A Media Portfolio for Long-Term Investors
NEW YORK (TheStreet) -- I have spent a considerable portion of the last week discussing several media stocks on TheStreet. My article history contains stories that explain why I am bearish Netflix
In this article, I outline a portfolio of media stocks that could work for some long-term investors who like to speculate a little and use options frequently, but conservatively as part of a growth-and-income portfolio. These are the same types of strategies we discuss each week with subscribers in my Options Investing Newsletter. As always, use these ideas as a starting point for your own research. Your unique circumstances might warrant a different approach.
Ultimately, I hope to illustrate how to work options into your portfolio at a basic, but worthwhile and productive level. You might use different stocks or methods to achieve similar goals.
In a portfolio like this, I want to keep a core of about 75% to 80% in dividend-paying growth stocks. In the remaining 20% to 25%, I take things in a progressively speculative direction.
Core (Initial Positions)
Your amount of available capital, time horizon (when you'll be needing your money) and risk aversion dictate how much money you can put into your initial positions. Ideally, I strive to write covered calls against each position. Your broker's commission structure influences whether or not it makes sense to execute covered calls.
Additionally, you might set different strike prices or choose different expiration months on the basis of your near- and long-term sentiment. In addition, you'll have to factor in the risk that your shares could be called away and decide on a level of risk that's appropriate for you. As of Tuesday's close, with all three stocks up sharply, I would consider proceeding as follows:
Write the TWX May $30 calls
I would prefer to take the same approach with BCE and RCI, but with liquidity and the availability of strike prices a bit of an issue, I would refrain. Instead, as a potential alternative to buying BCE and RCI stock outright and directly, I would consider getting long via writing cash-secured puts on each name. I presently own BCE shares, but I am also short a BCE May $40 put.
If BCE trades below 40 between now and expiration in May, I could get put 100 shares of BCE at $40 for each contract I sold. If that put expires in-the-money by $0.01 or more (BCE trades below $40.00), I will almost definitely get put the stock.
I am fine with that possibility because I am long-term bullish BCE. If I get put shares, I will take another look at the covered calls and investigate writing one that is slightly out-of-the-money. If I do not get put shares, I will look out to June and write another put. In either case, you can continue to repeat this process, shifting between cash-secured put and covered call, going forward.
Because BCE, RCI and TWX pay dividends, I have even more incentive to scale into each position and reinvest that income on a regular basis. This is where a low-cost, no- or few-frills brokerage can make a lot of sense. In many accounts, the cost of periodically buying a relatively small number of shares can eat into returns. In my Options Investing Newsletter this coming Tuesday, I discuss how I get around this particularly thorny and important issue.
I purchase more shares in each of these stocks between one and four times a month. I continue on this course, irrespective of any near-term pressure, as long as the long-term narratives I weaved in my previous TheStreet articles on the companies remain intact.
Speculative (Tier One)
MSG is another long-term stock to scale into over time, but at roughly one-half the pace of portfolio's core holdings.
Speculative (Tier Two)
Clearly, Pandora represents the most speculative stock of the group. Personally I continue to scale into the position, most recently purchasing shares at $8.38 on Tuesday.
I have been slowly scaling into the stock since late last year with little concern over the near-term volatility. I feel like I know the company well, thus I have confidence it will execute its long-term vision. More than any other stock in this portfolio, however, a position in Pandora might not work for an investor with even a hint of a faint heart.
In a future article, I will outline how I would look at working bearish plays on relatively high-priced NFLX and low-priced SIRI into the mix using options.