The Staying Put Code
Happy Cashflow Code Day!
That's right…
Another day to grab some instant cash flow from one of the top real estate companies in the world…
With just a few clicks of the mouse!
Today, we revisit one of my favorite companies…
This will be the sixth time we're using a cashflow code from this company to collect income…
And so far, we've collected a whopping $737 in total.
This company is one of the biggest retailers in the world, known for their orange apron-wearing store associates…
Can you guess who they are?
If you said Home Depot, you win!
Now, you probably know Home Depot as the biggest do-it-yourself home improvement retail chain in the world…
But the reason I love this company so much right now has to do with high mortgage interest rates.
This may seem counterintuitive because mortgages aren't the only interest rates moving higher…
Credit card rates are also feeling the pain of Fed tightening, with the average interest rate closing in on 25% per year!
But here's the thing…
People are still using their credit cards to buy what they need… and what they want.
And now that most homeowners with mortgages have locked in much lower rates than what they could get if they bought now…
They are putting more money into making their homes as nice as they can than ever before.
New paint, new flooring, adding an extension, and even big landscaping projects are at the top of minds for many homeowners…
And where do they go to get what they need to complete these projects?
Everything you need to make your house a home
Home Depot has the tools and other supplies needed to do the work yourself (if you're brave enough)…
They can even hook up the homeowner with the experts needed to get the work done if they aren't so daring…
That's why this company is the first place people think about when considering a new project.
Time to grab some more cash flow from Home Depot by using this specific cashflow code:
HD231020P00285000
Before we get to all the details, here's what I'm going to cover for you:
- The fundamental story: You'll see why I'm still so excited about this company. Ready to grab some cash flow for the sixth time from the largest home improvement retailer in the world? Then you're going to love this opportunity!
- How the transaction works: You'll see how to generate at least $120 in instant cash flow. You'll see the steps involved… and I'll show you a screencast showing how to place this trade in your account.
- Ongoing support: If you're confused by ANYTHING below, simply submit a question here, and I'll do my best to cover it in our upcoming Q&A podcast that we'll email you on Tuesday around 4:00 pm ET. Remember, this is a learning process. So don't be hasty. Learn each week and write down your questions. Then listen to those podcasts to learn even more about what I'm showing you here.
Let's jump in…
The Staying Put Code
Happy Cashflow Code Day!
Here's another opportunity to put some mighty dollars right into your account…
With summer winding down, many will be rushing to get their unfinished DIY home projects completed.
And there's one name that comes to mind for the DIY home-improvement industry that's the biggest and the best…
In fact, I bet you're likely headed to this warehouse-like one-stop store this weekend.
Today, we're going to revisit one of my favorite real estate companies…
This company is considered a dividend king because of the company's moat and reliability in rewarding shareholders.
You'll likely be making another trip this weekend because 90% of the U.S. population lives within ten miles of 156 locations in the United States…
I'm talking about The Home Depot…
Even though this is a retailer, it's the backbone of America's real estate…
Home Depot also owns approximately 90% of its stores, including those on leased ground…
In the face of rising rates, inflation, and a slowing housing market, Home Depot has stood tall.
This is why it's one of Wall Street's most successful companies…
Let's make some more instant cash flow today on this real estate play using this specific cashflow code:
HD231020P00285000
Instant $120 From the Real Estate Investor’s Dream Stock
The real estate backbone company I'm going to show you how to generate instant cash flow from today is Home Depot, stock ticker symbol: HD…
As we know, Home Depot is a retailer…
And when most people visit Home Depot, they find their wallets lighter than when they went in…
But today, we're going to grab more money out of the home improvement behemoth…
Without visiting one of their 1000s of locations across North America, all from our couch, in less than 3 minutes!
Starting back in 1978, Home Depot has been helping homeowners and contractors with all their home improvement needs for 44 years…
In the process of becoming one of the most stable retail companies around…
They are ranked the 4th largest retailer in the United States with high ranks in customer loyalty…
Home Depot's typical customer is a married male without children making at least $80,000 per year…
It's no wonder the company is gushing with cash flow, making $4.3 million dollars every 15 minutes!
