Sunday, January 13, 2013

High Yield Trade in PBI

Just as it has been a long time since I have posted on this blog, it has been equally as long since I last posted about any trade ideas. 

BTW, you have by now seen some visual changes to the blog. We are still detailing and finalizing the changes for the "Official" re-launch.

One of the strategies that I have utilized over the course of the last year in my IRA account is high yield covered call position. Some of the stocks that this has worked out well with are VALE, NLY, and now PBI.

I use a pre-defined scan that I have set up within the TOS platform to look for stocks that have had recent sell offs and made for very attractive dividend yields. Then I do the following due diligence:

1) Research the regularity of the dividend. You can easily check history from the company's website. Most of the time you can even see them within the TOS platform. Checking the company website for PBI I confirmed that it has had 30 years worth of consistent and increasing dividend payments.

2) Make sure that there were no recent large one time payments to investors that might be inflating the dividend. 
PBI made the cut: 12.5% dividend rate

3) Then I check for any announcements that may be responsible for a sell off.

4) The first 3 steps cut a lot of the results as possible candidates. In step 4 I look at the charts to get the technical perspective and look for a good price entry. I also add notes as you can see in the above chart of the last 4 dividend payments.

5) The last step is to look at the option string to find a call option to sell against the stock in a covered call trade. Usually opting to sell a call at the money or 1 strike out of the money. Additionally I try to grab a call that is 1 year out from expiration.

When I initiate this position last week I was able to sell the Jan '14 $12 call for $0.80/share. I picked up the shares for $11.79. So the short call got me 6.8% on top of a 12.5% dividend yield. Additionally I have $0.21/share of upside potential or 1.8%. So my max gain on this position is about 21% for 1 year. On top of that I have some really nice downside protection with the dividend and call premium while I hold the position.

This is my version of buy and hold.

Good Luck Trading!


  1. Here is an interesting analysis from Seeking Alpha:

  2. PBI doesn't seem to be moving much after falling from about $15 bucks a share. We hit a low around $10.50 and bounced off that level. Since then it has just been consolidating and digesting the move lower between $11.50 - $12.00. Next dividend payment is in about a month and should be around $0.50/share. I have 600 shares on so that should bring in about $300 in cash flow.

    Maybe over the weekend I will give a post on my other high yield covered call play in NLY. I had one in Vale as well, but closed it out early when after only a month I was able to book about $2k. I still had about $1k in premium left to collect plus any dividends. But I am monitoring it for a possible re-entry at lower prices.

  3. PBI is officially above the strike price of the call I sold against it at @ 12.25. The next dividend is about 2 weeks away, so it will be interesting to see if my theory continues to hold that it is unlikely that the LEAP option I sold will get exercised this early in the game, allowing me to keep the dividend.

    If I did get exercised that I would be left with about a max gain of 10% vs the 17% I am shooting for.

  4. So the ex-dividend date has come and gone on PBI and I am still the owner of my 600 shares of stock. So it looks like I will get the dividend that is payable in a couple weeks. That will bring in about $300 in cashflow.