BHP’s earnings release this week highlighted strong improvement in sales and earnings and was combined with a strong 2% rise in the stock’s price to its highest price since Feb 2013. However from a long-term stock holder’s perspective, it’s been a long slow process of recouping value.
Currently trading just between $38 – $39 BHP Billiton Ltd. (ASX:BHP) is trading at the same price levels as back in July 2007! For many BHP investors over the last 6.5 years, just getting back to what was paid for the stock would be a good outcome.
What’s wrong with BHP stock?
Just like the rest of the market, BHP struggled GFC driven panic selling, but also hit road blocks of a slowing China, plummeting Iron Ore and other commodity prices and more recently added uncertainty on Mining Tax and pulling out of major development projects. It sure has been a bumpy ride for loyal long-run BHP investors.
As investors, what else could we do?
Buying, holding and praying for stock prices to rise, or recover in some cases, is the old way of investing. Stocks are more volatile, information reaches investors quicker than ever before and transaction costs of getting into and out of markets is the cheapest it has ever been. The game has changed and the old adage that “time in the market is more important than timing the market” is especially outdated when it comes to risk.
Collecting Extra Income
This month AIE recommended to its members a Covered Call position for BHP, collecting premium income from selling calls whilst owing BHP stock. The trade required at least 100 shares for each Call option that was sold. Furthermore, for each call sold, the investor received $140 income, and after 35 days, realised a gross 4.28% gain.
This yield is by no means going to be the case every month, but the takeaway point here is that by utilising a new approach, i.e. Selling Calls, additional income can be created for stock holders. The income comes at the price of limiting potential capital gains, but on a stock that is trading sideways or falling, the additional income can go a long way to boosting portfolio performance over time.
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