Note to new readers: This is a regular update on the status of our Low Risk Income Model Portfolio which is built using the income strategy described in our e-book “A Low Risk Income Strategy for All Economic Conditions”
This will be the last Wednesday update. After this I will be doing the Weekly Portfolio Update on Fridays. As the ASX option expiry is on Thursdays, it would make more sense to do the updates on Friday, as our actions would depend on what happens to options that have expired. For example, we have three July option positions that will expire on Thursday, July 26. If our options get exercised, we will very likely sell some calls on Friday, July 27. Hence it is better to do the update on Friday the 27th rather than Wednesday the 25th.
Although we have not sold any options in July, we continue to receive income. On July 16, NAB paid $0.90 of fully franked dividends per share. As we own 1200 shares, we would have received $1080 in cash and $462.86 in franking credits.
Trade Transactions This Week
No new trade transactions this week.
Model Portfolio Update
Rio Tinto: RIO July $64.00 PUT
On April 18, I sold to open RIO July $64.00 put options for $2.04 when RIO was trading at $66.08. All mining shares continue to be weak due to the slowdown in China. Today RIO is trading at $53.42 and our put options are deep in-the-money and will almost certainly be exercised next Thursday.
For more information about this trade set up, read my April 18 model portfolio update.
Wesfarmers: WES June $29.50 PUT
This option expired worthless on June 26 and we simply got to keep the $590 of put option premium received. We can now reuse the $29,500 we reserved for covering this position to sell more puts.
Newcrest Mining: NCM July $24 PUT
On May 9, I sold to open NCM July $24 put options for $1.24 when NCM was trading at $24.24. NCM has fallen in price and is trading today at $21.45. Our put options are ITM and will very likely be exercised next Thursday.
For more information about this trade set up, read my May 9 model portfolio update.
Iluka Resources: ILU July $13 PUT
On May 16, I sold to open ILU July $13 put options for $0.78 when ILU was trading at $13.07. On July 9, ILU share price plunged sharply when the company announced a sharp sales downgrade. When something like this happens, we need to review if we still want to own ILU shares. Despite sales dropping by a third, their revenue and profit margin actually went up! Their profit margin increased from 50 to 68.5 per cent and I am still happy to own ILU shares long term. Today ILU is trading at $8.74 and our put options are deep in-the-money and will almost certainly be exercised next Thursday. ILU looks very attractive at this price and I will be looking to sell more puts once the price finds a bottom.
For more information about this trade set up, read my May 16 model portfolio update.
National Australia Bank: NAB September $24.01 CALL
On May 30, I sold to open NAB September $24.01 call options for $0.76 when NAB was trading at $23.76. Today NAB is trading at $23.72 and call options are now worth $0.67. Although the share price is about the same, the options have decreased in value due to time decay.
For more information about this trade set up, read my May 30 model portfolio update.
Woolworth: WOW August $26.00 PUT
On June 6, I sold to open WOW August $26 put options for $0.65 when WES was trading at $26.24. Today WOW is trading at $27.01 and our call options are now worth $0.18.
For more information about this trade set up, read my June 6 model portfolio update.
Telstra: TLS September $3.51 Call
On June 20, I bought some TLS shares at $3.63 per share and sold to open some TLS Sept $3.51 calls. Since then TLS shares have shot up to $3.86 but we will not enjoy any capital gains as we have capped our upside in shares by selling the $3.51 calls. TLS shares are due to go ex-dividend in August and I expect the share price to fall after that.
For more information about this trade set up, read my June 20 model portfolio update.
Current Open Position Snapshot
A summary of our open positions is shown in the table below. We have 4 open put positions and 2 open covered call positions.
I will be providing a weekly update on this model portfolio on this blog. If you are intrigued by our income strategy but have trouble following the discussions in this post, you will need to first download and read our e-book in order to understand the strategy and do some basic options education (found on our Resources page) to familiarise yourself with option terminology.
Disclaimer: This post is for educational purposes only and should not be treated as investment advice. This strategy would not be suitable for stock investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek investment advice if required.