In the article “John Bogle Says Modest Returns Over Next Decade – Dividends & Covered Calls” we pondered John Bogle’s prediction of modest stock market returns over the next decade. Mr. Bogle predicted annual stock market returns in the 7% range over the next decade.
In the event Mr. Bogle’s prediction is on target, we considered a potential strategy for investors to consider for making the most of the situation.
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The strategy consisted of covered calls stock options for stock paying dividends. The idea behind the strategy is making a return on the stock dividends and also making a return from covered calls positions for the dividend paying stocks.
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Using this strategy we selected several high dividend covered call stock options for April of 2007, and every position selected was fully profitable. The average return for the positions selected was 4.7%. The 4.7% return was generated in only 45 days, and we’re already more than halfway to matching John Bogle’s 7% annual return prediction.
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|RAS||28.91 (unch.)||RASEF||07 MAY 30.0 (23)||0.70||2.4||2.5||6.3||11.1|
|ACH||29.67 (+0.52)||ACHEF||07 MAY 30.0 (23)||0.95||3.2||3.3||4.5||10.4|
|WPL||9.98 (+0.04)||WPLEB||07 MAY 10.0 (23)||0.25||2.5||2.6||2.8||6.0|
|CSK||15.40 (+0.60)||CSKEC||07 MAY 15.0 (23)||0.75||4.9||2.4||2.4||5.9|
|ALSK||15.28 (+0.02)||ULOEC||07 MAY 15.0 (23)||0.60||3.9||2.2||2.2||5.6|
The ACH position is the only position that was in last month’s selections and in this month’s selections, all of the other positions are new for this month.
The RAS position has the highest maximum potential covered call return of 6.3% and RAS also has the highest dividend yield return. The 6.3% maximum return requires the price of the RAS stock to increase to or above the $30 strike price of the call option.
The CSK position has the highest downside protection at 4.9%. As long as the price of the CSK stock does not decline more than 4.9% at options expiration, the position will remain profitable.
The ACH position has the highest % if unchanged potential return at 3.3%. If the price of the ACH position is 29.67 at options expiration, the position will return 3.3%.
Competitors for RAS include: Anthracite Capital, Inc. (AHR), and iStar Financial Inc. (SFI).
Competitors for WPL include: Merrill Lynch & Co. Inc. (MER), The Bank of Bermuda Limited (private), and Nicholas-Applegate Capital Management LLC (private).
Competitors for CSK include: Amcor Ltd. (AMCR), MeadWestvaco Corporation (MWV), and RPC Group Plc (private).
Competitors for ALSK include: Dobson Communications Corp. (DCEL), General Communication Inc. (GNCMA), and AT&T Alascom (private).
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PowerOptions‘ sister company PowerOptionsApplied provides expert stock option trading recommendations. PowerOptionsApplied specializes in covered calls, naked puts and iron condor stock options strategy recommendations. PowerOptionsApplied provides a 30-day risk free trial of its service.
[tags] John Bogle, dividends, The Bank of Bermuda Limited, Nicholas-Applegate Capital Management LLC, RPC Group Plc, AT&T Alascom, AHR, Anthracite Capital Inc. REIT, DCEL, Dobson Comms. Corp., GNCMA, GCI Inc., MER, Merrill Lynch & Co. Inc., SFI, iStar Financial Inc., covered call investment strategy, investment strategy, iron condor, poweroptions, stock option trading, stock options [/tags]