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large cap value basket


given2invest
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I'm looking to put together a small large cap value basket.  My thought process is to either sell puts on this basket or buy the stocks outright.  Currently, I have three stocks:

 

WMT

MSFT

DELL

 

I'd like to add 2-7 more.  Any suggestions?  Doesn't have to be tech, preference if it isn't.  I also don't want large holding companies like BRK and would rather stay away from financials.  Thanks!

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Guest Bronco

If you are going to short puts it makes sense to see what the premium you'll be getting.  Going short on Kraft may be great but if you get no premium whats the point. 

 

So this is a 2 step process - 1. find good big caps and 2 have options that present decent risk/reward. 

 

As much as I hate MSFT I am short the 2013 $20's puts.  That is my only short put position now.  I can think of worst things in life than owning MSFT at less than $19 - like Vancouver winning the cup.

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Guest Bronco

I'd be curious to compare your basket and a DOW 30 ETF.

 

You may be better off buying something like that.

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I can think of worst things in life than owning MSFT at less than $19 - like Vancouver winning the cup.

 

Hah... my problem with shorting puts of these "safe" mega caps is the Black Swan exposure: if/when MSFT gets "put" to you at below $20 or JNJ at <$55, we are probably in another Great Depression... in which case I'd rather have cash handy to pick up distressed small caps than having much of my capital base locked up in these lumbering tanks.

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Guest Bronco

S2S - You may be in the right ballpark but you make some wild assumptions.

 

My put positions, if exercised, are less than 1% of my portfolio. 

 

You also assume that I don't have cash on hand in my portfolio, which is vastly incorrect.

 

Unless you are 100% cash, my portfolio may be more apt to take advantage of a Black Swan event than yours.

 

My point in general is that using leverage on a position does not indicate the risk/reward of an entire portfolio.  I am sure you probably didn't mean to imply that but wanted to make that clear.

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I'd be curious to compare your basket and a DOW 30 ETF.

 

You may be better off buying something like that.

 

Well for starters, I'm eliminating financials and any upper teens P/E stocks.

 

Also, by buying them individually I can sell my short term losers in 11 months and only have long term cap gains.  Very advantageous vs an ETF. 

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I currently sell puts on Dell, WMT and Visa.

 

With WMT, not a great return, but I have a high % confidence in it.  There is that $15BN bid under the stock with the annual share repurchases. 

 

With Dell, selling $14's for May, will get you the stock at the same price Michael Dell bought in December ($13.50's).

 

I did a little on EBIX two weeks ago, April 20's were at 8.75% return ($1.75/$20)...I bought them back at .60.  (Currently 0 exposure to EBIX).

 

As a rule, I only sell puts on Company's that 1) I want to own, 2) cheap, 3) have a very strong share repurchase program and/or tons of cash on B/S. 

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Well for starters, I'm eliminating financials and any upper teens P/E stocks.

 

Poor decision to eliminate financial industry stocks in a rebounding economy..

 

Especially with interest rates set to rise. I think banks like WFC and JPM are still pretty cheap.

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