2 Safe-Havens To Protect Your Profits

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 |  Includes: DIS, EEM, ELD, EMB, EMLC, GE, MRO, PCY
by: Simon Monger

Gold’s parabolic move higher looks awfully similar to the tulip mania of the 1600’s, while even the Swiss franc disappeared as a safe-haven currency earlier this week when it tied its fate to the euro. So, where is an investor to put his capital to keep it safe? In this article, we’ll take a look at two great opportunities in today’s market that offer low risk and high returns.

Emerging Markets Debt: Lower Risk, Healthier Returns

Emerging markets may not be the best performers lately, with popular equity ETFs like the iShares MSCI Emerging Markets Index Fund (NYSEARCA:EEM) moving down some 15% year-to-date. But emerging market debt is a completely different story. For instance, the iShares JPMorgan USD Emerging Market Bond Fund (NYSEARCA:EMB) is trading up 3.5% year-to-date with about half the volatility (risk) of its equity counterpart.

Popular emerging market debt ETFs include:

  • iShares JPMorgan USD Emerging Market Bond Fund (EMB)
  • PowerShares Emerging Markets ETF (NYSEARCA:PCY)
  • WidomTree Emerging Markets Local Debt Fund (NYSEARCA:ELD)
  • Market Vectors Emerging Markets Local Debt (NYSEARCA:EMLC)

Blue Chip Stocks: Create Your Own Dividends with Options

U.S. large cap stocks are relatively undervalued in today’s market. Companies like General Electric Co. (NYSE:GE) and Marathon Oil Corp (NYSE:MRO) are trading at significant discounts to their intrinsic value. However, their dividends may not be all that attractive in some cases. As a result, investors could consider writing out-of-the-money call options to generate premiums and create “virtual” dividends of sorts.

Here are three possible trades to consider:

  • General Electric Co. (GE) trades with a P/E of just 11.79x and a 3.96% dividend yield. By purchasing 100 shares for $1,510 and writing a 17 Nov ’11 call for $0.32, an investor could generate an annualized 25% dividend yield in exchange for selling for a profit at $17.00.
  • Marathon Oil Corp. (MRO) trades with a P/E of just 7.03x and a 2.44% dividend yield. By purchasing 100 shares for $2,450 and writing a 31 Oct ’11 call for $0.11, an investor could generate an annualized 5.3% dividend yield in exchange for selling at a profit at $31.00.
  • The Walt Disney Company (NYSE:DIS) tardes with a P/E of just 13.41x and a 1.26% dividend yield. By purchasing 100 shares for $3,172 and writing a 36 Oct ’11 call for $0.21, an investor could generate an annualized 7.9% dividend yield in exchange for selling at a profit at $36.00.

The Takeaway…

Investors in today’s market are best off finding less risky asset classes and capitalizing on them. Bonds offer lower risk than equities in many cases, but few consider growth areas like emerging markets for opportunities. Meanwhile, boring blue chip stocks aren’t moving too quickly, but using options in a covered call strategy can help boost returns and create a “virtual” dividend.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.