- S&P 500 Index standing (starts with 500 high-quality companies).
- S&P rated four or five star stocks (narrows down to about 200 companies).
- I look at annual dividend yield next, seeking from between 2 and 5 percent. This criterion also provides me with a little up-side opportunity and down-side protection in the shares, and adds a cash flow factor to the account.
- Next, I will try to have a price criterion, depending on the funds available in my account. If I can set up a multiple lot position, I like that, and I also want to keep the bulk of the positions at less than 10% of the account value – but also to be sure that I have between 12 and 16 positions going at any one time for diversification.
- By this time, I am down to ten or fewer symbols, which I balance against other companies already in the portfolio, and screen for earnings announcements coming up (avoiding those), and ex-dividend dates in the upcoming quarter. These generally break any ties when choosing positions (for example, if I were considering an investment choice between MRK and PFE).
8/13/2013 Sold 1 TGT Sep 2013 $72.50 for a net of $61.24 (I usually try for $100 net, but I wanted to stay in the next calendar month)
1) Options Income: = $61.24
2) Dividend Income: Ex-date is Aug 19, dividend is $0.43 ($43.00)
3) Capital Appreciation if assigned at $72.50: $152.90
Total Net Profit if Assigned and dividend collected: $257.64
Absolute Return on Investment: ($257.64/$7,079.99) = 3.64%
Annualized Return if Assigned (30 days): 3.64%*(365/30) = 44.27%
8/9/2013 Sold 1 TRV Sep 2013 $82.50 for a net of $135.74
1) Options Income: = $135.74
2) Dividend Income: Ex-date is Sep 6, dividend is $0.50 ($50.00)
3) Capital Appreciation if assigned at $82.50: $21.90
Total Net Profit if Assigned and dividend collected: $207.64
Absolute Return on Investment: ($207.64/$8,210.99) = 2.53%
Annualized Return if Assigned (35 days): 2.53%*(365/35) = 26.37%