Wednesday, January 22, 2014

New Position: GLW

At the moment, I am keeping about a third of my account value in cash, but I still like the portfolio model to reduce the risk of any single position going bust.  That means I really should have between 12 and 16 positions going at any given time, so the average position value needs to be reduced from where it is currently.  This is a process that will probably take a couple of months to implement.

With the funds from INTC, which had been called away last Saturday, sitting idle, I looked for a new position to get those proceeds back to work in the market.  My screen, as usual, was the following:
  • S&P 500 Index standing (starts with 500 high-quality companies).
  • S&P rated four or five stars (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, with the objective of setting up a multiple lot position.

Sometimes I will take a look at the Bollinger Bands and will consider trading ranges and trends - but I still haven't incorporated this as a regular part of the selection process.  In any case, by this time I am usually down to no more than ten symbols, which I balance against other companies already in the portfolio, screening for earnings announcements coming up (avoiding those), and ex-dividend dates in the upcoming quarter. 

These criteria have led me to GLW.  I’ve held that one before – it was a three-star S&P pick back then, but it has been upgraded.  There is an old post on that previous position here:  http://rescuemyira.blogspot.com/2013/05/im-not-married-to-glw-and-csx.html

I don’t expect to hold a position anywhere near that long these days – but that return met my 12% goal, and it is nothing to complain about.  Here’s the analysis for the new GLW position, net of commissions and fee: 



Bought 300 shares at average share price $18.76 (total $5,629.00)
Sold 3 GLW Feb 2014 $19 for a net of $127.24

Net Profit:

1) Options Income:  = $127.24
2) Dividend Income: Ex-date is February, dividend is $0.10 ($30.00)
3) Capital Appreciation if assigned at $19.00:  $53.89

Total Net Profit if assigned and dividend collected:  $211.13
Absolute Return on Investment: ($211.13/$5,629.00) = 3.75%
Annualized Return if Assigned (32 days):  3.75%*(365/32) = 42.78%

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