The Singapore bank stocks such DBS, UOB and OCBC, have always been my favourite stocks for many years. From the early years of my investing journey where I find them too expensive to the opportunity I get in 2020 to buy them cheap and thus get a profit out of them, they have always been the stocks that I want to hold on for life.
I like the idea of owning strong companies with a healthy dividend payout of 4 to 6% per annum. Singapore banks stocks are like the FAANG stocks of the US market as they make up 30% of the Straits Times Index (STI) and are ranked among the world’s safest banks. Such strong fundamentals explain the price stability over the years. With the dividend cap removed by MAS at end of July 2021, investors can expect a good passive income stream through dividend payout in the years ahead.
Why Sell Now?
DBS Bank has been ranked Asia’s safest bank for 12th consecutive years and DBS share price has rebounded the most among the 3 banks to near its all-time high since the lows when the pandemic started. So why do I sell DBS shares and what am I buying instead?
I sold my DBS shares for 2 reasons, one is that I feel the share price has almost reached its peak and is unlikely to have any huge increase in the near term. Thus, I have decided to take the profit of the gains that I have made and redeploy it elsewhere.
The 2nd and more important reason is that I am hoping to increase my options trading portfolio to get higher overall returns through trading. In short, using the same amount of capital, I am reducing my passive income and increasing my sideline income through options trading.
With the capital freed up, I have sold 2 PUT contracts on Nvidia and Apple, collecting a return of 8.6% and 5.3% premium respectively, over a 35-day period. That is more than what DBS pays me in a single year.
Today (25 Oct 21), I sold an At-The-Money PUT option contract for this data analytic company, Palantir, that I have high conviction on and collected a 6.27% premium over a 32-day period.
Details of PUT contract as follow:
Share price: $25.4
Strike price: $25.5
Premium: $1.60 (6.27% returns)
Expiration date: 26 Nov 21 (32 days)
Scenario 1: If Palantir share price remains unchanged or increases above $25.5 on 26 Nov 21, I would not require to buy 100 units of the shares.
Scenario 2: If Palantir drops below $25.5 on 26 Nov 21, I would buy 100 units of Palantir at $25.5 but my breakeven price for Palantir would be $23.9 ($25.5 – $1.6), a price that I am comfortable buying as I see huge potential for this company in years to come.
Either way, I have already collected the premium of $160 from this contract.
The reason to grow a larger sideline income is because I intend to take a break from my day job next year and I will be without any income by then. Thus, it is important that I still have some form of income coming in to pay for my family’s expenses. I will be using the Wheel Strategy to generate consistent monthly sideline income to meet this objective.
I hope this sharing is a good reference for you, whether you have plans to retire early or to increase your wealth at a faster pace so as to realise your dreams sooner.