# Buy And Hold Options



## Vitalogy80 (Apr 12, 2009)

Hello,

I've been a lurker for a long time, but haven't posted much at all. I have been heavily invested in AAPL, which has done me very well over the past year, and I'm now looking to use a little bit of the profit to build a long term, buy and hold strategy for dividend income. I'm only 31, so I'm looking to buy and hold and ride the ups and downs of the markets.

I'm looking to buy class leading, Canadian companies that pay dividends and are set up to grow their dividends over the next 5 - 10 years. I realize looking 20 years into the future is too much of a grey area, so I'm focusing on companies that should be solid still in the next 5 to 10 years.

I'm looking to diversify as much as possible, I realize it's tough in Canada as we're primarily natural resources, banks and telecoms, but any help you guys can provide would be appreciated.

I'm looking to have about 8 to 12 companies in my portfolio, here are the ones I currently have.

BNS
TD
SU
SNC
RCI
CNR
COS

Any suggestions to add to this group?

Thanks for the help!


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## Argonaut (Dec 7, 2010)

At first I was ready to say, "But sir, options lose value over time and eventually expire. One cannot really buy-and-hold them for an extended period." 
I guess I have the noun on the brain rather than the choice.

I think you have done well in many cases. I have a couple minor quibbles that I won't mention because you seem to have your own style that works. For adding, I would consider a pipeline and a REIT. Names to look at: IPL.UN, ENB, TRP, REI.UN, REF.UN.


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## Vitalogy80 (Apr 12, 2009)

Thanks, I was looking at both a pipeline and REIT, but REIT's seemed very expensive at the moment and I'm still looking into which pipeline I feel is best. What are the minor quibbles? Even if it doesn't change my mind, it's always good to hear opinions on what I could do better or different.


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## Argonaut (Dec 7, 2010)

Personally, I'm not a fan of the bigger Canadian oil companies as investments, let alone two of them. And you also have two banks, but I can't fault you for that because you picked the two best ones. SNC is a battleground stock right now for sure, both in this forum and in the market. I'm on the bear side of that argument but have never been one to buy when problems are afoot. Sometimes it works, sometimes it doesn't.

Perhaps you would consider a venture into the good old USA to round out your portfolio. If you use an RRSP this is the place for these stocks to avoid withholding taxes on your dividends. Higher quality oil companies can be found here like Chevron. On a market correction it's a good time to pick up a CAT or a DE, something you cannot find in Canada. Perhaps a little IBM as your tech if you're done with AAPL.


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## Vitalogy80 (Apr 12, 2009)

Thanks for your feedback...not sure what the downside is with Suncor? I like a lot of their metrics...

They have a low payout ratio (16%), 1 year Dividend Growth (7.5%) and 5 year Dividend Growth (23%) are both solid, the PE is only at 12, they have low debt to equity (.27) and grew their EPS by 10% over the last year. I agree there are some great stocks in the US as well, and I've got about 12 on my radar there as well.

I'm just focusing on Canadian stocks at the moment as the money is in my taxable account and trying to keep the Canadian Dividend payers in that account.


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## Belguy (May 24, 2010)

You might be interested in the article 'Stocks that Pay You Back' by Norm Rothery on page 27 of the April edition of MoneySense magazine.


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## doctrine (Sep 30, 2011)

Suncor's downfall is that they're locked in the North American heavy oil glut and are selling at a huge discount to WTI, probably $70-80 a barrel. Their stock would double if they could get anywhere near Brent prices ($125).

For real estate, I like a few corporations. There is not a lot of dividend growth there, but they tend to zig when the market zags. BPO is my recommendation - the dividend isn't high, but they only pay out 50% and make lots of money, and the stock is more or less where it was a year ago, unlike other real estate companies which are up 15-20% with no corresponding increase in revenues/earnings. If real estate prices take off in the US, they will benefit.


