Special Buy Alert: May 28, 2014

Marcus Haber | May 28, 2014

Special Buy Alert: May 28, 2014

Trade Details

Buy Medallion Financial Group (TAXI) July $12.50 Calls for $1.35 or better

Buy THL Credit (TCRD) July $12.50 Calls for $1.25 or better

Buy Pacific Coast Oil Trust (ROYT) July $12.50 Calls for $1.15 or better

Why?

As a welcome to our new subscribers and a thank you to our existing members, today I’ll be rolling out three brand new options trades!

Now typically, I like to roll out trades in more active options chains. That’s because you typically get better prices and the spreads are narrower. However, we’ll be departing with that strategy this time around as I’ve come across an opportunity too good to pass up.

You see, there are two important trends in US equities we’re going to take advantage of. First, small caps have been getting hammered and are underperforming the other major equity benchmarks. I don’t believe this trend will continue as the Russell 2000 looks to have bottomed out.

Another important trend we’re seeing in the markets now is investors search for yield, particularly in regard to dividend stocks. As traditional dividend stocks get gobbled up by buyers, the yield drops. Soon, investors will be looking to stocks with higher dividend yields in order to get more bang for their buck.

We’re going to profit off of both these situations by buying calls on three small cap stocks with high dividend yields.

First off, we’re buying calls in Medallion Financial Group (TAXI). The company offers loans to finance taxicab medallions and pays a dividend yielding over 7%. Next, let’s buy calls in THL Credit (TCRD). This company invests in debt and equity securities of middle market companies. Its dividend yield is a robust 10%. Finally, buy calls in Pacific Coast Oil Trust (ROYT). ROYT holds net profits and royalty interests in oil and natural gas properties in California. Its dividend yield is close to 11%.

Keep in mind, we’re going to see wider spreads with these options as they’re not as liquid as more active names. However, paying a bit more for these calls is a small price to pay for the upside potential we’re getting.

What’s more, all of our calls are likely going to finish in the money. If you decide these are the kind of high dividend stocks you want to keep in your portfolio, you can always exercise your calls at expiration and stay long the stock!