Encana update for November 23, 2013. At this rate it'll be Christmas.

Question: Are we going to experience a Xmas rally this year?

As noted in an earlier posting ECA's Broad has indeed cut the dividend Roughly by 66% (from 20 cents to 07 cents). How is that for radical?
Looking at the chart of ECA (below) ending Friday, November 22, 2013. I can see that ECA share price had rallied from the October low ($17.62). As my original analysts showed that $17.50 was the lower end of the trading range and the upper end being $20.50. On November 21 ECA surpassed the $20.50 by 3 cents. The very next day the share price had become negative on the day (dipping 1.7%) while both the US and CND markets were positive.

 Is this a sign that the smart money had bailed on ECA, at least for now? Have a look at the volume chart. I can also see that there has been a very large volume in ECA's shares at the beginning of November roughly 16 million shares changing hands in one day when the average daily volume is closer to 1.8 million shares. For the month of November ECA has maintained a higher volume, closer to 4 million shares exchanging daily.

This brings me back to the question about the xmas rally. The fed is still pumping $85 billion into the system where is the money going? Are the brokers and Mutual fund managers looking to boost they're xmas bonuses this year? Are the markets going to fall back towards a more reasonable valuation? A rising demand for Natural gas ?

For me I think that we are in a xmas rally and some factors that are taking place is that can affect ECA's share price. 1) Demand for Nat Gas is rising. At some point the price for Nat Gas will follow that demand. 2) I'm sure that the QE (whatever number) is driving up share prices across the board 3) I also believe that the brokers and mutual fund managers are looking to top up their xmas bonuses. With these question I am leaning very much to the point that the xmas rally will end sometime in January and the market (in general) will begin to fall towards a more reasonable valuation. How badly? , that can be difficult to figure out at this point.
With my negative leanings, I'm feeling pretty confident that my two options $17 calls and $17 puts will protect my holding even thou I wish to clear ECA out of my TFSA as I'm not willing to hold a energy stock that is paying me only 28 cents per year in dividends.

I'll write an update soon about where I think ECA and the market is heading. Till then happy trading.

Update for the Encana position. Yesterday I read about ECA's CEO wanting to do something radical with the company, which can include cutting the dividend once again and analysis believe that it may be cut in half (from 20 cents to 10 cents). Even though the company has strong cash flows and the current payout ratio is around 28% which isn't that high when compared it to other companies. For this TFSA position in Encana I can handle political risks (US budgeting/ debt ceilings, etc)  but, having a CEO wanting to be radical is a little too much and it'll making it difficult to project a forward share price.

There are a number of choices that are before me.
A) Do nothing (the easiest choice)

B) Sell at the current price, as of writing this update the share price has jumped up from earlier this morning and is now trading at $18.83 (up 2.4%). If I sold here I would have a small loss of 32 cents per share or $180 (net). Still won't be a bad return for the year on this position, roughly 12%.

C) Sell a covered call that is in the money. Looking at what is available, I see, the April $17 options on the Montreal exchange as a good hold at this time with the option premium at $2.10. By taking this position I am locking in the total return of $19.10 per share and it would be called away if the share price remains over $17. The covered call caps me upper end due to the contract price.
To protect my position from a (possible) halving of the dividend in the near term. I believe it to be prudent to buy a Put option. On the Montreal exchange, the January $17 options are trading at .37 cents per share. By buying this position it'll protect my Encana shares from a decline in it's share price (under $17). If we compare it to the cutting of the dividend in 2009, which was in half (40 cents to 20 cents), the share price followed and it too was halved in short order. At 37 cents for the Put premium I believe that this low price gives reasonable protection if the shares of ECA are sliced in half again following a dividend cut. But this all depends if ECA's CEO makes that move to cut a portion of the dividend.

Which of the three would you choose?

I have chosen to follow C) I have completed both the sell (call) and the buy (put) today.

I had sold ECA Apr Call, $17 and collected the premium of $2.10 per share, netting $1033.76
And buying ECA Jan Put, $17 and paid the premium of .37 cent each, $201.24 (net)

As of this update I have collected to date $304.80 in dividends and $1792.56 in option premiums. For a total of $2097.36 (net) this works out to 21.88 %.
The percent showing is of today, it will be different if I hold both open options till January and April expiries.

Update on the October Encana (ECA) option trade. Today I bought to close (BTC) the October option trade.

