the call instead of the stock put combo, you have no dividend risk, meaning there’s no possibility of loss due to the dividend being cut or the stock being bought out.

I used to prefer to buy the stock and put combo, mainly I think because it seemed cleverer, but I’ve come to see the wisdom in the simplicity of just buying the call. For this reason, I would buy the call for Trade IDs 4 through 13, and 16, since they are all cheaper given an interest rate of less than 1%.

Also note that since this strategy is essentially “fishing for luck”, I want to spread my investable funds over as many of the stocks as possible to get the most exposure to possible gains. So I will buy as many 100 share and put combos, or 100 share call options as I have the funds to cover, and usually not double up on a particular stock. Occasionally, I’ll double up if there aren’t enough trades to put all my investable funds to work, or if a new trade has an expiration date further in the future.

The remaining trades, 14, 15, and 17 through 25 are all trades that would expire in less than a year, and have “Annualized Percent To Profit” values of more than 50%. It’s entirely possible that these would produce a profit, but if I get this far down the list and still have funds left to invest, then I will normally switch to Long Shot Options.

Long Shot Options

As I said, I also use the Long Shot Options strategy. Again, I’m just fishing for luck here, so I want to spread out my investable funds as much as possible. I never buy more than the minimum 100 share call or put for any given stock.

I also never buy these trades with anything but the interest earned on my core capital because I’m expecting them to expire worthless most of the time. So if I have $100k sitting in a money market at 1.25%, that generates $1250 per year, or $104 per month.

Then each month when I get my account statement, I take the amount earned in interest, $104, and buy Long Shot Option plays until it’s all used up. So in this case that would be 20 $0.05 trades or 4 $0.25 plays, or some combination of that. I try to split the money evenly between the calls and the puts because I never know which way the market is going to go.

When I look at these trades, I take a quick look at the chart to make sure it’s not a buyout situation. Then I pretty much buy right down the line.

For the Calls, I’m looking for the “Percent To Profit Per Day Times Ask” that is the smallest. Basically, I want to pay the least amount for how much a stock has to go up per day to produce a profit.

Trade ID 1 is showing the buyout chart formation, and is indeed the subject of a buyout according to the news. (I usually look at the news stories for the stock on the stock quote page on either Yahoo or BigCharts.) So I would skip Trade ID 1.

Trade ID 2 is a well known stock, so I generally won’t even waste the time to look at the chart for a well known stock as it’s unlikely it will get bought out. As a bonus, Trade ID 2 is also 6 cents per share. I’m highly attracted to the idea of putting down a very small amount and getting back a nice return. Like when I put down 25 cents on a GM put not too long ago and made 400%. It makes a great story.

There’s also the fact that I can buy more 6 cent trades than 25 cent trades, and so expose myself to more positive luck that way. But generally I will just go down the list and buy any of the calls that are not buyouts.

Trade ID 3 is a buyout. So skip that. Trade IDs 4, 5, and 6 are well known, and so I would just buy them. Trade ID 7 is not a buyout, so I would buy it. And so on.

For the Puts, I’m looking for the smallest “Percent To Profit Per Day Times Ask Divided By Max Profit”. Basically, I want to pay the least amount for how much a stock has to go down per day to produce a profit, and moderate that by how far down that stock can go. Since a stock can’t go below $0, there is a maximum amount of profit to be made on these trades.

I’d buy Trade ID 1, 2, 3, 4, and 5. Skip 6 and 7 because they are buyouts. And then buy 8, 9, 10, and so on.

Note that the stock for Trade ID 3 is one that I said I would buy above in calls as well. So I’m saying I would buy both a call and a put on the same stock. Since I don’t know which way the market will go, I don’t try to out guess it and so I’m willing to make trades that go both ways.

Wrap Up

So there’s the selection of trades I would buy from the most recent Investing Strategies data. In future “Saturday Selection” posts, I’ll be much more brief about my choices. I just wanted to give a general overview of my thought process on choosing trades from each of the strategies this time.

 

Saturday Selections

See the first installment of Saturday Selections for details on the criteria I’m using to make these picks.

These picks are from the 11/20/2009 spreadsheets.

