A Media Portfolio for Long-Term Investors

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- I have spent a considerable portion of the last week discussing several media stocks on TheStreet. My article history contains stories that explain why I am bearish Netflix ( NFLX) and Sirius XM ( SIRI) and bullish Bell Canada ( BCE), Rogers Communications ( RCI), Time Warner ( TWX), Madison Square Garden ( MSG) and Pandora ( P).

In this article, I outline a portfolio of media stocks that could work for some long-term investors who like to speculate a little and use options frequently, but conservatively as part of a growth-and-income portfolio. These are the same types of strategies we discuss each week with subscribers in my Options Investing Newsletter. As always, use these ideas as a starting point for your own research. Your unique circumstances might warrant a different approach.

Ultimately, I hope to illustrate how to work options into your portfolio at a basic, but worthwhile and productive level. You might use different stocks or methods to achieve similar goals.

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In a portfolio like this, I want to keep a core of about 75% to 80% in dividend-paying growth stocks. In the remaining 20% to 25%, I take things in a progressively speculative direction.

Core (Initial Positions)

  • BUY 100 to 500 shares of BCE
  • BUY 100 to 500 shares of RCI
  • BUY 100 to 500 shares of TWX
  • Your amount of available capital, time horizon (when you'll be needing your money) and risk aversion dictate how much money you can put into your initial positions. Ideally, I strive to write covered calls against each position. Your broker's commission structure influences whether or not it makes sense to execute covered calls.
  • >>Also see: Why I Am Long Time Warner
  • Additionally, you might set different strike prices or choose different expiration months on the basis of your near- and long-term sentiment. In addition, you'll have to factor in the risk that your shares could be called away and decide on a level of risk that's appropriate for you. As of Tuesday's close, with all three stocks up sharply, I would consider proceeding as follows:

    Write the TWX May $30 calls

    I would prefer to take the same approach with BCE and RCI, but with liquidity and the availability of strike prices a bit of an issue, I would refrain. Instead, as a potential alternative to buying BCE and RCI stock outright and directly, I would consider getting long via writing cash-secured puts on each name. I presently own BCE shares, but I am also short a BCE May $40 put.
  • >>Also see: Why I Am Long Rogers and Bell
  • If BCE trades below 40 between now and expiration in May, I could get put 100 shares of BCE at $40 for each contract I sold. If that put expires in-the-money by $0.01 or more (BCE trades below $40.00), I will almost definitely get put the stock.

    I am fine with that possibility because I am long-term bullish BCE. If I get put shares, I will take another look at the covered calls and investigate writing one that is slightly out-of-the-money. If I do not get put shares, I will look out to June and write another put. In either case, you can continue to repeat this process, shifting between cash-secured put and covered call, going forward.

    Because BCE, RCI and TWX pay dividends, I have even more incentive to scale into each position and reinvest that income on a regular basis. This is where a low-cost, no- or few-frills brokerage can make a lot of sense. In many accounts, the cost of periodically buying a relatively small number of shares can eat into returns. In my Options Investing Newsletter this coming Tuesday, I discuss how I get around this particularly thorny and important issue.
  • >>Also see: Why I Am Long Madison Square Garden
  • I purchase more shares in each of these stocks between one and four times a month. I continue on this course, irrespective of any near-term pressure, as long as the long-term narratives I weaved in my previous TheStreet articles on the companies remain intact.

    Speculative (Tier One)

  • Buy 50 to 250 shares of MSG
  • Write MSG May $36 or $37 calls if able to get a price of $0.50 or $0.30, respectively, as of Tuesday's close
  • MSG is another long-term stock to scale into over time, but at roughly one-half the pace of portfolio's core holdings.

    Speculative (Tier Two)

  • Buy 50 to 250 shares of P
  • On strength, write slightly out-of-the-money calls 2 to 3 months from expiration
  • Clearly, Pandora represents the most speculative stock of the group. Personally I continue to scale into the position, most recently purchasing shares at $8.38 on Tuesday.
  • >>Also see: Why I Am Long Pandora
  • I have been slowly scaling into the stock since late last year with little concern over the near-term volatility. I feel like I know the company well, thus I have confidence it will execute its long-term vision. More than any other stock in this portfolio, however, a position in Pandora might not work for an investor with even a hint of a faint heart.

    In a future article, I will outline how I would look at working bearish plays on relatively high-priced NFLX and low-priced SIRI into the mix using options.

    At the time of publication, the author was long BCE MSG RCI TWX, and short NFLX via a long position in NFLX puts.