DGI Adventure 07-06-16 Sold Cash Secured Put  – The GAP Inc. (GPS) – $18.00 strike – Aug 19th Expiration

This trade was actually executed yesterday on 07/05/16. I didn’t get a chance to write about it until today.

I’m adding to my existing positions, so this post won’t fully follow the core philosophies article on my investment thesis process

I loaded up on more GPS in my taxable account back in May, and my investment thesis hasn’t really changed since I originally purchased shares back in September of last year. You can read all about what I think about the GAP there.

Dividend Cycle

GPS just went ex-dividend on 07/01/16, so we have pretty much a full quarter until the next one. The payout has been stuck at $0.23/share for over a year. 

GPS is a dividend contender, with 11 years of consecutive increases. They are due to announce an increase any day now. They could wait till next year; however, and still preserve their streak. This trade will expire before the next ex-dividend date, and the premium received exceeds the quarterly payout

Investment

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SPL (Strike Price Logic)

My cost basis in the taxable account is $21.69, and really as long as my strike price represents a 5% yield ($18.40/share), I’m very interested in keeping this position rolling.

This strike price is only $0.50 higher than the $17.50 put I sold in June, which expires this Friday. It seems highly unlikely that option will get assigned. I could have waited for the other one to expire, but the share price gapped down (pun intended) in the morning, and it seemed like an opportune time. It recovered later in the day, leaving me loads of downside protection at the close. In an ideal world, I will eventually end up with 200 shares in the tax protected account, and I can get rid of the 154 taxable shares. That means it’s okay to have two contracts open if the timing seems right.

The timing seemed right.

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