Our WIN trade. Is it a win or lose?

As with all trading sometimes you make mistakes and the option trade we made on WIN just a week ago appears this morning to be a mistake.  We bought in at $10 for 7200 shares of WIN and netted just under $2000 in cash.  The stock is trading down to around $9.41 this morning due to what looks to be a miss on earnings and some concern about cash flow.  Truth is that WIN did not perform as well as it should have this past quarter and this follows a first quarter where there was a similiar report.  All this weakness in the report makes one wonder why so many insiders bought big numbers of shares that are now below water in price the preceding quarter. 

Do we still believe in WIN, the short answer is yes.   The main reason why is this little item in their report this morning that above 68% of their revenue comes from business or broadband. That means the slow decline in residential wireline business is becoming less and less of an driver of profits and revenues for the company. Sooner or later they will get their act together and make the turn in reported profits.  Many of the customers they serve have few options to find service.  Broadband residential customers however in some areas they serve do have options and that is indeed hurting their business. 

Now back to our trade, we are likely to get assigned 7200 shares of WIN at $10, which on the surface does not look good. But note that we will have bought in just prior to the ex-dividend date and will soon be paid $1800 to add to our $2000 already netted. We also can turn around a begin to sell call options on this stock which will net us more cash at the end of next week, currently about $800 per month.  As we have pointed out over and over again our hedging approach is cash flow oriented, not capital gains oriented. 

 In essence we have a stock which will pay us 10% dividend with a cost of 4.75% to borrow to buy. Add in the early on $2000 and the monthly option cash flow and you got a cash flow that adds money to your account regularly until we get called out of the stock at the buy in price of $10.   All this playing with the house's money.   Maybe not a win, but not a loss either.