The Dip Won't Last...Collect Income On This Elite Business Now (RGLD)

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Put Selling Quick Review

Selling put options is a great way to generate income and solid annualized returns by taking less risk than owning the same amount of common stock long. When I look for these trades I target earning 2% or more for every 30 days of expiration time.

Selling a put option is a strategy where you are slightly bullish on a stock and this reduces your risk by being able to name the price (called the strike price) you are willing to pay for the company. This contract is valid for a specific amount of time called the expiration date.

These terms are set by you and for agreeing you are paid upfront for the potential obligation to buy 100 shares of stock for every put sold. I typically look at options expiration dates between two weeks and two months.

Inflation is officially here!

You probably noticed an increase in prices (inflation) for months now but the numbers are finally showing up in governments officially CPI numbers (the bean counters are having trouble hiding it). Just this morning at 8:30 AM Eastern the Bureau of Labor Statistics reported April CPI where is rose 0.8% (almost 1% increase in one month time big news).

This news caused interest rates to spike sending the US dollar higher and a knee jerk reaction in Gold and Silver to the downside. Gold and Silver are historical inflation hedges so this short term reaction should not last long and much higher precious metals prices should be in our future.

This is a great opportunity to trade for income on one of the best precious metals stocks on the market. Royal Gold (RGLD) is not a traditional mining company (they do not actually mine the gold) instead they finance various projects around the world with Royalty and Streaming contracts where they pay once upfront and receive gold or silver for the life of the mine.

Royal Gold is very profitable, they earned $568 million in revenue during the last 12 months at a 36% profit margin (you see this profit margin mostly with software companies such as Microsoft 35% profit margin) and earnings per share have broken all time highs. This simple business is run by just 23 employees (amazing).

The share price is completing a rounded bottom from the share price decline of $140 to $102 and they look ready to start a new uptrend.


RGLD Stock Price

Trade details:

Sell to Open June 18 $120 puts on RGLD for $4 or better using a limit order. You are paid 3.3% upfront on your purchase obligation for agreeing to buy shares at today's market price.

At expiration if shares are above $120: put sellers keep the premium for a 32.9% annualized return.

At expiration if shares are below $120: put sellers will buy 100 shares for every put sold at about 3.5% discount to yesterday's closing price. You can then begin to sell covered calls for more income.

Today's markets are volatile so remember to use stop losses for protection. On this trade set your stop loss at $100 (about 14% below your adjusted cost basis of $116) shares will be below the rounded bottom and likely to continue lower.


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Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.

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