Collecting Premium With Intel
Thank you for reading this article. Consider subscribing to get notified of future posts. There is a paid option, though for now, I’m posting everything free.
It has been a rather uneventful month. Except for if you are a shareholder in At&T (T). In which case, you likely know that the dividend is going to be cut by around 50% within the next year or two. And with that, I bailed. I have a simple request for my dividend growth stocks. That is, that they GROW their dividend and don’t cut - that simple. I’m not even greedy and need a raise every year, just a trend that the dividend is increasing over time is all. Even if the increases happen irregularly; every 7 or 9 quarters, for example.
That being said, T will likely still be a larger yielder and perhaps someday can be revisited. For now, I have a bit of cash that I wanted to put to work. The only problem - everything seems so expensive at this time that it is really hard to put capital to work. Of course, I know we won’t be able to easily replace a ~7% yielding stock too. But since it will be slashed in half anyway, it will be easier to replace. Several stocks on my watch list have just been seeming to march higher and higher every day.
So I figured what better time to be in the option writing game than now. Where we can create our own “income” by collecting option premium. Even this is harder when volatility has been few and far between.
While I’ll eventually look to enter through writing cash-secured puts on some of my watchlist, I want the market to come down some across the board first if it is going to be positions that I add permanently. Though that leaves us with the ability to play around with writing puts and when/if those get assigned, to turn around and write covered calls. This is exactly what we executed so excellently with AbbVie (ABBV) shares. In fact, I had even looked at doing that again with ABBV - but I wanted shares to come back down a couple of bucks before that.
All that being said, I went with Intel (INTC). INTC has been a position in my portfolio for a considerable number of years. It seems as though any time something good happens, news comes along and they take two steps backward (one step forward, two steps back scenario.) Highlighted by the last earnings that were a beat on estimates and they raised. Though revenue actually slightly declined YoY and the data center group was a primary culprit there. With that, it has left this semiconductor tech stock at a very attractive valuation. A forward P/E ratio of 12.30 is unheard of in the tech space - some tech stocks can’t even have a P/E because they don’t show any profits at all!
(Source)
Anyway, the trade I went with is the June 18th, 2021 expiration. Filled the contract at $0.55 per share/per contract. Thus, collected $55 for every contract sold. The strike price is $54.5 and shares were last trading at $56.68 as of writing this.
(Source - Google Finance)
Fidelity tells me there is a 66.55% probability that the shares will be trading above that price at the time of expiration. So it is in our favor that we may never collect these shares. Of course, from current pricing levels it really only would take a 3.85% decline before breaching this level.
(Source - Fidelity)
Though that doesn’t mean we are at a loss if shares are assigned to us. Our breakeven is $53.95 per share ($54.50 - $0.55.) Based on these metrics, if we were able to do this trade every 24 days we would be looking at an annualized return of 15.35%. As I frequently mention; however, the likelihood of being able to do this exact trade every single time is unlikely. This is due to the position that would inevitably be assigned at some point if done long enough.
Still, not a bad outcome as we are essentially squeezing out an extra “dividend” from INTC of $0.55 in less than a month. This is much better than their quarterly dividend of $0.3475 too!
Disclosure: Long INTC, ABBV
This is not investment advice but for entertainment purposes only. Any decision to buy or sell is solely made by that individual. Speak with a financial professional to develop an investing plan that is right for your own objectives and goals.