Individual Stocks/Bonds

FireFoley · Mar 17, 2019

Since we had a broad array of threads about different investments, I thought I would start one about individual stocks or bonds in case someone wanted to opine or ask a question. guess I was thinking about Boeing (BA) b/c the stock had been a monster and due to two terrible accidents, it had a decent pullback. I know they have a big order backlog, but still not sure. Still a little expensive for me on a P/E and other metrics, but can't argue it has been a juggernaut.

OOps sorry I just the BA thread after I posted. Feel free to merge if applicable, or keep open for other mentions. I also have taken a keen interest in CVS at these levels. Know they have a lot on their plate but that stock was 115ish not so long ago!

no1g8r · Mar 17, 2019

FireFoley said:
Since we had a broad array of threads about different investments, I thought I would start one about individual stocks or bonds in case someone wanted to opine or ask a question. guess I was thinking about Boeing (BA) b/c the stock had been a monster and due to two terrible accidents, it had a decent pullback. I know they have a big order backlog, but still not sure. Still a little expensive for me on a P/E and other metrics, but can't argue it has been a juggernaut.

OOps sorry I just the BA thread after I posted. Feel free to merge if applicable, or keep open for other mentions. I also have taken a keen interest in CVS at these levels. Know they have a lot on their plate but that stock was 115ish not so long ago!

If someone likes BA stock and believe it has just about bottomed out, they could sell a 370 April Put option for 10.50 or so, giving them a little over a $1000 into their account immediately. As long as the price doesn't drop more than another 2.5% (and stay there until April 18), they get to keep the $1000. If it does drop, they can buy the 100 shares for 370/share ($37k total) to satisfy the contract, but will have gotten it for $36k since they get to keep the options premium, meaning that their break-even would be around $360/share, or about a 5.5% discount from the current price.

If I were thinking about buying into BA stock now, this is the approach that I would take, rather than buying it for the $379/share Friday closing price.

I'd do something similar with CVS. At Friday's close, CVS was at 55.60. The April 55 put was at 1.43, so each put contract sold would yield $143. If the price drops further, I'll either need to buy that 100 shares of CVS at the strike price of $55, or $5500 per contract, but my cost basis would only be 53.57 per share, so I'd be almost 2% ahead of having bought CVS at the going price of 55.60.

Maybe I should start an options thread.

FireFoley · Mar 17, 2019

Do you find that selling out of the money puts is a good strategy more for trading or investing? I understand that if the stock does not get put to you that you capture the premiums, but get no reward on any upside. conversely, if you get long the stock b/c it drops, do you immediately establish another option position to hedge your downside (i,e, a trade) or are you comfortable with more of a long term hold? I don;t dislike your strategy but you run the risk of not owning something that you might really like?

ChiefGator · Mar 17, 2019

FireFoley said:
Do you find that selling out of the money puts is a good strategy more for trading or investing? I understand that if the stock does not get put to you that you capture the premiums, but get no reward on any upside. conversely, if you get long the stock b/c it drops, do you immediately establish another option position to hedge your downside (i,e, a trade) or are you comfortable with more of a long term hold? I don;t dislike your strategy but you run the risk of not owning something that you might really like?

I don't trade, but trading and its tools today are part of investing. If you trade in your retirement accounts you avoid the taxes that can be a negative to doing it in a taxable account.

I usually struggle in finding the right price, if Boeing had dropped 100 I would have been in.

no1g8r · Mar 17, 2019

FireFoley said:
Do you find that selling out of the money puts is a good strategy more for trading or investing? I understand that if the stock does not get put to you that you capture the premiums, but get no reward on any upside. conversely, if you get long the stock b/c it drops, do you immediately establish another option position to hedge your downside (i,e, a trade) or are you comfortable with more of a long term hold? I don;t dislike your strategy but you run the risk of not owning something that you might really like?

