| The Yield Hunter Let's make some money and sleep well at night |
| Adding Extra Yield to Your Portfolio Continued From Front Page |
Copyrights 2006-2007 SGM Publishing |
| Update 5/15/2008 |
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With both Provident and Harvest Energy we purchased on a oil pullback----meaning that both of
these issues dropped.
We then held them until they moved higher (with our belief obviously that we would get more oil
spikes). With Provident we sold the covered calls for a 3% gain which removed any further upside
potential, but at the same time gave us 10% downside protection as the calls we sold were $10.00
strikes. We have written about this play earlier. Our idea was mostly to lock in the 13% yield
through option expiration in 6 months. We now have almost 20% downside protection and have the
yields locked in at our purchase price.
With Harvest Energy we did something with a bit more risk with more reward potential. We bought
in Mid March (around 22.50) on a big down day----we then held without hedging with covered calls
for almost a month. At that point we sold covered calls-----locking in a near $2.00/Share profit at
that point----of course we could have simply sold the shares and taken our almost 10% profit---but
we wanted the yield so we sold the August 12.50 calls (yes 12.50----deep in the money).. So we
locked in a 10% gain----and insured our dividend yield of over 16%. The shares would now
have to drop by over 50% for us to be break even on the investment.
Now on to National Rural Utilities (NRN and NRU) Exchange Traded Debt. This has been a
PERFECT TRADING VEHICLE-----yes trading. We do not advocate trading stocks---but we are
opportunistic whenever possible. AND we note that as we are finishing this article that we no longer
own NRN---as our goal was reached and we sold our position with a limit order at $24.75/Share.
With these vehicles---we want to own them for Yield as they are in the 7% area and are investment
grade.
We have noted over the last year the following has generally worked well with NRN, NRU and NRC.
They are fairly thinly traded so they can move up and down 50 cents in a given day or 2. We try to
buy these about 2 weeks before the ex-dividend date at a low price day---of course you just put
your LIMIT price order in and watch and wait. With NRN we purchased in late April at a price in the
high 23's.----ex-dividend date is 5/12/2008. The price moved up into ex-dividend date trading at
24.70 the day before ex-dividend---on 5/12/2008 the shares went ex dividend and opened for
trading on that date down 30 or 40 cents. So now we have a gain of 40-50 cents/share on the
exchange traded shares and we have captured the dividend of near 40 cents----total
return--3.5%ish. Now we put in a limit sell order at the approximate price point from the day before
ex dividend---in this case we put in an order at 24.75. It took 5 days (today) to execute this order
for another 1.5%ish gain----total 5% in a month.
Caution--this doesn't work this well all of the tme---if it did we would all go lay on a beach
somewhere. Worst case on this investment vehicle--you own an investment grade debt yielding 7%.
Additionally you need to have a laundry list of ExchangeTraded Debt issues--preferably of
investment grade issues. National Rural Utilities has 3 of the Exchange traded issues---NRN, NRU,
NRC and GE Capital has a bunch of them. Of course these issues all trade around $25.00/share
and are bought and sold just like any common stock----but you must use LIMIT orders or people
like me will take them off your hands at a discount.
Lastly looking at SPPR and RHY in our portfolio we don't do anything with these---just buy them
when they look good and hold them. Additionally we have not traded our XCEL Energy position as
we just haven't gotten around to finding the correct strategy---and are content to hold it for its 7.6%
yield.
Bottom Line-----as long as these opportunities present themselves we will take advantage of
them--when/if they go away we will be happy to hold for a nice 7% yield. We have a portfolio gain
of 5.5% in 5 months we never more than 35% of our portfolio invested (the balance in money
market). We are chicken investors and we are loving the opportunities that are presenting
themselves.
Key items-----stick to quality items----stick to items you would be happy owning for a long
time----always diversify----always do your due diligence.
