Today I am introducing Epic Finance’s first Stocks for the Long Run, a series of posts that will highlight what stocks I personally have in my brokerage account.
Today’s Stocks for the Long Run post is focusing on Metlife. I recently had some cash laying around (mainly from my tax return) and tossed it into my brokerage account. I decided I wanted a strong fundamental stock which I could write “cover calls”. “Cover calls” are when you sell an option to a stock that you own. Just think about it this way, if someone “calls” or executes the option, you have the stock to “cover” the “call.”
Why Metlife? This company has been around since 1868, this company is definitely in it for the long run. More importantly it has a P/E less than 6! Did I mention a dividend of about 2% yearly?
Forget all the Pandora and Yelps of the stock market, this company is making money and is fundamentally strong. I would even argue that the market is very optimistic about this current year for Metlife by looking at the option chains. I purchased the stock for $38.42 and shortly after, wrote an option to call the stock for $45 by Jan 19th, 2013 for a premium of $192 (5%).
That option I sold was $6.58 “out of the money,” meaning that the stock could appreciate $6.58 before the option would be executed (45 – 38.42). If the stock did appreciate and the stock was taken from me come January or before, I would have made $6.58 + $1.92 = $8.50 a share (or 22.1%+dividends in about 10 months). That of course would be the best case scenario. I don’t expect that kind of return, but I do think it is viable this move can and will return hopefully in the double digit percentage range.
If the market turned against me (as it did today) I have $1.92 worth or 5% of downward protection from the premium from the option. I want to be completely clear though, I am long on this stock. I plan on having this stock for a while and most likely this won’t be the only option I sell on the stock.
That is the first ever Stocks for the Long Run post, more to come.
Disclaimer: Do not use information on this website for decision making of any kind, always consult a financial expert.