Last week, the markets shrugged off good news on GDP growth. Over the past year, the markets had seized on news that things were getting less bad as a reason to rally. Now, while the news actually is good -- GDP increased by a lot more than analyst projections -- the markets are reacting by shrugging off the good news and dropping because banks may face additional regulation.
Did anyone actually think that after the financial crisis and the extraordinary steps that were taken to prevent the financial system from collapsing that there wouldn't be more regulation? If so, they need to have their heads examined!
In any case, the latest sell off, while killing some of our positions like our call options in Intel, has created buying opportunities.
The first trade that we will make is to take advantage of a company that's going to go ex-dividend on Tuesday. The company is Pioneer Southwest Energy Partners (PSE). The stock closed at $23.14 on Friday, and the dividend will be $0.50. That works out to a yield of 2.2 percent. We will hold the stock until after the ex-dividend date, and then we'll sell it. That will give us an annualized return of 394 percent if everything works out right. If we have to hold the stock for longer in order to make sure that we sell it for the same price as we paid for it, that will obviously drop the return down. However, even if we have to hold the stock for a full month, we'll get an annualized return of 24.4 percent, which we can live with.
The next trade we will make involves selling one of our winning positions, Biovail Pharma, and using the proceeds to buy Intel. We'll also close out our calls in Intel to buy the stock itself.
Why? Well, Intel just reported better than expected earnings, revenues, and margins. And the stock has dropped by about five percent since then, despite a big surge in the GDP numbers for software and computer systems. It's trading at around 12 times this years projected earnings, versus the S&P 500's 14.3. On top of that, Intel is an innovator. It also goes ex-dividend this week, but investors don't buy Intel for its dividends. They buy it because it is the undisputed leader in its sector and it works very hard to maintain that position.
We will likely turn around and sell covered calls on Intel to both boost the income we get on the stock and to make the trade even less expensive. But Intel is going to go into our portfolio as a core position.
Many assume that when the markets are down, things are bad. That's not necessarily true. When the markets go down, savvy investors can find buying opportunities.
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Did anyone actually think that after the financial crisis and the extraordinary steps that were taken to prevent the financial system from collapsing that there wouldn't be more regulation? If so, they need to have their heads examined!
In any case, the latest sell off, while killing some of our positions like our call options in Intel, has created buying opportunities.
The first trade that we will make is to take advantage of a company that's going to go ex-dividend on Tuesday. The company is Pioneer Southwest Energy Partners (PSE). The stock closed at $23.14 on Friday, and the dividend will be $0.50. That works out to a yield of 2.2 percent. We will hold the stock until after the ex-dividend date, and then we'll sell it. That will give us an annualized return of 394 percent if everything works out right. If we have to hold the stock for longer in order to make sure that we sell it for the same price as we paid for it, that will obviously drop the return down. However, even if we have to hold the stock for a full month, we'll get an annualized return of 24.4 percent, which we can live with.
The next trade we will make involves selling one of our winning positions, Biovail Pharma, and using the proceeds to buy Intel. We'll also close out our calls in Intel to buy the stock itself.
Why? Well, Intel just reported better than expected earnings, revenues, and margins. And the stock has dropped by about five percent since then, despite a big surge in the GDP numbers for software and computer systems. It's trading at around 12 times this years projected earnings, versus the S&P 500's 14.3. On top of that, Intel is an innovator. It also goes ex-dividend this week, but investors don't buy Intel for its dividends. They buy it because it is the undisputed leader in its sector and it works very hard to maintain that position.
We will likely turn around and sell covered calls on Intel to both boost the income we get on the stock and to make the trade even less expensive. But Intel is going to go into our portfolio as a core position.
Many assume that when the markets are down, things are bad. That's not necessarily true. When the markets go down, savvy investors can find buying opportunities.
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