Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 0
Richard just gave me an idea. Covered calls! Say you bought $10K worth of TEU at today's prices. Then you write your own covered calls, as high as they will allow, (meaning my broker only goes as high as $15 strike on TEUapril contracts).

Here's what I'm thinking:

We know TEU is might announce, probably in the first week of november, that they are doubling their dividend, to a yield of 15.4% at today's prices. This is pretty much guaranteed to raise the stock price over the next few months, BUT let's see what we can do with covered calls.

So you own 1270 or so shares of TEU, enough for 12 contracts.

You write TEU15april12 and ask for double what you'd be willing to part with, for me that would be $.25, so I'll ask for $.50/share on day 1 and decrease it by a penny/day. ridiculously high I know but what the hell, what's it hurt to ask? You still own a while bunch of shares of a cheap company that is going to be paying you a heck of a lot of money to hold those shares, so why not?

If TEU goes down? I win, because they are paying me an obscene amount to hold shares and I can reinvest the dividend income at even greater yields! Cash flow for the win!

If TEU goes nowhere? Then I still win! Because I'm making 15.4% unadjusted returns and still reinvesting the dividends! Crushing the market and building future cashflow for the win!

If TEU goes up to anything under $15? Then I basically make double my money on the shares, get to keep the premium, (in this example $300-$600) and still own a great cash generator and I'm still reinvesting the dividends! Capital gains+cash flow+ future cash flow+ premium for the win!

If TEU goes over $15? Then the worst case scenario, I ONLY get to double my money;)

This is a powerful idea that I shall ponder deeply. Thanks Richard! You may have just made me a lot of money!
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.