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Macys stock with covered call, good idea?

I already have a small position in Macy's, with covered call of strike 30 in my IRA, established back in January when it was trading below 30.
Thinking of increasing it significantly, I want to make it 7-8% of my portfolio.
But this time I wan to play it more safe, I will sell call of strike 28 Jan 2019, for premium of $3.
This will yield around 5% from dividend and another 5% from call premium, total yield of 10%.
Pros and cons of this stock:
1. They have around $12-20 billion in real estate.
2. They are still profitable and pay 5% dividend from profits.
3. Easy to buy this company above $30 due to macy's brand value and Real Estate.
1. Retail as we know, is dying but management of public companies wont shrink their operations since that will make their salary and bonuses smaller, they will usually run it till it goes bankrupt.
2. Management may make it hard for acquisitions since currently they enjoy nice salary and bonuses since it seems to be highly profitable company, only because they don't have to pay rent. Management strategy is to sell RE in small chunks and use that cash for their expenses making the company look profitable. They would like to simply keep selling RE and run this company for 20-25 years from those cash flows till everything runs out.
3. Value of Retail real estate is falling since most people now shop online.
How will you feel if Macy's rise to, say $40 or above, even for a short time in the next 2 years? If you are not going to be bothered by the "missed opportunity", then it'd be fine.
Most retailers at this point are being "feared" and thus pose opportunity for "greedy" investors to make large gains (as opposed to small gains or limited-upside trades such as covered call). If you do not view Macy's as one of those, then limiting the upside would be just fine I think.
IMHO, Covered call are best suited for stocks that one isn't much excited about, or trying to slowly exit by reducing some loss, or simply wants to dispose but can't do it right away (due to tax, dividend, etc.). E.g.,
  • A stock that has performed better than expected. There maybe other stocks that are better value when the stock is called away.

  • A recently-purchased stock is not working out as expected. Need to reduce loss by selling repeated covered calls and taking dividends

  • Tax needs to be realized next year as opposed to current year.
I will be happy with 10% return any day. If all my asset gave me that kid of return last 10 years, I would have retired by now. 
If you dont mind me asking,
do you own Macys 5% or more percentage of your portfolio?
And according to your research is it a solid company. the chances of it falling  below 20 is very low?
I understand. Being able to get 10% nominal return or 7% real return, with an acceptable level of volatility, would be goon enough for me too (and possibly many others)  - so you are definitely not alone on the boat. To that effect, I spent a lot of time in the last couple of years to figure out a diversified asset-allocation that's right for my situation. In my mind, the right asset allocation was the most important part of the problem. Since then I have almost all of my investments strictly follow the asset allocation, mostly through passively managed Index funds. The only exceptions are some individual Bonds, preferred, and rotation over a few high-quality stocks. I use the options to "sweeten" my return by a couple of percent points that I gave up in my portfolio return (in exchange for diversification and stability of cash-flow out of my investments). Hence I use a large number of low-profit, high-probability option trades and spread the trades across a diverse set of companies and sectors. In other words, I avoid sector concentration, over-weighting a single company (not even AAPL ), and carefully manage my exposure to margin leverage used. Since "beating the market return" is an explicit non-goal for me, I can keep my bar very low to avoid risk, and can live with non-glamorous trades.
I do not own Macy's stock at all. I own a Macy's Bond that I bought at a premium since it was yielding over 6%. Macy's is at the bottom of investment-grade credit rating. My current holding represent less than 0.3% of total assets. If Macy's credit is downgraded, I might scoop up some more Bonds. My research gives me the confidence that it will not default on it's Debt, but it does not give me enough detail about what would be considered as a "bargain price" for the stock. So I personally wouldn't go for $20 in 2019 trade. Recently, I reduced all my outstanding puts of retailers and narrowed down to just.   I somehow have an irrational bias towards Nordstrom since the time I learnt about it's management and customer focus in a "Leadership/Management" training quite some time ago.


Also, I do not have 5% holding for any single company (except the Govt of US ). The max I have is 3% for one company, including stock and Bonds.

Not sure if this is helpful. Please let me know if you have questions/concerns and I'll try my best to address those.
I actually don't have enough time to research more companies hence I have significant cash at the moment.

I think 6% on Macys bond is amazing deal, but watch out, if it is 20 years or more, this company can go bankrupt in 10-15 years if the management has its way. Do bond holders have any say on how companies are run?

Right now dividend yield is good and their real estate holding is more than the market cap of the company hence I am betting on them not falling below 25 in next 2 years.

My guesstimate says that in 2 years if nobody buys them, they will be trading around 25-28 because of dividend yield and Real Estate holding.
Will Macy's cut their dividend?

I wanted to add more to my position but its quite possible that this company/sector maybe rotting from inside hence this deep discount even if their real estate is worth as much as the company book value.

Long term its quite possible that the department stores are in a race to the bottom since the management does not want to close stores but would rather keep running loss making units until bankruptcy.

IMO, the number of department stores need to reduce by 50% to begin with, but thats not going to happen, they will bleed until bankruptcy and the last man standing may survive in the long run.
First off, I don't own and have no interest in owning Macy's.  So no deep dive analysis for me, just some surface data  That said, the surface data includes:
Suggest you double check your assumptions about the amount of real estate owned.  The 1/31/17 (FY '16) balance sheet shows a net $7.017B PP&E, not the 12-20B of your earlier post.  This compares to an inventory of $5.399B.
As you say, store count should be reduced 50%.  If that is the overall status of brick and mortar retail, what does that mean about the actual, realizable value of any real estate Macy's may wish to sell?
Macy's is carrying $3.897B of "goodwill" and has taken no impairments against goodwill for several years.  Suggest you check this carefully.  I suspect the carrying value of the goodwill could be significantly impaired.  Suggest you also check the loan and bond covenants.  The tangible shareholder value has gone negative;  in combination with impairment write-offs, if they occur, (some of) the debt may face accelerated due dates and/or "surcharge" interest premiums.  Either eventuality would likely cause a decrease in or termination of the dividend, IMO.
Just as a retail real estate story line, check out the last 10 years of SEARS.  It may take Macy's 10 years to bleed to death, (or they may recover) but the dividend could disappear on a much shorter time scale.
Maybe you enjoy the battle and can find some short term tactical reasons to play with Macy's.  But I don't see any, and certainly don't see any strategic reason to own that stock  (or any other brick and mortar retailer, for that matter, given the existence of Amazon)
I would not own Macy's.  If you want retail, I would take a fund  in the Retail sector.  I own bonds of SHLD; so I follow the sector.  There seems to be a similarity, i.e. Macy's took over a huge competitor (Federated Department Stores) and Sears did Kmart.  Although the timing varies, their fate will likely be the same.


I agree that stores need to be reduced.  If you can buy it on Amazon (with no sales tax and free shipping often), then why bother?  Amazon offers unfair competition to many retailers.  I am amazed that this tax loop hole still persist.

If Macy's doesn't cut their dividend, they may suspend it.  Their options are limited. tbg12 presented a lot of good points on this company. 
Thanks for timely reminder about Sears holdings. Reading your and few others' posts I do see similarities between M and SHLD.
I was thinking of getting into M with a small % and write covered call (with shorter expiry date) against the shares. This forum made me think twice - and I am staying away for now

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