Seller's Paradise

A company's payout ratio (a.k.a. dividend ratio) is the percentage of the company's earnings used to pay out dividends to shareholders. It has many uses, including determining (1) if a company's dividend is sustainable, (2) if a company has the potential to invest in future growth, and (3) if a company has the potential to increase its dividend or perform a share buyback.

But what is a typical or good ratio? We took a look at payout ratios by industry sector (because some are traditionally more generous that others), and name several stocks with low payout ratios that could be good candidates for covered calls. The list of low payout ratio stocks can be found in our article on Low Payout Ratio Stocks.

Back in April we wrote about a $10 million covered call trade in JCI. Well, we are happy to report that this trade worked out as planned for the investor, and he realized a 16.8% annualized return on his trade.

There was a less fortunate investor in late March, though. Someone placed a $5.5 million bet on DAL for the May 20 expiration. This was not a covered call, but rather a straight directional bet using call options. DAL released earnings and failed to go higher. This investor lost the bet.

Details of both trades are in our blog article JCI Good, DAL Bad.

Our 4 strategies using weekly AAPL covered calls continue to perform better than the Buy-And-Hold strategy for AAPL, beating buy-and-hold by amounts ranging from 2% to 9.3% after 17 weeks.

AAPL had a horrible week last week, closing below $94, after having started the year above $102. And yet two of our weekly covered call strategies are profitable year-to-date (the 12%/year and 24%/year strategies), which is pretty good for a stock that is down 8% since we bought it. To see all the trades, visit 17 Weeks Of AAPL Covered Calls.

Will Nussman posted an article on SeekingAlpha recently showing how to combine Ford's 4.4% annual dividend with covered calls for a combined 15%+ annualized return if flat. Read all about it here.

We've seen an uptick in articles about out-of-the-money covered calls lately. Two examples are Out of The Money Covered Calls For Adventurous Investors and Trading for Income, Part 2: Covered Calls.

Selling OTM covered calls is a slightly bullish strategy. You're basically saying "I want to leave some room for upside potential in the stock, but I also want some income now, should the stock stay flat or maybe go down a little."

There's no single "best" strategy when it comes to in-the-money strikes vs out-of-the-money strikes. It all depends on where you think the stock will be on expiration day, as well as your risk tolerance level. More conservative investors tend towards in-the-money strikes (which offer more downside protection), while more aggressive will often go for the out-of-the-money strikes.

With 3 weeks to go until the May options expire, the top 4 covered calls Born To Sell members have written are (in order of popularity):

(Note: Born To Sell members have access to the full Top 10 Covered Call list, as well as having this list update real-time as members change positions. These are not recommendations, they are merely a reflection of our members' current positions.)

Currently, the top 8 stocks Born To Sell members are using for their Watchlist are (in order of popularity):

(Note: Born To Sell members have access to the full Top 20 Watchlist, as well as having this list update real-time as members change their watchlists. And, you can have the highest yielding covered calls from your personal watchlist emailed to you after the close each day. Never miss a fat premium from your watchlist again!)

Born To Sell is dedicated to only one thing: Making Money With Covered Calls. Our subscribers have access to state-of-the-art covered call screeners and covered call portfolio management tools. For less than the profit of a single trade you could be enjoying recurring monthly income using our tools. Three subscription types to choose from:

Plus, all subscriptions begin with a no-obligation 2-week free trial. What are you waiting for? Start collecting premium today!

Happy Trading,

The Born To Sell Team