How to 'Juice' Your Conservative Portfolio
By Jeff Clark
July 09, 2009
You'd be hard-pressed to find a worse time to buy a stock than January 2008.
The market was just starting to struggle after the big rally that started in March 2003... the worst credit crisis in generations was in the future... and stocks went on to lose half their value over the next 15 months.
Yet by following a strategy I've been writing about for years in these pages, Advanced Income readers who bought on my recommendation in January 2008 are up 40%.
I've often written about this strategy as a way of generating income from stocks in a sideways market. And it remains an excellent way of getting juice from a conservative stock portfolio.
For most investors, stocks have been relatively juice-free for much of the past two years. The bear market has taken its toll on the "buy and hold" philosophy, and the returns on most portfolios have been about as juicy as a peach pit.
But as my Advanced Income readers can tell you, there is a way to squeeze high returns out of stagnant or downtrending stocks: selling covered calls.
The strategy basically involves buying a low-risk value stock at a bargain price and then selling to someone else the right to buy the stock at a higher price. In other words, selling calls.
Let me show you how well it worked with King Pharmaceuticals (KG), the longest-held position in the portfolio of Advanced Income. We bought the stock in January 2008, just as the bear market was getting started, and we've sold covered calls against it several times.
As you can see from the following chart, the stock has fluctuated along with the market...
KG has traded above our $10 purchase price, and as much as 40% below it. But by selling covered call options we've always been profitable on this trade.
In fact, yesterday, the stock closed a bit below our original purchase price. But we're still up nearly 40% over the past 18 months.
The stock has gone nowhere, but we've made a bunch of money. And we'll make even more when we sell additional calls against the shares after our July options expire next week.
This is an excellent example of the value of selling covered calls.
If you're looking for a way to squeeze a little extra juice from your portfolio, give this strategy a try.
Best regards and good trading,
Jeff Clark
P.S. If you'd like to learn how to use this strategy, come on board as an Advanced Income subscriber. You can get the details here. |
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| • |
Discount retailer roars back... Family Dollar jumps 12% on strong earnings, Dollar Tree up 8%. |
| • |
World's largest biotech Amgen spikes to seven-month high... up 28% from April low. |
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Homebuilders give back gains... Toll Brothers, KB Home, Pulte, and DR Horton decline to fresh three-month lows. |
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Earnings today... Chevron, 3Com. |
|
Last |
Change |
52-Wk |
| S&P 500 |
881.03 |
-1.97% |
-29.65% |
| Oil (USO) |
33.81 |
-2.59% |
-70.59% |
| Gold (GLD) |
90.71 |
-0.06% |
-0.57% |
| Silver (SLV) |
12.89 |
-1.60% |
-26.76% |
| U.S. Dollar |
80.69 |
-0.02% |
+10.51% |
| Euro |
1.39 |
-0.07% |
-11.21% |
| VIX |
30.85 |
+6.38% |
+19.67% |
| HUI |
327.33 |
-0.53% |
-22.98% |
| 10-Year Yield |
3.46% |
-0.05 |
-0.41 |
|
|
| Company |
Sym |
Industry |
Transcend Services |
TRCR |
medical dictation |
Helix Wind |
HLXW |
wind turbines |
Schering Plough |
SGP |
Big Pharma |
Bridgford Foods |
BRID |
meat products |
ImmunoGen |
IMGN |
biotech |
Coventree |
COVNF |
broker |
Young Innovations |
YDNT |
medical devices |
Biostar Pharma |
BSPM |
biotech |
Isramco |
ISRL |
oil & gas drilling |
Vortex Resources |
VXRC |
oil & gas drilling |
Female Health |
FHCO |
personal products |
Coates International |
COTE |
auto parts |
|
| Company |
Sym |
Industry |
Valhi |
VHI |
chemicals |
Pharmaxis |
PXSL |
pharma |
Pinnacle Financial |
PNFP |
bank |
Medidata Solutions |
MDSO |
health care IT |
Chemgenex Pharma |
CXSP |
biotech |
Harris |
HRS |
telecom |
APP Pharma |
ABII |
biotech |
|
|
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