Shares of Lumen Technologies, Inc. (LUMN) closed today at $12.80, up $.25 from the end of the year close of $12.55. The plan for Monday was to establish a base for collecting dividends by Buying To Open 500 LUMN shares. In addition to owning the shares, a Covered Call was established by Selling To Open 5 January 20, 2023 $15.00 calls, currently $1.02 x $1.10. This lowered the cost basis by $1.00 and created an obligation to Sell To Close shares at $15.00. If at the end of January 20, 2023, LUMN < $15.00, the calls will expire worthless and the $1.00 collected could be used as additional profit to the 4 quarterly $.25 dividends or take the sting out of any LUMN decline. If $15.00 < LUMN, there would be a $2.21 appreciation in the stock price, plus the $1.00 collected, plus the 4 quarterly $.25 dividends. The transaction:
500 LUMN shares Bought To Open @ $12.79 equals $6,395.00
5 January 20, 2023 $15.00 calls Sold To Open @ $1.00 less $.82 commission equals $499.18.
The plan also included establishing an Iron Butterfly that will expire before the next earnings announcement by Buying To Open 10 January 28 $10.00 puts, currently $.00 x $.09; Selling To Open 10 January 28 $12.50 puts, currently $.24 x $.30; Selling To Open 10 January 28 $12.50 calls, currently $.55 x $.92; and Buying To Open 10 January 28 $15.00 calls, currently $.02 x $.04. Because there is $2.50 between the Strike Prices, and 10 contracts represent 1,000 shares, $2,500.00 will be placed on hold. The transaction:
10 January 28 $10.00 puts Bought To Open @ $.16 plus $1.59 commission equals $161.59.
10 January 28 $12.50 puts Sold To Open @ $.35 less $1.62 commission equals $348.38.
10 January 28 $12.50 calls Sold To Open @ $.59 less $1.62 commission equals $588.38.
10 January 28 $15.00 calls Bought To Open @ $.04 plus $1.59 commission equals $41.59.
Positions:
500 LUMN shares/5 January 20 2023 $15.00 calls Covered Call, currently $11.70 x $11.79.
10 January 28 $10.00 puts/$12.50 puts/$12.50 calls/$15.00 calls Iron Butterfly, currently $.66 x $1.20. ($2,500.00 placed on hold)
Account Value: $19,778.
On January 1, 2020, Do You Know Someone Who...? was published. In December, $20,000.00 was borrowed against a Nassau Financial Group life insurance policy at 6% annually. While this may sound like expensive money, one of the advantages of borrowing from an insurance policy is that cash value grows the same whether there is a loan outstanding or not. Some people purchase items by borrowing and paying interest while others who save and pay cash lose interest. For the latter, once the purchase is made, interest is no longer earned. Another advantage is there is no credit check and there are no loan repayment requirements.
In simple terms, 6% of $20,000.00 is $1,200.00 per year. The plan is to pay off the loan over a five year period by paying $440.00 each month until paid off. This should take less than 5 years because the 6% interest will be less as the principal goes down. Because repayment is flexible, February 1 will be the first payment.
An E*Trade account will be used to store the cash and to conduct trades to generate more than the cost of the money borrowed from Nassau Financial Group. Many claim that life insurance is not a very good investment vehicle. Because investment connotes risk and life insurance has no risk, it is not an investment. It can be used as a financial tool that has more than just a death benefit. It has a life benefit for those who want to use it as a tool while still alive. In this case study, it will be used to finance trading opportunities using LUMN as an investment vehicle.
LUMN shares will participate in Dividend ReInvestment Plan, DRIP. Instead of collecting and pocketing $.25 every quarter, the dividend will be reinvested to accumulate more shares. The following quarters will have more shares and so there will be a compounding effect. It's better to get $.25 four times a year than $1.00 once a year. Since the stock price changes, Dollar Cost Averaging will be used to buy more shares if LUMN is lower and buy fewer shares if LUMN is higher.
LUMN earnings tend to be announced after the Market closes on the first Wednesday of February, May, August, and November. Since earnings create stock price doubts and uncertainty creates more volatility, this means that there may be big price moves when the market opens on Thursday morning. One could expect earnings to be announced after the market closes on February 2.
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