Opinions on Utilities/XLU

[target2019]

I probably confused everyone. Not unusual these days!

So I'm clear, yield in dollars paid out is steady for most utilities, and it will rise about 5% each year. That's very general, and may not apply to a specific ETF or individual company.

So, I hold DUK and the calculated yield % is 4.0 on an NAV of $100.

The scenario was for me waiting for a calculated yield of 5.0%. This will occur when the NAV drops to $80.

I think for your VPU, using this "rule" you'd be waiting for 4.0% or similar for your ETF.

 

[MarieIG]

I probably confused everyone. Not unusual these days!

So I'm clear, yield in dollars paid out is steady for most utilities, and it will rise about 5% each year. That's very general, and may not apply to a specific ETF or individual company.

So, I hold DUK and the calculated yield % is 4.0 on an NAV of $100.

The scenario was for me waiting for a calculated yield of 5.0%. This will occur when the NAV drops to $80.

I think for your VPU, using this "rule" you'd be waiting for 4.0% or similar for your ETF.

Looking at that chart and a price history chart, the last time VPU was in the 4% range was circa 3/23/20 (it appeared to have dipped under $104). Is it possible that it will again - I suppose so, but I am not waiting for it to go that low to nibble. If it did fall to that level, I would probably do a deep dive as I don't believe that all the utilities in the fund will cease to exist.

VPU is not the equivalent of Duke, I just see it as adding some diversification (safety) to the utility mix. I am overweighted in some stocks which "grew" behind my back, and am trying to diversify, bit by bit. Using a yield rule, I would think about VPU at 3.5 %.

 

[NW-Bound]

A tactic I have used and mentioned here when accumulating a position is to use OTM cash-covered puts.

For example, XLU is at 69.88 as I write this. A put option to buy it at 68.50 on May 5, 2 weeks from now, pays 0.40.

If the stock does not get that low, you get 0.40 for committing 68.50 cash for 2 weeks, which works out to 15%/year. That's a lot higher than the dividend that the stock pays.

And as a market timer, I usually wait for a down day of the stock, so that the strike price can be set even lower. XLU is up a tiny bit today, going against the market. So, I may just write an OTM call instead, on a portion of the shares I hold.

 

[target2019]

Great, MarieIG!

I add wider diversification through SCHD (large dividend ETF), similar performance to VPU.

 

[MarieIG]

Great, MarieIG!

I add wider diversification through SCHD (large dividend ETF), similar performance to VPU.

I'm also adding SCHD (& a little SCHF for foreign exposure).

 

[MarieIG]

A tactic I have used and mentioned here when accumulating a position is to use OTM cash-covered puts.

For example, XLU is at 69.88 as I write this. A put option to buy it at 68.50 on May 5, 2 weeks from now, pays 0.40.

If the stock does not get that low, you get 0.40 for committing 68.50 cash for 2 weeks, which works out to 15%/year. That's a lot higher than the dividend that the stock pays.

And as a market timer, I usually wait for a down day of the stock, so that the strike price can be set even lower. XLU is up a tiny bit today, going against the market. So, I may just write an OTM call instead, on a portion of the shares I hold.

I don't have option capacity yet - but I was thinking about put options for SCHD, SCHF, and VPU - stuff that I want anyway . . . I will look into it in my IRAs which are at Vanguard.

Edit - I put in an application at Vanguard. It would only let me apply for one account at a time - thus I could not apply for both traditional and Roth together. I also don't know if I will be approved as I have only been trading bonds for a year. If I do get approved, I will attempt to add another IRA.

 

[NW-Bound]

I don't have option capacity yet - but I was thinking about put options for SCHD, SCHF, and VPU - stuff that I want anyway . . . I will look into it in my IRAs which are at Vanguard.

Edit - I put in an application at Vanguard. It would only let me apply for one account at a time - thus I could not apply for both traditional and Roth together. I also don't know if I will be approved as I have only been trading bonds for a year. If I do get approved, I will attempt to add another IRA.

The option level you need is just the lowest: selling covered calls and cash-covered puts. The higher levels are riskier and not allowed by the IRS for IRA and Roth accounts anyway.

And yes, I do nearly 99% of my option selling in IRA and Roth. No tax reporting, no tax on gain. Sell, sell, sell to my heart content...

So far this year, I made $69,727 on option premium, according to Quicken. I aim to make $200K-300K each year on option premium, and have been achieving it each of the last 3 years.