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## Soils4Peace (Mar 14, 2010)

TD or BNS - great choices but not both
SNC - you didn't say you like to gamble
COS or SU - one, not both
Consider adding a REIT, a pipeline, a utility, consumer staple or discretionary.


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## Vitalogy80 (Apr 12, 2009)

Soils4Peace said:


> TD or BNS - great choices but not both
> SNC - you didn't say you like to gamble
> COS or SU - one, not both
> Consider adding a REIT, a pipeline, a utility, consumer staple or discretionary.


Thanks for the comment...looking into a REIT but they seem expensive, as do the Utilities. I had Fortis before and I'm not a big fan of buying it where it's sitting now. As I mentioned, looking for a Pipeline now, thinking about TRP. What sort of major Consumer Staple or Discretionaries are there in Canada? I just have 2 Banks and 2 Resources because I want 10 stocks and I was thinking 40% of the Canadian Stock Market must be between Banks and Resources, if not more. Plus I really like the Banks, not as big on Oil, but it's still solid IMHO.


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## humble_pie (Jun 7, 2009)

it's an ace list.

i don't agree with 4peace on the banks, though. I think a triad of banks is good. The cmf forum member with the most extensive canadian bank knowledge by far says he holds td, bns & ry. So you'd only have one more to add.

re snc: some spice is definitely needed in an otherwise stodgy dividend list. Something to cheer up the long, monotonous coast down from the once-in-a-lifetime excitement of aapl. SNC was a great pick if you managed to acquire it at the recent lows.

i don't follow rci. Would there be a reason why you'd be avoiding, say, telus.

the 2 oilcos are both oil sands producers. What about light sweet, as in crescent point, or gas, as in cenovus.

as for TRP, there is a dedicated thread under Individual Stocks. The thread is long, but what a person would want to read it for are the excellent insights posted by equityval, a US gas executive who is not fond of transcanada pipe. He outlines his reasons. So far, in the short term, his gloomy scenario has not unfolded, but as i recall val was predicting more like late 2012, so it's early days yet. (hint: go back near the beginning of this long thread to find val's earliest comments.) You'll notice that he likes enbridge.

my last comment is something i can't resist. The devil is making me do it. Your list of stock picks is a prime candidate for selling out-of-the-money options upon it. It's the kind of buy-quality-and-hold-forever portfolio that the option player needs to own precisely so that he can forget about it. Then he overlays the options & moves these around like chessmen. The current return from dividends plus a highly conservative option strategy should be something like 6-10% per annum, significantly better than the 4-6% from dividends alone. I am not including any capital gain that may arise from the underlying common shares themselves.

ok the devil made me do it.


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## donald (Apr 18, 2011)

No love for a rail?Humble do you give out a blessing for a cnr/cp?imo they should'nt be off the list.


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## Argonaut (Dec 7, 2010)

Everybody needs a rail. If I may be allowed to make a terrible pun, CP Rail has been gathering steam since the fall and is outperforming CN Rail on a short-term basis. But long-term CNR is the better choice. Higher yield, better dividend growth, better chart, better earnings, etc.

I'm also a bigger fan of Telus over Rogers of course. 52-week high today, that steady trendline can stay as long as it wants.

999th post!


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## Vitalogy80 (Apr 12, 2009)

Thanks, I like Telus too and was considering them. I know this is a terrible reason not to invest in them, but I bought 300 shares of them at $30 a few years ago, sold them all for $45 when I cashed out to buy AAPL instead and now look at them around $60 and think it's expensive. I live out West and think they provide a much better product than Shaw, so I'll probably look at adding them to my list, once I get over the fact that it's still a good deal at ~$60.

I also already have CNR, I think they're a better company than CP. I also just bought SNC, so I realize it's a bit of a gamble, but it's going to be 5 - 10% of my CDN Portfolio, and I do like a bit of risk...I'm no where near retiring.

Thanks for all the help, I'm thinking this is how I'll round out my portfolio.

