Friday, July 22, 2011

Life Hedge: ED

Buying shares of a dividend-paying public company for which you are a regular customer is a life hedge. Life hedges should be every smallDog's first investment and lifelong friend. Here's my idea for a life hedge if you live in the NYC area: ED. So, if you don't like your electricity bill, do something about it! After you do all of the conservation things - replace your incandescents with compact flourescents, unplug your cell-phone charger and stuff - there's one more thing you can do: invest in your utility company. For me, my electricity provider is Con Edison (ED.)  ED pays a 4.5% dividend and the current dividend period ends on Aug 12 (ex div is Monday, 8/15.) I like ED for a dividend doubler play. The IV is too low at 13% to make a premium strategy work and call owners don't collect the dividend, so I want to own the shares and sell covered calls into 8/12.

Here's how ED looks on my charts:

The seasonal projection takes the price of ED north of 55 by the 12th, which sets us up nicely to sell August 55 calls. If you step outside most anywhere in North America today you will understand immediately the reason for this seasonality: air conditioning. The demand for electricity soars in July/August and every kilowatt is profit for the electricity providers. The InvesTool signals show a fresh 3G event if the price does not decline too sharply by end of day. I am looking to buy shares here in the low $53 area, either today or Monday.


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