The above amount is a lot more than the dividend and interest I get from the stash without doing anything. And I already spend less than the dividend and interest I get. But how do I stop doing something that's easy, fun, and profitable?

 

[milford]

The option level you need is just the lowest: selling covered calls and cash-covered puts. The higher levels are riskier and not allowed by the IRS for IRA and Roth accounts anyway.

And yes, I do nearly 99% of my option selling in IRA and Roth. No tax reporting, no tax on gain. Sell, sell, sell to my heart content...

So far this year, I made $69,727 on option premium, according to Quicken. I aim to make $200K-300K each year on option premium, and have been achieving it each of the last 3 years.

The above amount is a lot more than the dividend and interest I get from the stash without doing anything. And I already spend less than the dividend and interest I get. But how do I stop doing something that's easy, fun, and profitable?

Nice... how much capital are you using to generate that income?

 

[NW-Bound]

Nice... how much capital are you using to generate that income?

My volatile stocks that pay a high premium for option plus the cash to cover puts add up to about $3M.

So, the return of $200K-300K of option premium is on that $3M.

The rest are so sleepy that I don't bother to write options on them. Or they are cash like I bonds and Stable Value fund that cannot be used to sell secured puts.

 

[target2019]

I finally searched this out, NW-Bound.

https://www.schwab.com/learn/story/options-strategies-covered-calls-covered-puts

I have a ways to go before understanding the strategy.

But best to play in Roth or IRA sandbox, as you say.

 

[MarieIG]

The option level you need is just the lowest: selling covered calls and cash-covered puts. The higher levels are riskier and not allowed by the IRS for IRA and Roth accounts anyway.

And yes, I do nearly 99% of my option selling in IRA and Roth. No tax reporting, no tax on gain. Sell, sell, sell to my heart content...

So far this year, I made $69,727 on option premium, according to Quicken. I aim to make $200K-300K each year on option premium, and have been achieving it each of the last 3 years.

The above amount is a lot more than the dividend and interest I get from the stash without doing anything. And I already spend less than the dividend and interest I get. But how do I stop doing something that's easy, fun, and profitable?

At this point, I am interested in selling cash covered puts, on positions that I want to own anyway. It is my intension, if I get approved, to start very slowly. I do not expect to make anywhere near your level of income - but I want to start somewhere.

 

[NW-Bound]

A tactic I have used and mentioned here when accumulating a position is to use OTM cash-covered puts.

For example, XLU is at 69.88 as I write this. A put option to buy it at 68.50 on May 5, 2 weeks from now, pays 0.40.

If the stock does not get that low, you get 0.40 for committing 68.50 cash for 2 weeks, which works out to 15%/year. That's a lot higher than the dividend that the stock pays.

And as a market timer, I usually wait for a down day of the stock, so that the strike price can be set even lower. XLU is up a tiny bit today, going against the market. So, I may just write an OTM call instead, on a portion of the shares I hold.

XLU goes up again today while the market tanks. People are bidding up defensive stocks. Pharma and consumer staples are also going up today.

XLU is at 70.14 as I write this. I just sold covered calls at 71 expiry May 5, pocketing 0.48 per share.

If XLU goes up even more on May 5, say to 72, I have my gain capped at 71.48. That is still 1.9% higher than the current 70.14, 10 days from now. Annualized, that's 69%. I make less than I would if I do nothing, but I am not going broke with this gain.

Chances are that XLU will reverse, and I keep the 0.48, and my shares. And I do it again and again.

If my covered calls never get assigned, the 0.48 option premium every 2 weeks means 17% extra "dividend" per annum on top of the real dividend. I can live with that.

Time for music.

 

[NW-Bound]

I finally searched this out, NW-Bound.

https://www.schwab.com/learn/story/options-strategies-covered-calls-covered-puts

I have a ways to go before understanding the strategy.

But best to play in Roth or IRA sandbox, as you say.

It's not complicated. Selling OTM calls and puts is a conservative trade, where you are willing to give up a chance to make big money in exchange for making smaller but surer gains.

The other side of the trades is people who want to turn $1 into $2 or higher, but at a lower chance than you have.

At this point, I am interested in selling cash covered puts, on positions that I want to own anyway. It is my intension, if I get approved, to start very slowly. I do not expect to make anywhere near your level of income - but I want to start somewhere.

Nothing safer than starting to do OTM options on something as safe as XLU. It is actually less risk than buying XLU outright, once you see how it works. Again what you are giving up is the chance to make more money, in exchange for small but surer gains. It makes common sense.

