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Private Wealth Manager / Securities Expert / Co-host of "Investing and Your Legal Rights" heard monthly on Over 35 years in the investment industry, first working at PaineWebber for almost 20 years which included 3 years as a branch manager. Currently have a CRCP (Certified... More
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Oaktree investment advisors
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Covered Call Focus
  • May Strategy Review (NOV), (PNC), (HD) 0 comments
    May 21, 2013 8:41 AM | about stocks: HD, PNC, NOV

    May Strategy Review

    Well its finally time for the May Covered Call Review. We had three strategies come to a close this past Friday. We'll tell you how they ended up and where to go from here.

    NOV May 2013 $82.50 Call
    Date Enacted: 10/15/12

    Cost Basis: $7,848

    Income: $546

    Price Upon Expiration: $68.59

    Result: EXPIRED

    Static Yield: 12.39%

    National Oilwell Varco is the first strategy that closed on Friday, with our $82.50 Call expiring. The stock has had a bit of a rollercoaster ride last year, with it consolidating late last year. The call expired with the stock down around 12% from our cost basis, down 5.6% from our adjusted costs basis. Despite the oil services industry under-performing, we think NOV has a lot going for it at the moment. Firstly, they've announced that they have doubled their dividend. Secondly, their valuation we believe is quite cheap with a P/E of 12. Technically, the stock has been trading in a narrow range, and has the potential to break out. There is a support level around $64 - breaking through that could send the stock lower. If the stock breaks through its 200 day moving average on the upside, it will most likely not meet resistance till the $87 level. If it takes out that recent peak, the stock will most likely take off. We think that the positives outweigh the negatives with NOV, so we're not recommending selling it right here. The increased dividend will help create interest in the stock, and Warren Buffett has still been gobbling the stock up when he can, so we think that's a good sign. The valuation level is attractive at the point, so we wouldn't mind adding to the position, but we're going to leave the Covered Call off, and have our fingers on the sell button if it starts to break to the downside.

    PNC May 2013 $65 Call
    Date Enacted: 10/22/12

    Cost Basis: $5,945

    Income: $161

    Price Upon Expiration: $71.53

    Result: CALLED AWAY

    If-Called Yield: 23.61%

    PNC ended up getting called away after a nice run starting back in the fourth quarter of last year. After breaking past its 200-day moving average, the stock has steadily moved higher, ending with a 10% premium over our set strike price. But the small yield we picked up combined with the out-of-the-money strike price we set got us a nice If-Called Yield, with a 12% un-annualized return. Moving forward, we like PNC as an investment. We see the bank expanding, a recent dividend increse, and a cheap valuation compared to the market. We would suggest re-establishing a position in the stock, and selling another out-of-the-money Call, as the stock is poised to continue higher. Look for us to re-do PNC next week.

    HD May 2013 $65 Call
    Date Enacted: 10/31/12

    Cost Basis: $6,260

    Income: $245

    Price Upon Expiration: $76.95

    Result: CALLED AWAY

    If-Called Yield: 15.99%

    Like PNC, our Home Depot strategy got called away this past Friday. The stock has been riding a huge wave since the fourth quarter of 2011 back when it was $34. Now trading at more than double that price, the stock got called away from us with at a 18.38% premium over our strike price. We pulled a nice If-Called Yield out of the strategy of 15.99%. While the housing recovery still has not played itself out just yet, and HD can definitely move higher, we're looking to put money elsewhere. The P/E for the stock has hit 25, moving out of a range we feel comfortable playing with at the moment, so we're happy to take our profits from this strategy and look for a more attractive time to reenter HD. If we see some consolidation in the stock, or a pullback that creates a significant resistance level, we will reevaluate the macro environment and determine how attractive the company is at that time.

    Posted by OaktreeAdvisors at 5/20/2013 4:11 PM
    Categories: Week In Review

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    Disclosure: I am long NOV, PNC, HD.

    Additional disclosure: OakTree has long positions in HD, PNC and NOV and have sold covered calls on some of these positions. We may add more shares to our clients portfolios.

    Stocks: HD, PNC, NOV
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