Telus
REIT (Riocan or BPO, maybe someone else, need to do some research)
Pipeline (TRP or ENB, I'll do some reading again)

Are the valuations right now on REITs and Pipelines OK? I guess if I'm buy and holding for a long term, than entry point isn't a massive issue.

I also like the Out of the money Option selling idea...I have been selling AAPL Puts lately and been doing quite well. Do you think with a "boring, stable" list of companies like the ones in this portfolio, that probably won't be moving 50% in a few months like AAPL, would it be better to sell in the money PUT Options or Out of the money call Options?

Thanks again


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## hboy43 (May 10, 2009)

Hi:

MX, RUS, IGM, POW?

hboy43


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## Argonaut (Dec 7, 2010)

So wait, you have CNR and TD/BNS, you're looking into a pipeline and REIT, you have Rogers but like Telus, and you're selling OTM puts on AAPL. Also, you live out west. Are you actually me?

You have just entered.. the Twilight Zone.


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## avrex (Nov 14, 2010)

Argonaut said:


> Are you actually me?
> You have just entered.. the Twilight Zone.


Perfect for your 1,000th post.


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## humble_pie (Jun 7, 2009)

argo, does it seem like U are seeing your concepts repeated. That's what happens when someone is the first, like yourself, with the right idea whose time has come.

a 10-pack is just a 5-pack all dressed.

re puts in aapl. Yesterday i sold 5 jan 500P & bought 5 jan 450P for a net credit of $5600. The time span is long but reasonably lo-maintenance. I'm one who especially appreciates the opportunity to move on to other trades.

(aside to avrex) can you share how you deployed that glittering 17k gain you recently made in apple calls ? & your message count is too low, may we hear more so U reach your 1000 soon ...


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## Vitalogy80 (Apr 12, 2009)

humble_pie said:


> argo, does it seem like U are seeing your concepts repeated. That's what happens when someone is the first, like yourself, with the right idea whose time has come.
> 
> a 10-pack is just a 5-pack all dressed.
> 
> ...


Crazy, I sold 2 Jan 13 500 Puts for $47 each about a month ago...I think they've just about doubled already. I definitely didn't intentionally copy your picks, but it does sound like we think alike. I think of the 5 major banks, TD and BNS are the best options right now. I like TD's plan with the recovering US and BNS's international expansion. I have an order in on BPO at $17.25, so we'll see if it goes through. I've actually had most of these investments from about 5 years ago, but sold them all to go "all-in" on AAPL. Definitely a risky move, but I work in the industry and figured I'd be able to see if AAPL was losing their touch or if someone came out with a better product that was going to replace the iPhone or iPad. Still don't see it happening, but thought I should diversify back a little, just to book some gains.

I'd like to get a pipeline, but "safe" investments with a PE of 30 just doesn't sound like a great deal to me. If I'm getting a boring, safe investment like a pipeline, I think it should be the same PE as a Canadian bank. I'm sure I'm being stubborn not buying it, but that's OK with me right now.


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## Just a Guy (Mar 27, 2012)

Moneysense magazine had an article this month listing a bunch of dividend stocks they recommend.

Telus, Rogers, BCE, Shaw and nearly every bank made the list. No Rail. Some surprising ones, to me, CJR.B, TS.B, WJX, MTL and RUS


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## Argonaut (Dec 7, 2010)

humble_pie said:


> re puts in aapl. Yesterday i sold 5 jan 500P & bought 5 jan 450P for a net credit of $5600.


humble, did you run the numbers to see what 10 contracts at 500/475 would have net you? My feeling is that it would be better based on some of my other days looking at option chains. Even looking now at the closing prices, the tighter spread seems to be about $100 better. Also, in the unfortunate event that the underlying slowly and steadily declines, one would expect the higher strike purchased puts to hold their value longer. This would be better supposing one needs to exit the position to avoid worst case Ontario.

Like I used to say back in my days in the strawberry jam business.. buy loose spreads, sell tight spreads.*

*Disclaimer: I never actually sold jam.