That's a long way from the $4 million dollars they raised for their IPO back in 1981…
Because of that, it's been perfectly positioned to weather the current economic slowdown, inflation, and whatever the economy decides to throw at us…
That's because they've been through high inflation, low inflation, multiple recessions, red-hot housing markets, and cooled-down housing markets…
You name it, they've likely been in the middle of it…
And have come out stronger on the other side.
The Housing Market Slowdown: Does It Matter?
While most housing markets have cooled off as the 30-year hovers around 7%…
Not all markets are the same, and we're cooling off to the pre-COVID buying housing boom…
Surprisingly, there's still a lot of activity in certain markets.
In fact, my Mother-in-law sold her parents' home in Mt. Prospect, IL, $35,000 over ask!
The couple had financing in place and a 25% down payment…
Here's the kicker: the home interior was dated, and they put another $50,000 of remodeling work to update.
But slow down or not, Home Depot wins!
Here's why: The couple that purchased my Mother-in-law's property was an older couple…
There's a growing trend for homeowners to stay put and age in place…
This is resulting in a surge in modifications designed to increase accessibility…
In 2020 and 2021, 1.1 million homes underwent one or more projects designed to improve accessibility for people with limited mobility…
Sure, cooling home sales are not good for durable goods sales like furniture, appliances, and the like…
Now, while Home Depot does carry a big selection of appliances, it's certainly not their only line of business…
Once the economy returns to normal and the housing market fires back up, I believe sales and revenue for HD will surge.
But Home Depot has a moat around its business because of the scale advantage it holds over rivals, giving them leverage over suppliers, which translates into a pricing advantage…
One example of the company's dominance is that Home Depot sells more paint than Sherwin-Williams.
Also, Home Depot rewards shareholders via robust stock buyback programs…
A stock buyback program is when a company buys back its stock in the open market…
Companies like Home Depot that have a lot of cash flow but are not innovative will buy back shares because they believe it will provide more value to shareholders…
This buying activity puts a floor on downside risk and can push stock prices higher…
Since 2007, HD repurchased roughly half of the shares outstanding.
Also, Home Depot has repeat customers who generate bigger tickets, which translates into bigger profit margins for HD. Home Depot has operating margins above 15%…
This is why it continues to report solid earnings in consecutive quarters.
U.S. Housing Stock Is Dated
Homes in the U.S. are aging…
U.S. housing stock is now the oldest on record. In 2001, the median age of an owner-occupied home was 31 years. Fast forward to 2021, and that figure stood at 41 years…
Older homes require more repairs and upgrades.
Because people have pride in their homes, they are always finding ways to make them more beautiful…
With checkbooks tighter than before, many will at least try to do it themselves…
But even if they decide not to do it themselves…
All roads lead back to Home Depot!
Because if they hire a contractor, Home Depot sees a big share in that business as well…
Contractors are responsible for a whopping 40% of revenues…
So whoever is buying the supplies is probably buying it at Home Depot…
That is why Home Depot remains the backbone of the American Dream of owning a home or small business…
…And a cash cow for consistent income for years to come.
Last August 15, the company released Q2 earnings that beat the analysts' revenue forecasts…
Home Depot management reaffirmed the previous guidance for the fiscal year, which is great.
The CEO also noted that while big-ticket transactions, those defined as over $1,000, dropped by 5.5% in the quarter, there was strength in categories associated with smaller projects.
So, as the old Navy Seal motto goes, “Slow is smooth, smooth is fast.”
And that's what I continue to expect from Home Depot…
So let's collect our weekly rent check using this cashflow code…
The Staying Put Cashflow Code
Here's this week's cashflow code we're going to use: HD231020P00285000
At last glance, this cashflow code is trading between $1.10 and $1.30 per contract.
So that means for every contract sold I'm going to collect between $110 and $130 of cash flow. If you sell more than one contract, the cash flow you generate would go up.