Stocks like Tesla, I would not touch, but a lucky market timer can make 10x with options. Not for me though.

 

[MarieIG]

It's not complicated. Selling OTM calls and puts is a conservative trade, where you are willing to give up a chance to make big money in exchange for making smaller but surer gains.

The other side of the trades is people who want to turn $1 into $2 or higher, but at a lower chance than you have.

Nothing safer than starting to do OTM options on something as safe as XLU. It is actually less risk than buying XLU outright, once you see how it works. Again what you are giving up is the chance to make more money, in exchange for small but surer gains. It makes common sense.

Stocks like Tesla, I would not touch, but a lucky market timer can make 10x with options. Not for me though.

I would rather move slowly with something like XLU - and "give up" potential big wins for "smaller but surer gains". Other than sending me an ad for a personal advisor, I haven't heard back from Vanguard regarding my application.

 

[NW-Bound]

I would rather move slowly with something like XLU - and "give up" potential big wins for "smaller but surer gains". Other than sending me an ad for a personal advisor, I haven't heard back from Vanguard regarding my application.

You should be able to get the lowest level of option trading as I said, meaning selling covered calls and covered puts.

1) If you own a stock, selling a covered call on it is safer than doing nothing.

2) If you own cash, selling a put on a stock is safer than buying the stock outright.

If you don't get approved, take your money elsewhere.

And many people run away scared when they hear of stock options. Laymen do not know that with options, you can set the risk level you want. You can stay safe and earn a little of extra money, or go for broke trying to earn 10x, but with a chance of 1 in 10.

As I said earlier, I am happy to get an extra return of 5%-10% a year on the stocks and cash I deploy on this play. I actually spend much less than that, I don't need to get rich quick.

 

[MarieIG]

You should be able to get the lowest level of option trading as I said, meaning selling covered calls and covered puts.

1) If you own a stock, selling a covered call on it is safer than doing nothing.

2) If you own cash, selling a put on a stock is safer than buying the stock outright.

If you don't get approved, take your money elsewhere.

And many people run away scared when they hear of stock options. Laymen do not know that with options, you can set the risk level you want. You can stay safe and earn a little of extra money, or go for broke trying to earn 10x, but with a chance of 1 in 10.

As I said earlier, I am happy to get an extra return of 5%-10% a year on the stocks and cash I deploy on this play. I actually spend much less than that, I don't need to get rich quick.

I will try calling them tomorrow. Yes, the request was for covered calls and puts.

 

[NW-Bound]

XLU goes up again today while the market tanks. People are bidding up defensive stocks. Pharma and consumer staples are also going up today.

XLU is at 70.14 as I write this. I just sold covered calls at 71 expiry May 5, pocketing 0.48 per share.

If XLU goes up even more on May 5, say to 72, I have my gain capped at 71.48. That is still 1.9% higher than the current 70.14, 10 days from now. Annualized, that's 69%. I make less than I would if I do nothing, but I am not going broke with this gain.

Chances are that XLU will reverse, and I keep the 0.48, and my shares. And I do it again and again.

If my covered calls never get assigned, the 0.48 option premium every 2 weeks means 17% extra "dividend" per annum on top of the real dividend. I can live with that.

XLU drops back to 68.64 as I write this. My April 28 calls at 70 are down to 5c. My May 5 calls at 71 down to 12.5c.

I am buying back the 70 calls to close out the trade, and wait for the next opportunity. Did not get rich from these small gains, but a few $100 here and there add up to $1M total for the last 3 years.

Heh heh heh... I can't sit still when investors go banana and bid stock up/down like crazy. I just have to bet against them. Heh heh heh... And that's just on some less volatile stocks like utilities. Other stocks see much wilder swings. But again, I don't play with some stocks like Tesla. Way too hard to predict and to know what the intrinsic value should be.

 

[MarieIG]

I was approved, and asked if there would be any issue with regard to me applying for the traditional IRA as well as the Roth IRA, and he indicated that there would not be.

I played around with an order "put sell to open" on VPU, 1 contract, the option "name" was VPU 5/19/23 P $125 - but the screen indicated that the expiration had to be one day, or 60 days, GTC - expiration date 6/23. I did not understand why there were two different dates . . . I did not submit it.

 

[NW-Bound]

When you enter a limit order, you have to specify what will happen if the price that you request is not met.

A day order means that if your price is not met by the time the market closes, the order is automatically canceled.

A GTC (good till cancel) means that the order will stay open for future trading sessions, until you cancel it or 60 days have elapsed, whichever occurs first.