Saturday Selections are what I’m going to call my weekly post about how I would use the Inflatable Dividends , No Lose Stocks , and Long Shot Options services that Dividendium publishes. This will be the second installment with the first installment having been posted last Saturday.

I’d just like to clarify that all of the services publish their data daily. So although I’m only giving tips on how I would use Friday’s data each week, the data from any other day could be used, using the same criteria that I laid out in the initial installment. If I were to try to post my thoughts on every day’s data, it would be too time consuming for me, and the posts would rarely get out early enough for subscribers to find any use in them. By posting on Saturday subscribers then have Sunday to review the post, and can take any actions on Monday’s open.

Review

I won’t do this every time, but I’m going to do a quick review of the trades I suggested last time for the Inflatable Dividends service. The suggestions from last time were 5, 6, 8, and 10 from the 11/13/2009 Inflatable Dividends spreadsheet.

All four stocks gapped up at the open on Monday and didn’t come back down to their Friday’s close at any point during Monday. If I can’t buy a position the day after the spreadsheet is published then I don’t buy it. If the same trade is in the next day’s spreadsheet, then I consider it like I would any other trade in that day’s spreadsheet. So I would not have actually purchased any of these trades.

Inflatable Dividends

There’s only one trade in Friday’s spreadsheet this week. This is probably due to the fact that option expiration just happened on Friday.

After looking at the chart for Trade ID 1, I would pass on this one. Option expiration is a month out, so I look back about 2 months to see how the stock has been acting. It’s recently fallen from a long run up. That may mean that it’s just taking a breather and will go higher from here, or it may mean that it’s on it’s way down. Either way it doesn’t appear to be in a nice stable price range, which is what I would be looking for.

So for 11/20/2009 Inflatable Dividends spreadsheet, there are no recommended Trade IDs.

No Lose Stocks

Skip Trade IDs 1 and 2 since the stock is a buyout target. Then I would skip 3, 4, 8, 9, 10, 15, and 18 because they are all over my self-imposed limit of 3% max annualized loss. I would buy the call options for 5, 6, and 7 since that’s cheaper than buying the stock and put in those cases. And since the rest require an annualized percent to profit of more than 50% I would move on to Long Shot Options.

So for 11/20/2009 No Lose Stocks spreadsheet, I would buy the call options for 5, 6, and 7.

Long Shot Options

Skip Trade IDs 1 and 2 since they are buyout targets. But otherwise I would just buy as I moved down the list until I used up the interest I earned on my funds last month.

So for 11/20/2009 Long Shot Options spreadsheet, I would skip 1 and 2 and buy until I ran out of earned interest.

 

Saturday Selections

See the first installment of Saturday Selections for details on the criteria I’m using to make these picks.

These picks are from the 11/27/2009 spreadsheets.

Inflatable Dividends

You’ll notice that the size of the spreadsheet has expanded again back to it’s original size. One of the subscribers said that he liked to have all the extra data to be able to consider some of the more exotic covered call dividend capture plays that Inflatable Dividends finds. So the top section of data is what Inflatable Dividends thinks are the best trades to make, with ex-dividend dates that are confirmed, and option expiration dates within the next month.

There’s a disclaimer on the second section that says:

“DISCLAIMER: Trades listed below here do NOT follow the normal Inflatable Dividends criteria. These trades require in depth analysis before deciding to invest. The data below here contain many guesses made by Dividendium and should be highly scrutinized if used at all.”

So I will not be considering any trades for Saturday Selections that come from the second section of data in the spreadsheet.

Jumping in to the picks for this week. If I was using this strategy, I’d skip the following trades because they haven’t been in a good price range for more than twice the time until expiration: Trade IDs 2, 4, 6, 7, 8, 9, 10, 11, 12, 14, 16, 17, 19, 20, 21, 23, 24, 25, 26, 27, 29, 30, 31, 32, 33, 34

That leaves the following trades as ones I would pick: Trade IDs 1, 3, 5, 13, 15, 18, 22, 28, 35, 36.

I stopped looking after I found 10 trades that I would do, which means I stopped looking after Trade ID 36. So there may be others in the list that I would consider good as well.

