THIS IS NOT INVESTMENT ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
As predicted in Volume 27, Bob Dudley in advance of his official ascension to CEO status announced that BP was headed toward restoring a divdend in the first quarter of 2011. The impact was positive on the stock, but was dramatic on the January call/options. I bought the $50 and the $52.50 Jan 2011 calls yesterday and made 48% and 64% respectively----in one day! The subscriber mentioned yesteday has made 113% since Monday!
The March 2011 Citigroup $5 options have not moved, but still look cheap. I have not purchased just yet.
In what I believe is a sign of things to come, Ford Motor exercised its $25 call today on DKL which I had purchased on July 30 for $23.90 and which was paying over 8% annually. This move obviously is meant to lower Ford's cost of capital in these times of cheap corporate debt, but it saddens me, even though I made over 7% in 2 months. I see more calls of trust preferreds on the horizon and even more difficulty for yield hunters such as myself.
I am rethinking my almost total reliance on dividend/interest paying securities. I have already recognized that it is the wrong way to play the tech sector---which abhors paying dividends (e.g. Apple sitting on $50billion of cash). It may also be the wrong way to play commodities. I am doing well with SCCO, SID and BCF, but these are dividend plays that have not done as well as say FCX (which is a holdover from before my recent foray) or GLD. If the market does begin to gather strength, I may open a portfolio that is not dividend dependent.
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