The cost of doing so was $41.24 (net), by buying back this option at .05 cent plus commission. ignoring the commission at this point allowed me to capture roughly 92% of the premium. As this option contract expires next Friday (Oct 19th) I felt that, with analysts raising their outlook for 2014's average natural gas price to $4.30 from $3.70 plus analysts this past week raised their target price of ECA to $22 per share over the next 12 months. We'll need to see if that'll materialize in the future as I still suspect that the $20.50 technical level will still be the top for this stock but, lets see what the market ends up doing.

If you're following ECA you would have noticed that ECA has had a really strong run this week as Monday the share price had a low of $17.57 and now has run up to $18.31 roughly 4% for the week. As on Monday I was expecting ECA share price to test the lower band range of $17.50 which it had gotten close to before rebounding back. I was also ready to purchase another 100 shares if it broke the 10% rule as set out in my guidelines.

Income and return for ECA this year is $304.80 in dividends and $960.04 from writing of covered call options, for a total of 1264.84 (net) or 13.19%.

Looking forward into next week, I'll be looking to sell another call option in either November or December expiry as the December option chains aren't listed yet and I'll be looking for the best price for my shares. Maybe Monday ECA will jump another 30 cents.  I'll keep you posted on my next option trade.

Till then happy trading.

It's September 30th and there are a number of things happening in the markets today. One being the US government may out spend on its current budget cap. Midnight the spending stops and a ton of departments could see zero funds and it'll start tonight at midnight (Eastern). Also today I collected another dividend from Encana (ECA).

ECA has been trading lower this past week and is under $18 and sits firmly at $17.80 today. The question is will Encana drop below the $17.50 support level? If it does, I am able to buy another 100 shares of ECA if it reaches $17.24.

With todays dividend of $101.65 sitting in my account I have received YTD on dividends of $304.80 and $1001.28 for the covered call options for a total of 1306.08. As a percentage, it works out to 13.63% so far this year. Not a bad return.

Currently I have a covered call with the strike price of $19 dollars and this expires on the 3rd Friday of October. The current premium has declined to +64.63% since its approaching the 75% mark I'll be looking to close this option trade and re-write further out to collect additional premiums hopefully before the new ends.


I'll keep you posted on my next option move for Encana in the next 3 weeks or it maybe earlier, we'll see.

If you have any questions drop me a note. till then happy trading.

In my choice for a stock I have chosen Encana (ECA) which trades on both the TSX and NYSE exchanges. 

As the chart above shows ECA has a floor around $17.50 per share and a top of $20.50
This quick look at the technicals help to determine where one should look when wanting to set entry and exit points.

Granted that Encana has had a horrible year last year with EPS being negative and the prospects of an declining price in its core products - Natural Gas. However in the first quarter ECA had improved it's EPS from the year earlier and was still a negative number and with the passing of the second quarter a far improvement in earnings at 99 cents per share. Additional discussion about ECA can be seen on my stock review blog, http://stockrenter.blogspot.ca/

With the base analyses done and it looks like Encana will survive I decided to buy 500 shares in my TFSA.
The transaction for ECA are as follows.

Jan 17, 2013 bought ECA @$19.15 per share, setting my Net cost to $9584.00

Jan 25, 2013 Sold to Open (STO) 5 (call) February 20 for 35 cent each, netting me $158.76

The February covered calls expired.

March 14, 2013 (STO) 5 (call) July 20 for $1.35 each, netting me $658.76

The July covered calls expired.

March 28th I collected a dividend of $99.95

June 28th I collected another dividend of $103.20

August 22, 2013 (STO) 5 (call) October 19 for 40 cents each, netting me $183.76

The amount that I have received to date is $203.15 in Dividends and $1001.28 from the covered call options for a total of $1204.43. As a percentage bases it works out as 12.57% not bad for this holding.

Next update will be when a trade either expires or if I buy it back and rewrite a new position.

If you have any questions drop me a note. Till then happy trading.











    

I have for quite some time planned on creating a blog about my TFSA and only focus on one stock at a time.

With the focus on stock at a time the goal is to generate the best return based on cash flow for the stock at the same time looking to add more if the price of the stock should fall.

Some rules:

1) The stock must be option traded.
2) One stock with a target sell price in mind “before buying it”
3) The company needs to be a medium to large company.
4) Buy more shares if price declines by 10% or more measured from purchase price.
5) Restrict the new buy to a “lot” vs an odd lot purchase.
6) Attempt to sell the shares at 10% over the average buy price.

Option side
1) Use covered calls to generate a better return from the stock.
2) Cover calls premiums are to be at least equal to the stock’s quarterly dividend.
3) Look for the best option price on either the US or Canadian option exchanges.
4) Don’t fret if the stock is called away.