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Thursday, April 25, 2024

Top Trades for Thu, 23 Feb 2017 14:56 – GME

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Top Trades for Thu, 23 Feb 2017 14:56 – GME
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GME/01 – They make $3.75 per $25 share.  I would have thought Apps and On-line downloads would kill them but kids still need gear and they like to hang out and talk games in the stores and, like my daughters, they seem to feel it's impolite to hang out in a store and not buy something.  They also pay a fat dividend of $1.48 (5.6%) so you might want to consider either owning the stock ($25.78) and selling the 2019 $23 calls for $5.60 (net $20.28 less $3.05 on the puts is net $17.23 so the dividend is 8.5% and, if called away at $23, that's another $5.77 (33.4%) so about 20% a year return from owning the stock, selling the $20 puts and $23 calls and your break-even is $18.61, 28% below the current price.  

In fact, let's officially add 1,000 of those to the LTP as it is a nice, safe way to make 20%.  Officially:

  • Buy 1,000 GME at $25.77 ($25,770)
  • Sell 10 GME 2019 $23 calls for $5.60 ($5,600) 
  • Sell 10 GME 2019 $20 puts for $3.05 ($3,050) 

That's net $17,120 and, if assigned 1,000 more at $20, our average would be $18.56 for 2,000 ($37,120) – so that's our max loss and max commitment.  Meanwhile, we collect $1,480 against our $17,120 cash outlay in dividends (8.6%) and, if we get called away at $23 ($23,000) in two years, that's ($23,000 + $1,480 + $1,480) = $25,960 – $17,120 = $8,840 profit (51.6%) so 20.8% per year profit. 

The key to these dividend plays is to just do that steadily for 5 cycles (10 years) and by then you will have gotten your entire investment back but you still have the stock and that's still generating $1,480 (which tends to go up with inflation) and then you put the money into the next cycle and 10 years later you have another free stock and you are collecting $2,960 and 20 years later you are throwing off $5,920 in dividends against your original $17,120 investment but you have $68,000 worth of stocks paying out those dividends.

That's it – that's how you retire rich!  Now get started!