Comment by rookie

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rookie
January 12th, 2018 at 10:15 am

qcmike//  Here is Phil's posting on Jan. 3rd 2018.  Hope this helps.(http://www.philstockworld.com/2018/01/03/wednesday-watch-list-update-stocks-we-like-for-2018/)

FTR (1/3/18) – We love them as a turnaround story but no one else seems to.  Their heavy debt load scares people away but we like them and who doesn't love a 35% (no kidding) dividend of $2.40 on a $7.27 stock?  We assume they will cut it in half but that's still huge and maybe 1/4 but still a nice 8.5% dividend if they do that so why would we not want to have some cash in this stock – especially when we can discount it further with options?

We already added this on 1/2 as such:

Buy 2,500 shares of FTR for $7.16 ($17,900) 

Sell 25 2020 $8 calls for $1.25 ($3,125) 

Sell 25 2020 $8 puts for $4 ($10,000) 

Here we're spending just $4,775 in cash for a stock that will pay us $6,000 a year in dividends if they don't cut it.  Getting called away at $8 is $20,000 so another $15,225 (318%) in upside potential if they don't go lower but really, on this play, we'd rather they go lower so we can DD at a lower price than "just" make $21,225 at $8+ in 2020 as this is using barely any of our allocation.

For the OOP, I want to do the same trade but with 1,500 shares and 15 short puts and calls.

As a new trade today, I also like this set-up (either one but not both, of course)

Buy 5,000 shares of FTR for $7.27 ($36,350) 

Sell 50 2020 $8 calls for $1.25 ($6,250) 

Sell 50 2002 $5 puts for $2 ($10,000) 

We're spending just net $20,100 so just over $4/share net, which makes the $2.40 dividend 60% of our cash outlay!  If they keep the dividend, we'll be collecting $3,000 per quarter while we wait to see if we get called away at $8 for a 100% gain ($20,100) 2 years from now.  If FTR goes lower, we'll end up with 10,000 shares at about $4.50 but then we'll sell more calls for $1+ and drop our net to $3.50, which is half of the current price and still comfortably within an allocation block.