Added 5/16/2008 1 pm-----Whoops another couple items. We buy the exchanged traded
debt shares typically in blocks of at least 300-600 shares. This minimizes commissions
per share. Also it should be noted that in the 3 months to the next ex dividend date the
shares will trade down--typically by at least 2% so that you are able to rebuy at lower
levels.
these issues dropped.
We then held them until they moved higher (with our belief obviously that we would get more oil
spikes). With Provident we sold the covered calls for a 3% gain which removed any further upside
potential, but at the same time gave us 10% downside protection as the calls we sold were $10.00
strikes. We have written about this play earlier. Our idea was mostly to lock in the 13% yield
through option expiration in 6 months. We now have almost 20% downside protection and have the
yields locked in at our purchase price.
With Harvest Energy we did something with a bit more risk with more reward potential. We bought
in Mid March (around 22.50) on a big down day----we then held without hedging with covered calls
for almost a month. At that point we sold covered calls-----locking in a near $2.00/Share profit at
that point----of course we could have simply sold the shares and taken our almost 10% profit---but
we wanted the yield so we sold the August 12.50 calls (yes 12.50----deep in the money).. So we
locked in a 10% gain----and insured our dividend yield of over 16%. The shares would now
have to drop by over 50% for us to be break even on the investment.
Now on to National Rural Utilities (NRN and NRU) Exchange Traded Debt. This has been a
PERFECT TRADING VEHICLE-----yes trading. We do not advocate trading stocks---but we are
opportunistic whenever possible. AND we note that as we are finishing this article that we no longer
own NRN---as our goal was reached and we sold our position with a limit order at $24.75/Share.
With these vehicles---we want to own them for Yield as they are in the 7% area and are investment
grade.
We have noted over the last year the following has generally worked well with NRN, NRU and NRC.
They are fairly thinly traded so they can move up and down 50 cents in a given day or 2. We try to
buy these about 2 weeks before the ex-dividend date at a low price day---of course you just put
your LIMIT price order in and watch and wait. With NRN we purchased in late April at a price in the
high 23's.----ex-dividend date is 5/12/2008. The price moved up into ex-dividend date trading at
24.70 the day before ex-dividend---on 5/12/2008 the shares went ex dividend and opened for
trading on that date down 30 or 40 cents. So now we have a gain of 40-50 cents/share on the
exchange traded shares and we have captured the dividend of near 40 cents----total
return--3.5%ish. Now we put in a limit sell order at the approximate price point from the day before
ex dividend---in this case we put in an order at 24.75. It took 5 days (today) to execute this order
for another 1.5%ish gain----total 5% in a month.
Caution--this doesn't work this well all of the tme---if it did we would all go lay on a beach
somewhere. Worst case on this investment vehicle--you own an investment grade debt yielding 7%.
Additionally you need to have a laundry list of ExchangeTraded Debt issues--preferably of
investment grade issues. National Rural Utilities has 3 of the Exchange traded issues---NRN, NRU,
NRC and GE Capital has a bunch of them. Of course these issues all trade around $25.00/share
and are bought and sold just like any common stock----but you must use LIMIT orders or people
like me will take them off your hands at a discount.
Lastly looking at SPPR and RHY in our portfolio we don't do anything with these---just buy them
when they look good and hold them. Additionally we have not traded our XCEL Energy position as
we just haven't gotten around to finding the correct strategy---and are content to hold it for its 7.6%
yield.
Bottom Line-----as long as these opportunities present themselves we will take advantage of
them--when/if they go away we will be happy to hold for a nice 7% yield. We have a portfolio gain
of 5.5% in 5 months we never more than 35% of our portfolio invested (the balance in money
market). We are chicken investors and we are loving the opportunities that are presenting
themselves.
Key items-----stick to quality items----stick to items you would be happy owning for a long
time----always diversify----always do your due diligence.
Added 5/16/2008 1 pm-----Whoops another couple items. We buy the exchanged traded
debt shares typically in blocks of at least 300-600 shares. This minimizes commissions
per share. Also it should be noted that in the 3 months to the next ex dividend date the
shares will trade down--typically by at least 2% so that you are able to rebuy at lower
levels.