No Lose Stocks

Skip Trade IDs 1 and 2 for buyouts. I’d buy the call options for Trade IDs 3 and 4 with interest on the money I would have used to buy the stock and put for those trades. I’d skip the other trades in favor of Long Shot Options as all the rest seem to be long shots anyway.

Long Shot Options

In previous posts, I have skipped options that were part of a buy out. That still seems practical for a call option, but a reader pointed out that buying the puts on buy out stocks might not be a bad idea. If the buy out falls through, then the put may pay off just from the people rushing out of the stock. And it might turn out that there was a good (or really bad) reason that the buy out did not go through and so the stock might fall even further.

So for the calls, Trade ID 1 is a buyout, so I’d skip that one, but then I’d just buy down the line.

For the puts, since I don’t care about buyouts, I’d just buy right down the line.

 

Saturday Selections

See the first installment of Saturday Selections for details on the criteria I’m using to make these picks.

These picks are from the 12/4/2009 spreadsheets.

Inflatable Dividends

If I was using this strategy, I’d skip the following trades because they haven’t been in a good price range for more than twice the time until expiration: Trade IDs 2, 3, 4, 5, 6, 7, 8, 9, 11, 13, 14, 15, 18, 19, 20, 21.

That leaves the following trades as ones I would pick: Trade IDs 1, 10, 12, 16, 17.

No Lose Stocks

Skip Trade ID 1 since it’s a buyout.

Skip Trade ID 9 because Trade ID 5 is the same stock and a better buy.

I’d buy the call options with interest on the money I would have used to buy the stock and put for Trade IDs 2, 3, 5, 6, 7, 8, 10. Trade ID 4 doesn’t have a call option detailed because Yahoo wasn’t reporting one, but BigCharts says the call at the same strike and expiration date has an ask price of $1.18. That figures to an interest rate of .71%, so I’d buy the call on that one too.

Trade ID 11 says the interest rate is -1, which means there is no interest rate at which the call is better than the stock and put, so I would buy the stock and put for Trade ID 11.

The remaining trades all require more than a 50% annualized gain, so I would skip them in favor of Long Shot Options.

Long Shot Options

For the calls, skip Trade ID 1 and 2 since they are buy outs, and then I’d just buy down the line.

For the puts, just buy down the line.

 

Saturday Selections

See the first installment of Saturday Selections for details on the criteria I’m using to make these picks.

These picks are from the 12/11/2009 spreadsheets.

Inflatable Dividends

If I was using this strategy, I’d skip the following trades because they haven’t been in a good price range for more than twice the time until expiration: Trade IDs 1, 2.

So there are no trades that I would pick from this spreadsheet.

No Lose Stocks

Skip Trade ID 1 since it’s a buyout.

Skip Trade IDs 9, 12, and 13 because the same stock is used in a better buy.

I’d buy the call options with interest on the money I would have used to buy the stock and put for Trade IDs 2, 3, 4, 5, 6, 7, 8, 10, 11, 14, 16, 17, 18.

Trade ID 15 says the interest rate is -1, which means there is no interest rate at which the call is better than the stock and put, so I would buy the stock and put for Trade ID 15.

The remaining trades all require more than a 50% annualized gain, so I would skip them in favor of Long Shot Options.

Long Shot Options

For the calls, skip Trade ID 1 since it’s a buy out, and then I’d just buy down the line.

For the puts, just buy down the line.

 

Saturday Selections

See the first installment of Saturday Selections for details on the criteria I’m using to make these picks.

These picks are from the 12/18/2009 spreadsheets.

Inflatable Dividends

Option expiration happened this past Friday, so there are no trades currently listed for this strategy.

So there are no trades that I would pick from this spreadsheet.

No Lose Stocks

Skip Trade ID 1 since it’s a buyout.

I’d buy the call options with interest on the money I would have used to buy the stock and put for Trade IDs 2 – 12.

Trade ID 13 says the interest rate is -1, which means there is no interest rate at which the call is better than the stock and put, so I would buy the stock and put for Trade ID 13.

The remaining trades all require more than a 50% annualized gain, so I would skip them in favor of Long Shot Options.

Long Shot Options

For the calls, skip Trade IDs 1 and 2 since they are buy outs, and then I’d just buy down the line.

