Options Income From Dominion Resources

Dominion Resources (D), one of the nations largest producers and transporters of energy, focuses its strategy on electricity and natural gas to customers in the Midwest, Mid-Atlantic and Northeast regions of the U.S., a potential market of fifty million homes and businesses that consumes forty percent of the nation’s energy. Dominion also operates the nation’s largest natural gas storage system with 947 billion cubic feet of storage capacity.

The stock offers a consistent mid-single digit earnings growth rate and a steady stream of rising dividends with a current yield of 4.2%. The stock offers conservative income-minded investors a good place to park some money.

Instead of buying the stock outright, a better play here is to sell the May 19, 2012 50 strike puts for $0.8 for an annualized yield of 19%. If the stock closes under 50 on May 19th, the put seller will own 100 shares of stock for each option sold with the opportunity to generate more income with covered call sales.


About jstradingnotes

I spend a lot of time analyzing the economy and securities. The effort has enabled me to generate multi-thousand percent returns on my trading capital over the past twelve years. The next few years offer an incredible opportunity to take outsized gains from the markets. Large structural imbalances in the major western economies will result in enormous market volatility as the imbalances get resolved, offering generational money-making opportunities. The major imbalances are excessive sovereign debt, crazy risk concentration in major banks, and enormous derivative exposure in the financial sector. A systemic shock can easily create a default cascade through the financial system where one failure precipitates another and another and so on. Central banks are very aware of the risks, and they are filling the financial system with liquidity by printing new money, risking massive inflation in a few short years for the United States and Europe. China has 2-3 trillion in dollar exposure, and they would like to have far less for fear of continued currency devaluation (they've lost billions holding dollars as the value erodes). As the size of their holdings prevent them from rapidly liquidating their dollar assets (which includes U.S. treasuries), they are instead spending their dollars on resources (copper mines, rare earth metal mines, oil wells, etc.). Lately they have been accumulating gold assets, perhaps with a view to making the Renminbi convertible into gold and displacing the U.S. dollar as the international reserve currency. Their gold buying is enormous and presents an easy investment thesis: ride the Chinese horse and buy gold and gold stocks. In this blog, I'd like to share some of my trading ideas and insights on the markets as these exciting times unfold.
Aside | This entry was posted in Investing, Options, Stocks and tagged , , , , . Bookmark the permalink.

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