How will this cashflow code generate that cash? Well, this cashflow code identifies the Home Depot Inc (HD) October 20, 2023, $285 put option that we're selling for cash. (Module 3 of the quick start series specifically covers options pricing and how to conduct these transactions if you need a refresher.)
Here's a screencast of me finding this cashflow code and entering the transaction in my brokerage account:
Here are the instructions written out…
Action-to-Take: Sell-to-open Home Depot (HD) October 20th, 2023, $285 put option
Here's what I do while in a brokerage account if you're not just copying and pasting the cashflow code. (Remember, depending on what brokerage platform you're using, it might look different than my video. But these instructions should help.)
Step 1: I type in the ticker symbol HD
Step 2: I open the options chain for the October 20, 2023 expiration cycle.
Step 3: I locate the $285 “PUT” strike, which is located in the October 20, 2023 expiration cycle
Step 4: I double-checked the ticker symbol, expiration, strike and options contract type or what I call the “cashflow code”: HD231020P00285000
Step 5: I click on the “BID” price to open the order entry menu. (The bid price will be lower price than the ask price) The order entry MUST say “SELL” & “SINGLE”
Step 6: I select how many contracts to sell-to-open (remember from the quick-start series, this strategy is to “selling-to-open” or “STO… not buying.)
Step 7: I enter my price at $1.20 since prices are trading between $1.10 and $1.30… $1.20 is in the middle of the market and will likely get filled at that price, which is why I chose that.
Step 8: Click “Confirm & Send” to review the order. This is where I double-check again to make sure that it matches the exact cashflow code, quantity, buying power effect, and that I'm selling-to-open.
Step 9: Then I press “send”
Or, if you're using ThinkorSwim, you can paste the pre-populated order with this code SELL -1 HD 100 20 OCT 23 285 PUT @1.20 LMT
Remember, it's best to use your paper trading account for this starting out. After you've done it successfully in your paper trading account, if you feel confident enough, then you can replicate it in a real money account.
Now, this instant cashflow transaction in a margin account would've meant that the broker would have set aside $2,800.50 in buying power for every put contract we sold. (I discuss margin accounts in detail in Module 2 of the quick start series.)
You don't have to use margin, but if you do, that's important to understand and ask questions about.
This margin calculation is based on the broker's margin schedule, which is determined by the current expected range. This requirement could increase, which is why you'd want to have a cushion of cash in your account if you use margin on these trades. That helps you make sure you don't get into trouble.
Now, if we wanted to use a cash-secured approach (cash-secured put-selling is also covered with JP in Module 2!) on this transaction, we would've used a cash account.
In that case, the broker would set aside $28,380 for every put sold.
This cash set aside is to make sure that if HD share prices started dropping below the strike price by expiration, I would be able to take on the risk of buying back the stock instead of keeping my cash flow.
Let's play out a few scenarios…
Okay, so here's how I am going to manage this cash flow position.
Best case: I'm going to be looking to buy-to-close the Home Depot Inc (HD) October 20, 2023, $285 put option contract at a 50% profit or at $0.60 per contract. The reason is because we want to manage to keep our profits and reduce our market exposure. The stock market moves, and we want to dance with it, not stand still. Once we lock in our profit, we can redeploy for another opportunity with more cash flow opportunity.
So, the best-case scenario is to generate and keep instant cash flow.
Then rinse and repeat…
Worst case: We don't have to worry about Home Depot Inc (HD) going bankrupt, so the real risk is short-term market volatility that could push shares below our $283.80 (strike price – premium collected).
If that does happen in the short term, I'll buy-to-close this position and roll it out for more time while collecting more cash flow.
So, in other words, we would just need a little time for the market to go in our favor. This will take a little more buying power, and why we always want to keep 50% of our buying power available.
Next steps…
Ok, so this alert covered A LOT…
Read this multiple times… write down your questions as you go.
And then, submit them on this page in the question box. I’ll answer them in an upcoming Q&A podcast. Those podcasts are sent to you each week, and I’ll do my best to get to everyone’s specific questions.
Josh Belanger
Editor, Weekly Cashflow Triggers