For the puts, just buy down the line.

 

Saturday Selections

See the first installment of Saturday Selections for details on the criteria I’m using to make these picks.

These picks are from the 12/26/2009 spreadsheets.

Inflatable Dividends

If I was using this strategy, I’d skip the following trades because they haven’t been in a good price range for more than twice the time until expiration: Trade IDs 1, 2, 3, 4, 5, 6, 8, 9, 12.

That leaves the following trades as ones I would pick: Trade IDs 7, 10, 11, 13, 14.

No Lose Stocks

Skip Trade ID 1 since it’s a buyout.

I’d buy the call options with interest on the money I would have used to buy the stock and put for: Trade IDs 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 23, 26, 27, 28, 30, 32, 34, 35.

The skipped Trade IDs in the range above were for stocks that were covered by better trades already in the list above.

The remaining trades all require more than a 50% annualized gain, so I would skip them in favor of Long Shot Options.

Long Shot Options

For the calls, skip Trade ID 4 since its a buy out, otherwise I’d just buy down the line.

For the puts, just buy down the line.

 

Saturday Selections

See the first installment of Saturday Selections for details on the criteria I’m using to make these picks.

These picks are from the 1/1/2010 spreadsheets.

Inflatable Dividends

If I was using this strategy, I’d skip the following trades because they haven’t been in a good price range for more than twice the time until expiration: Trade IDs 2, 3, 5, 6, 8, 9, 12, 13, 14, 15, 16.

That leaves the following trades as ones I would pick: Trade IDs 1, 4, 7, 10, 11, 17.

No Lose Stocks

Skip Trade ID 1 since it’s a buyout.

I’d buy the call options with interest on the money I would have used to buy the stock and put for: Trade IDs 2 – 47.

The remaining trades all require more than a 50% annualized gain, so I would skip them in favor of Long Shot Options.

Long Shot Options

For the calls, skip Trade IDs 1 and 3 since they are buyouts, otherwise I’d just buy down the line.

For the puts, just buy down the line.

 

Saturday Selections

See the first installment of Saturday Selections for details on the criteria I’m using to make these picks.

These picks are from the 1/8/2010 spreadsheets.

Inflatable Dividends

If I was using this strategy, I’d skip the following trades because they haven’t been in a good price range for more than twice the time until expiration: Trade IDs 1, 2, 3, 4.

That leaves no trades that I would take this time.

No Lose Stocks

Skip Trade ID 1 since it’s a buyout.

I’d buy the call options with interest on the money I would have used to buy the stock and put for: Trade IDs 2 – 22. Note there are a few repeats in there, and I would only buy the better trade (lower Trade IDs).

The remaining trades all require more than a 50% annualized gain, so I would skip them in favor of Long Shot Options.

Long Shot Options

For the calls, I’d just buy down the line.

For the puts, I’d just buy down the line.

 

Saturday Selections

NOTE: I’ve been posting these “Saturday Selections” for a bit now, and I think it’s pretty clear what my criteria are and how I would implement them. So I’m planning to make this my last “Saturday Selections” post. If you would prefer otherwise, please let me know.

See the first installment of Saturday Selections for details on the criteria I’m using to make these picks.

These picks are from the 1/15/2010 spreadsheets.

Inflatable Dividends

Option expiration happened this past Friday, so there are no trades currently listed for this strategy.

So there are no trades that I would pick from this spreadsheet.

No Lose Stocks

Skip Trade ID 2 since it’s a buyout.

I’d buy the call options with interest on the money I would have used to buy the stock and put for Trade IDs 1, 3 – 28.

The remaining trades all require more than a 50% annualized gain, so I would skip them in favor of Long Shot Options.

Long Shot Options

For the calls, skip Trade ID 1 since it’s a buy out, and then I’d just buy down the line.

For the puts, just buy down the line.

Advertisements

2 thoughts on “WWDD – What would Dividendium do?”

  1. In the Put Long Shots section why would one not want the stocks that look like buyouts. If the offer falls through the stock could drop greatly?

    Like

  2. That's an excellent point. The chance that a stock buyout could fall through is just as likely as the stock tanking for any other reason. Thanks for pointing that out!

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s