Somewhere I read that Warren Buffet preferred to use it for investing in long term positions at a discount. That makes a lot of sense to me, but I do it more for trading because I like to trade, and usually exit or roll the position rather than having a stock put to me. I’m literally in it with the goal of collecting the premium.

On the occasions that I do let the stock get put to me, I’ll sell covered calls against it to keep reducing my cost basis until the stock gets called away.

You’re right. I do give up upside opportunity, and have lost out a time or two, but i’m More comfortable with this approach. I have funds that capture broader market upward movement, and learned over time that i’m Not the greatest at picking good buy and hold individual stocks, so this works for me.

FireFoley · Mar 17, 2019

I agree with you Chief that trading tools can be used as part of sound investing. I often times tend to trade my retirement accounts more and more and try and capture quicker upside knowing it is tax deferred. But I have always tried to invest more in value or for value so I try to buy on down moves, etc. and you must be patient with that. As a pure trade people are more likely to buy breakouts, etc. (higher prices) just trying to capture smaller moves. I am not big on waiting for chart or technical confirmation to establish what I consider a longer term investment.

I certainly appreciate your strategy No1 and have no issue with trying to grab premiums when those opportunities arise.

no1g8r · Mar 17, 2019

FireFoley said:
I certainly appreciate your strategy No1 and have no issue with trying to grab premiums when those opportunities arise.

To Chief's point, I often do the short put option premiums for income approach in a retirement account so that it is tax deferred. I can't sell naked puts in a retirement account, but I can cover them with a deep out of the money long put that only costs a few pennies in premium, so it is effectively naked puts, even though they are vertical spreads in reality.

Detroitgator · Mar 17, 2019

no1g8r said:
Somewhere I read that Warren Buffet preferred to use it for investing in long term positions at a discount. That makes a lot of sense to me, but I do it more for trading because I like to trade, and usually exit or roll the position rather than having a stock put to me. I’m literally in it with the goal of collecting the premium.

On the occasions that I do let the stock get put to me, I’ll sell covered calls against it to keep reducing my cost basis until the stock gets called away.

You’re right. I do give up upside opportunity, and have lost out a time or two, but i’m More comfortable with this approach. I have funds that capture broader market upward movement, and learned over time that i’m Not the greatest at picking good buy and hold individual stocks, so this works for me.

I used to trade covered calls when I had the time to play. Trade Monster is a great platform for trading options

78 · Mar 18, 2019

Tom James, chairman of Raymond James, for awhile touted about having a 5% money market. Covered calls on AT&T.

Detroitgator · Mar 18, 2019

78 said:
Tom James, chairman of Raymond James, for awhile touted about having a 5% money market. Covered calls on AT&T.

Another variation on covered calls that worked really well (but haven't looked at it in years) was doing same thing, but with LEAPs.

FireFoley · Mar 19, 2019

Now Fed Ex taking it on the chin after earnings and issuing a warning. Stock down 10 bux in the aftermarket. If they earn $15/share this year and if stock is 170, that is just a tad above an 11 P/E. Generally speaking that is not expensive but must take into account other factors, but I think one to look at similar to BA

williston_gator · Mar 20, 2019

Any must haves? I'm very new to single stocks (Robinhood). I have an idea, and will have to work up to it but curious what others think.

FireFoley · Mar 21, 2019

williston_gator said:
Any must haves? I'm very new to single stocks (Robinhood). I have an idea, and will have to work up to it but curious what others think.

Gotta know your desires a bit more. Age, desire for income or are you trading, building a portfolio, is it money you need or is it fun money, etc.? Not asking personally but those are things you have to answer for yourself. Also never, ever use market orders, always a limit price. Also always pick your prices and don't chase. There is a train leaving the station every hour. Also don;t put it all in at the same time, if you are bulding. If trading then it could be different. Good luck. And most importantly, #1 thing with a bullet: ALWAYS HAVE AN EXIT PLAN!!!!!! If you make money, great, all is good. But have a plan if it goes against you!

