DGI Adventure 09-30-16 Sold Cash Secured Put – Visa Inc (V) – $78.00 strike – Oct 28 Expiration

This trade was executed yesterday 09/29/16

I’m reopening a position from July albeit at a slightly higher strike price. That post covers all the elements of the core philosophies of  my investment thesis process.

In the meantime, I have updated the portfolio and income tracker back at the mothership to reflect this position.

Dividend Cycle

V last went ex-div on August 17th, so we’ve got a while before it comes up again, and this trade will expire well before that next ex-div date. The yield is pretty low in percentage terms, but the firm is a dividend challenger with 8 consecutive years of increases. I fully expect that the next distribution announcement will involve a boost, since it’s been four quarters since the last increase, which was a 16.67% raise ($0.12 to $0.14).

The premium received for this trade is more than 5X the current dividend distribution.

Investment

SPL (Strike Price Logic)

Mr. Market was spooked today because Deutsche Bank sucks. I don’t’ care what’s going on fundamentally, when the headlines are talking about bank bailouts, stocks get jittery. V is kind of a financial stock…but then it’s really not…but then I think it gets mixed in with those guys?

IDK. Volatility was up which means puts were selling for pretty good prices.

I like to get a minimum of 12% when I sell cash secured puts, and this trade fell 0.03% shy of that target. Somehow I miscalculated that the trade would be in force 28 days instead of 29, and that made the difference in the annualized yield calculation. Oh well. Close enough. Plus, you can’t beat the downside protection.

Last time I opened a position in V, my rough and tumble discounted cash flow analysis told me that:

…just about any strike price in the $70’s is probably fine. Low $80’s still probably okay. (Morningstar fair value is $104).

By that logic, it would probably be okay to buy it at the current market price. To get 5% downside plus a 12% annualized premium yield is just icing on the proverbial cake.

Woo hoo!

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