The above order duration also has to be specified if you enter in a limit order to buy stocks or ETFs.


PS. VPU has monthly options, while XLU is more popular and has weekly options. My personal preference when selling options is the weekly ones. A lot of things happens in one month when the market is so volatile. I prefer to make smaller and quicker trades. I take small bites, and make it up in volumes.

I have Vanguard accounts, but am not using them to trade. Vanguard charges $1 per contract. I pay $0.65 at Schwab and $0.35 at Merrill Edge. At Schwab, closing out an option is free when the option has decayed to below $0.05. This happens a lot with the options I sell, per design.

 

[MarieIG]

When you enter a limit order, you have to specify what will happen if the price that you request is not met.

A day order means that if your price is not met by the time the market closes, the order is automatically canceled.

A GTC (good till cancel) means that the order will stay open for future trading sessions, until you cancel it or 60 days have elapsed, whichever occurs first.

The above order duration also has to be specified if you enter in a limit order to buy stocks or ETFs.


PS. VPU has monthly options, while XLU is more popular and has weekly options. My personal preference when selling options is the weekly ones. A lot of things happens in one month when the market is so volatile. I prefer to make smaller and quicker trades. I take small bites, and make it up in volumes.

I have Vanguard accounts, but am not using them to trade. Vanguard charges $1 per contract. I pay $0.65 at Schwab and $0.35 at Merrill Edge. At Schwab, closing out an option is free when the option has decayed to below $0.05. This happens a lot with the options I sell, per design.

When I entered the option order I thought the commission listed was zero - but I'll recheck that with another non-submitted order. I will look at XLU, and will try to put in an order after option trading in my regular IRA gets approved. If I don't find the shorter time frames, I will call the options desk again. (But I will wait until I am approved, so they don't cancel me mid stream, the estimate for approval was Friday.) Sixty days - which was what I saw offered, seemed like forever.

My account at TD Ameritrade is taxable and I am watching taxable income this year due to Roth conversions. It may be that option trading is better at TD/ Schwab?

 

[NW-Bound]

Most brokers now give free trades for stocks and ETF,s but still charge a small fee (not commission) for trading options.

Once you look at options, you will find that not all stocks/ETFs have weekly options. The less popular ones only have monthly options. The least followed stocks have no options at all.

On the other hand, SPY, the large S&P500 ETF, has daily options. It used to have options expiring 2x a week. I don't know when the market makers started to offer daily option. That's too much.

I usually sell options 1 or 2 weeks out. Longer expiries have too much unknown in a volatile market, and shorter expiries don't have a high enough premium for me to bother.

 

[MarieIG]

Most brokers now give free trades for stocks and ETF,s but still charge a small fee (not commission) for trading options.

Once you look at options, you will find that not all stocks/ETFs have weekly options. The less popular ones only have monthly options. The least followed stocks have no options at all.

On the other hand, SPY, the large S&P500 ETF, has daily options. It used to have options expiring 2x a week. I don't know when the market makers started to offer daily option. That's too much.

I usually sell options 1 or 2 weeks out. Longer expiries have too much unknown in a volatile market, and shorter expiries don't have high enough premium for me to bother.

I rechecked. The VPU came up as no commission, the XLU did offer the weekly choice. The commission was listed as first 25 free and after that $1. It may be that selling options on Vanguard funds are free, although their fee page did not indicate that.

 

[MarieIG]

When you enter a limit order, you have to specify what will happen if the price that you request is not met.

A day order means that if your price is not met by the time the market closes, the order is automatically canceled.

A GTC (good till cancel) means that the order will stay open for future trading sessions, until you cancel it or 60 days have elapsed, whichever occurs first.

The above order duration also has to be specified if you enter in a limit order to buy stocks or ETFs.


PS. VPU has monthly options, while XLU is more popular and has weekly options. My personal preference when selling options is the weekly ones. A lot of things happens in one month when the market is so volatile. I prefer to make smaller and quicker trades. I take small bites, and make it up in volumes.

I have Vanguard accounts, but am not using them to trade. Vanguard charges $1 per contract. I pay $0.65 at Schwab and $0.35 at Merrill Edge. At Schwab, closing out an option is free when the option has decayed to below $0.05. This happens a lot with the options I sell, per design.

I was approved in the traditional IRA. When the option is written, it will "need" to be one 1 contract of XLU (one week). I may wait until on or after May 3rd. If I end up with 100 shares of XLU, that would not be the worst thing in the world.