Results From My Premium Research: INCOME FROM COVERED OPTION WRITING To 6/19/15

Jun. 20, 2015 11:34 PM ET2 Comments
Richard Berger profile picture
Richard Berger's Blog
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Dividend Investing, covered calls, Value, Special Situations

Contributor Since 2013

Mr. Berger is the creator and developer of the YDP screening tool, a chart system and its analysis for screening and monitoring dividend income equity investments. The recipient of Seeking Alpha's Outstanding Performance Award, he also has been Seeking Alpha's #3 ranked Author for Income Investing Strategy & #4 for Utilities.


20 years of sitting in the board room gives me unique insights into Oil & Gas investments and corporate deal making in general. Additionally, he offers a Premium Research subscription service for boosting income while reducing market risk using covered option writing on a dividend income equity portfolio.

Residing in Brazil gives me a local's inside view on the pulse of its economy, politics, investment climate and breaking news. A view of my front yard is available here.

A former Chief Operating Officer, Director, Vice President and General Manger of Oil and Gas for Southern Pacific's Oil and Gas Operations, Business owner, geologist, and cribbage player, I've been an investor for over 48 years (started young at 13) and learned my lessons the way that makes them stick, by hard knocks and both big and little mistakes. Hopefully I can share some of those lessons with others.

I am an American expatriate that decided to retire at age 57 in 2009 and now live in Brazil. As an early retiree I invest for income and manage portfolio risk by screening for strong and reliable historic data along with favorable fundamental and technical current trends.

I spend 6 months/year living at home in Brazil and 6 months/year traveling the world. I have structured my financial positions so that I live virtually tax free with much of my income exempt from US tax since I live ex patriot and a lot of my US derived income over the annual ex-patriate exemptions is held in my tax free ROTH and tax deferred IRA/SIMPLE plans. This enables my tax savings to pay for my 6 months of annual traveling :) .

My investing is for income and appreciation with a balance of low to moderate short term risk and low long term risk. To accomplish this I use quality dividend payors with a long track record of steady or increasing dividends along with slowly appreciating equity prices. I target a 8 to 15 % yield and almost exclusively require a minimum history of 5 years of steady/increasing dividends and no decreases in dividend ever or at least past 10 years. I diversify through sector, country and currency unit the stocks are traded in, and security type (equity, royalty trust, REIT, etf, and ADRs).

I use covered call writing to enhance my portfolio yield with no added risk. In fact, it lowers the risk substantially. Once I identify a stock I want to own and an entry price for it, I write cash covered puts at or below that entry price (with a minimum of 1%/month time premium. Thus i obtain at least a 12% annualized yield before compounding just from the option premium.

Likewise, I use the sale of cash covered puts to generate income and and generally get an entry point at 5 to 10% below my acceptable entry level price if/when the put stock does get presented. Thus my strategy provides a 12% pre compound yield on cash and entry into stock purchases at a 5 to 10% discount from "retail".

Because I only select stocks that I am willing to hold long term for their reliable dividend yields, I am not concerned much with market volatility or short/midterm risk. Indeed, market volatility is my friend since it increases the premiums paid on the options I sell. I also selectively sell covered calls on positions I hold long so as to add to my yield that way while not taking on any additional risk.

This strategy has kept me happily living off my portfolio income and traveling 1/2 the year while my portfolio has been slowly increasing in value even after my harvesting income for living expenses.

As of December 2020, I am no longer writing for Seeking Alpha. If you would like to contact me with questions about my work or subscription service, please leave me a message on this site or email me at boater805@gmail.com

This is a quick report of my results to date on my subscription research work. I have run the numbers by hand with a calculator and they may be off by a tiny amount (The total premium number came up 3 different totals in 3 runs, all within $100, so I used the lowest of the 3).

The program Research attempts to identify high quality dividend income equities and the prices we'd like to own them at (fair value) for their dividend income stream. It then identifies a covered option writing strategy to buy them (Buy-write/covered calls) or to be paid to wait on them until the price is right (cash covered puts). With markets at or near highs and many stocks at high values right now, about 1/3 of the identified opportunites so far are covered calls where we buy and own the shares, boosting with out of the money covered calls which would liquidate our shares if the price rises significantly above the fair value price during the contract. The remainder are currently cash covered puts, where our money is earning handsome yields while sitting on the sidelines instead of earning nothing while idle.

Without further ado, here is our result to date:

Began with 1st Article: 4/16/2015 -- 63 days ago

To date: 19 articles with specific real time trades identified on 18 tickers (1 repeat after 1st cash covered put ran its course).Cash from premiums to date for the smallest portfolio targeted ($200,000) is based on even weight of around $10,000 per ticker with round lot trades/writes.

Total cash from premiums to date: $7,549.00 on $176,951 net invested. Currently 1 completely played out round-trip done and 18 open. 2 cash covered puts in the money and 4 covered calls in the money for net paper loss on those of $1,686.00.

Total result as of today is $5,863.00 net cash from premiums after deducting paper losses on in the money options. This is a 3.31% net absolute premium boost on the $176,951 cost basis portfolio for 63 days from initial investment (less than 40 day average investment to date), an pro-rata annualized 19.18% option writing boost **above and beyond the dividend yields on these held under covered calls). Cash reaped from dividends to date is not counted into these results either. That would further boost the total return figures. I think my $50/month ($400/year subscription fee is being adequately and quickly returned to readers).

Richard

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