This week is the last of two ‘off’ weeks intended to restore the $250+ per week pace of investment. This is necessary because a new position was established in PEP. It may be an ‘off’ week from an investment perspective, but Royal Dividends never shuts down – there are things to discuss.
This week, six of the portfolio holdings ranked in the Top Ten.
| Ticker | Account Value |
| BDX | 3,592.90 |
| FMCB | 4,071.96 |
| HTO | 3,465.87 |
| PEP | 1,998.23 |
| PPG | 3,351.81 |
| SCL | 3,102.16 |
The lowest amount belongs to PEP. However, there is a position imbalance leaving only UHT eligible for new funds. But UHT is not in the Top Ten. This means I would be adding a new position to the portfolio, the highest-ranking stock not already in the portfolio, which this week is Automatic Data Processing Inc [ADP]. We’ll have to wait until next week to see if the situation changes.
Friday was the expiry date on our three outstanding option trades:
- Sold 3 Calls on LEG with a $15.00 strike [LEG251017C15]
- Sold 1 Put on LEG with a $7.50 strike [LEG251017P7.5]
- Sold 1 Call on VZ with a $44.00 strike [VZ251017C44]
All three options trades expired worthless, and the Portfolio for the Ages keeps all the premium and the shares.
The LEG put was a rare opportunity to print money on behalf of a market that had embarrassed itself in its punishment of LEG. It may be a while before another such opportunity presents itself, and let’s be honest, we do not want the opportunity – we want LEG to start climbing.
As for the covered calls, ordinarily, I would immediately ‘rinse and repeat’ which is to say, I would sell more calls on LEG and VZ on Monday. However, LEG will announce quarterly earnings on October 27th and VZ on October 29th. Good earnings are about the only thing that is going to drive these stocks higher in the face of all the economic headwinds that are acting against the broader market. When stocks move higher, option premiums climb as well.
The ideal scenario is to get solid earnings from LEG and VZ and see the stock prices move higher immediately thereafter. Then, it will be a great time to sell calls at strike prices suitably high enough such that when LEG is called away, we’ve not lost a dime on that position and that when the larger share of the VZ position is assigned, we’ve made a very good return. In short, we need LEG to get back above $10.00 and VZ close to $44.00. After all, these levels were achieved just last month.
So, let’s wait to pull the trigger on selling covered calls until the end of the month.