Those of you who have been regular readers may recall that one of our trades that didn't work out was our trade for Novatel Wireless. While Novatel had a new product, the MiFi, which was a big hit, lower than expected sales of the product caused the stock tp plunge. We said we'd hold on to our position, however, because we believed the product would eventually pay off and we'd be rewarded.
We still think there's a lot of gain to be made in Novatel, but we're going to close our position in that stock in order to make some money in the meantime.
Frontier Communications is a telecommunications company that's headquartered in Stamford, Connecticut. It's got the normal telecom offerings, such as a combination of television, internet, and phone service.
And it's also got a fat dividend. The yield on the stock is 12.8 percent.
Frontier isn't a company that we'd invest in, but it's a company we're more than happy to trade. The company goes ex-dividend on March 5, so that means we need to hold shares of the stock by no later than March 4. We expect the stock to trade up on that day, as people seek to get the dividend.
So we closed out our position in Novatel and we'll use the proceeds to buy Frontier. The stock closed at $7.66 on March 2. The dividend will be $0.25, so just collecting the dividend would give us a 3.3 yield in a few days. But we'll goose our returns by selling a $5 call that expires on March 19, 2010. That option is trading for $2.60. So that means we'll get a total return on our trade of $2.85 on a stock that goes for $7.66. That's a gain of 37.2 percent in 15 days, for an annualized return of 905 percent.
These trading opportunites are very rare, and they need to be taken advantage of when we find them. So we'll close our position in Novatel, and move into this position. We will use the proceeds to make up for some of our losses in Novatel.
The problem too many people make when investing is that they fail to act on opportunities like this one. They are not easy to find but they are definitely worth looking for.
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We still think there's a lot of gain to be made in Novatel, but we're going to close our position in that stock in order to make some money in the meantime.
Frontier Communications is a telecommunications company that's headquartered in Stamford, Connecticut. It's got the normal telecom offerings, such as a combination of television, internet, and phone service.
And it's also got a fat dividend. The yield on the stock is 12.8 percent.
Frontier isn't a company that we'd invest in, but it's a company we're more than happy to trade. The company goes ex-dividend on March 5, so that means we need to hold shares of the stock by no later than March 4. We expect the stock to trade up on that day, as people seek to get the dividend.
So we closed out our position in Novatel and we'll use the proceeds to buy Frontier. The stock closed at $7.66 on March 2. The dividend will be $0.25, so just collecting the dividend would give us a 3.3 yield in a few days. But we'll goose our returns by selling a $5 call that expires on March 19, 2010. That option is trading for $2.60. So that means we'll get a total return on our trade of $2.85 on a stock that goes for $7.66. That's a gain of 37.2 percent in 15 days, for an annualized return of 905 percent.
These trading opportunites are very rare, and they need to be taken advantage of when we find them. So we'll close our position in Novatel, and move into this position. We will use the proceeds to make up for some of our losses in Novatel.
The problem too many people make when investing is that they fail to act on opportunities like this one. They are not easy to find but they are definitely worth looking for.
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