ChiefGator · Mar 21, 2019

williston_gator said:
Any must haves? I'm very new to single stocks (Robinhood). I have an idea, and will have to work up to it but curious what others think.

My advice is to create an investment policy type statement. One example is this

https://efinancemanagement.com/investment-decisions/investment-objectives-and-constraints

Once you understand what you want to accomplish then an evaluation of which stocks might meet your criteria can happen. Basically there is no one size fits all and it depends on the price you would pay as well.

Gator By Marriage · Mar 22, 2019

FireFoley said:
Gotta know your desires a bit more. Age, desire for income or are you trading, building a portfolio, is it money you need or is it fun money, etc.? Not asking personally but those are things you have to answer for yourself. Also never, ever use market orders, always a limit price. Also always pick your prices and don't chase. There is a train leaving the station every hour. Also don;t put it all in at the same time, if you are bulding. If trading then it could be different. Good luck. And most importantly, #1 thing with a bullet: ALWAYS HAVE AN EXIT PLAN!!!!!! If you make money, great, all is good. But have a plan if it goes against you!

This is very good advice. Sorry I could only give you one like.

FireFoley · Mar 25, 2019

Not sure this is the thread for this, but the yield curve has inverted, which does not mean a recession is imminent, but does usually predict a severe slowdown within 6-18 months. When the 3 month T-Bill has a higher yield than the 10 year Treasury note, the batting average for a slowdown is almost .1000. I bring this up b/c why would anyone loan the U.S. money for 10 years at 2.4% today, when you can a get an overnight money market account for 2.4%? So I fear the mantra that you must go to stocks b/c rates are so low is going to be back in force. Well that has been probably the biggest reason stocks went up for the past 10 years. But just how long can that mantra continue? Yes I know markets can remain irrational longer than you can remain solvent, but with the S&P 500 dividend yield much less than a money market account, what's the huge incentive? yes I know potential upside in stocks, but there is also ptential downside. I bought the argument when the S&P 500 was below 700, but now that it is 2800+, I don;t see enough acceleration in earnings to warrant the same push to risk assets as I did beginning 10 years ago when the FED was trying to push people to risk assets. Thoughts???

78 · Mar 26, 2019

And yet we have a tight labor market and economists expect an uptick in business investment. Probably 50/50 that the inversionists create a self-fulfilling prophecy.

Detroitgator · Mar 26, 2019

Kevin "Mr. Wonderful" O'Leary (Shark Tank) spoke at UF last night... here are Son #2's notes:

Kevin O’Leary: Effective Entrepreneurship

Articulate opportunity in 90 sec or less.
Convince investors that they are right team to execute business plan.
Know numbers (know margins of products, etc.) and have comprehensive understanding of business models.

Effective Management:

Better time management skills. Allocate time!!
Set earnings targets low. Can consistently hit goals!
Set achievable goals!
Maintain culture w/ less employee turnover.
Assimilate feedback to enhance customer service. Shut up and listen to customers and employees! Take data from others, and pivot direction if needed. Learn from others.
Maintain a “brand is everything” core principle. Service companies pay to take market share through negative reviews online.

Financial Literacy/Investing Rules:

Mother invested in large cap, dividend paying stocks. Dividends generated 70% of total stock market return over last 40 years. Loves dividend paying stocks.
Diversification is only free lunch in investing. NEVER have more than 5% in any position.
11 sectors in S&P, don’t own more than 20% position in any one sector.
Never own a position that doesn’t return capital.
Own 35% fixed income (3-5 yr. bonds, etc.) at any time, including real estate.
Should own bonds in same percent as age and adjust (30 yrs old = 30% bonds...).
Before 40 years old, position preservation above performance.
Keep 10% in cash at all times, because poo poo happens!

Entrepreneurship is the way to set yourself free.

Individual Stocks/Bonds

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