How You Can Get a Pay Raise Like Jamie Dimon

Writing a covered call on JPMorgan may be the right move.

Mar 20, 2014 at 8:00AM

"When Alexander saw the breadth of his domain, he wept, because there were no more worlds to conquer."


Photo Credit:

Whether it was said by Pathos or Hans Gruber, I like to wonder if Jamie Dimon of JPMorgan Chase (NYSE:JPM) has similar thoughts racing through his head as he sits in his corner office at 270 Park after the close sipping a cool martini. Having survived Congressional inquiries, a whale of a loss in London, the meltdown and subsequent settlement over their MBS business, Madoff, and others, Dimon was recently rewarded with a 74% pay raise, while maintaining the two loftiest positions at the country's largest commercial bank.

After this vote of confidence, he announced the slashing of 8,000 jobs, mostly in the mortgage area, though he said he would add a few jobs in compliance. It appears to some that ethics and controls had taken a vacation at the bank these last few years. Dimon says the layoffs are part of the normal process, something about "trimming the sails being a part of life."

Though earnings at the bank took a dip due to the aforementioned hurdles, and Dimon admitted more obstacles are imminent, the bank remains a mainstay in almost every value-based portfolio, with the current CFO saying the company is 20% undervalued at its current trading price.

So even with the impending problems creating numerous hits to future earnings, Dimon and his bank should emerge relatively unscathed with little severe risk to the downside. This confluence of factors makes the stock a perfect candidate for writing calls against the stock ("covered call writing") in your portfolio to produce extra income with minimal risk.

Writing covered calls is about as easy as Dimon handing out pink slips. As a primer: You own the stock. (I'm not advocating you rush out and buy the common if you don't already own JPMorgan just so you can play our little game). You sell one call for each 100 shares you own, and in doing so you are selling the rights for someone out there to buy a hundred shares of the stock (for each call they buy) at a specific price (the exercise or strike price) for a specific period of time (the exercise or expiration date).

You pocket the premium for selling the call immediately.

If the price does not exceed the exercise price by the expiration date, you keep the premium and your stock. If the price on expiration day is above the strike price, there's a good chance you will have to sell your shares at the strike price, but you still keep the premium you received. Any dividends paid before the expiration date are yours to keep. If the stock price falls and you are afraid of losing any gains you may have realized, you can always sell your stock, but you should buy back the option you sold, otherwise you are holding a naked position. (Not a position you want unless you're built like Charlize Theron or Brad Pitt vacationing at Leucate Plage.)

Regardless of what you think of him, Dimon will probably weather the next storm at JPMorgan, just as he has survived crisis after crisis which surely would have brought a mere mortal CEO to his knees. There are a number of technical factors besides that make the perfect stock for call writing: the volatility is moderate, the dividend is consistent, the liquidity of the options is immense. But we'll keep these in our back pocket for now as well. It's enough to know that the premiums received can increase your cash flow from holding the stock.

Though only sports stars are supposed to make the money Dimon is reeling in, and I'm certain President Obama saw the pay raise as another blow to his "where's the equality in this capitalism thing", Dimon can sit back and enjoy the view, while you have your own martini with a smile, counting the extra cash from your call writing.

More income producing investments
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it’s true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor’s portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information