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## humble_pie (Jun 7, 2009)

argo you've raised this idea before, i believe also in connection with aapl put spreads. You were right then & you are right now, on the face of it the numbers run better.

so i have been thinking, ever since your 1st mention, how to work with your idea. Tentatively, i would say that there is another series of numbers having to do with probability of exercise that enter into the equations. The tighter the spread, the greater is the probability of exercise. Therefore this mystery quotient - call it the jam factor - must rise. As it rises, it lowers the desirabiity of a tight spread for an assignmentphobe like myself.

i'm no mathematician. I'm a wild strawberry gatherer & sometime jam maker. I can see that (500P-495P) x 50 opens the same risk in dollars as (500P-450P) x 5 while bringing in more $$ to the kitchen table. But when one cooks it all up to the power of "j" one gets a different product in the pot, something that is not nearly so tasty imho. The strong flavour of the exercise probability overwhelms the delicate nature of the tiny wild berries.

on the other hand, jam made with an extremely low "j" factor is highly unlikely to ever be exercised, requires little or no simmering, retains all of its crimson colour & sweet fieldberry taste.

as option cooks go, i'm much more of an assignmentphobe than most, though. I always have lots of pots simmering on my stovetop, i don't want the uproar of several boiling over.


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## Argonaut (Dec 7, 2010)

Yes, I have only been looking at it with the relationship of dollars risked versus dollars earned. I have discounted the jam factor. But in both cases aren't you golden as long as stock stays above 500? But I do see that you would have more open contracts risked if stock goes towards strike. Could feel like a "sticky situation", so to speak.


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## humble_pie (Jun 7, 2009)

you are right again, the critical number is 500.

i think i may have to adjust my recipe.

but going back to your original example, which was to compare buying 475P vs 450P, this would indeed produce a somewhat better return by $100 as you have mentioned.

the problem i see is that a cook previously working with 5 contracts of the 450s would increase to 10 contracts of the 475s. The risk dollars would remain the same, namely 25,000.

now suppose assignment of the 500s occurs. Cook's margin debit becomes 500,000. That is a lot of $$. Not all traders could support that margin debit balance.

of course, there would be 2 days to settle after cook finds out about the assignment. A broker like tdw would recognize that the true margin impairment would be only 25,000 once client had exercised his long 475s. There would be, i believe, one brief overnight or 24-hour period during which client would be short the entire half million, because traders only find out about their assignments one day after they have occurred.

such a brief margin impairment of 500,000, with the hedge already in place, would not normally cause any problem at a soft broker like tdw. I do not know what would happen at a deep-discount broker with harsh margin protocols like IB. Or questrade, for that matter.

my overall culinary approach remains the same, though. I really do not want any accidents on my stovetop. No jampots boiling over.


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## dotnet_nerd (Jul 1, 2009)

humble_pie said:


> re puts in aapl. Yesterday i sold 5 jan 500P & bought 5 jan 450P for a net credit of $5600. The time span is long but reasonably lo-maintenance. I'm one who especially appreciates the opportunity to move on to other trades.


What an incredibly stupid trade. You should prefix your posts with the warning "don't try this at home, kids"

Your max gain is the spread of $5600
Your risk is the difference in strikes or $25000

You're gambling 25,000 to make 5600 :stupid:?

You expect AAPL to hold a market cap in the stratosphere of nearly half a trillion dollars through till next year???

I guess you weren't around during the dotcom bubble - good luck.


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## humble_pie (Jun 7, 2009)

i love trades like this one, they make me so rich.

you have a point, though, it's not for kids like you to try at home.


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## lefilter (Mar 4, 2011)

Nerd, return -vs- possible loss is not everything you should consider. Ever eard of odds?

One stupid question about the bull put spread : since youre basically selling blackswan insurrance, how much is to much? It's probably not as simple as saying something like, "I'm not willing to loose more than 5% of my total investments to this trade".


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## funinagg (Jun 10, 2010)

this is a "buy and hold options" thread folks!


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