Forget Buying In Round Dollar Amounts
We just mentioned “odd lots” in our post the other day about what to sell and what to keep, and how it’s not the big deal it used to be.
There is, however, still a couple of reasons NOT to buy odd lots of stock, but to trade in round lots only.
And when you end up with an odd lot due to a stock dividend (don’t ever reinvest cash dividends – in my opinion), spin-off or whatever, maybe you should just sell it.
So in generalities – again, never giving INVESTMENT ADVICE on this site – here are a few basic reasons to avoid odd lots and keep your stocks “round”:
- It just makes things easier to trade, less likely to make a mistake
- Makes calculating things like dividends easier
- Typically allows more even splits when you want to take a “Casey Free Ride” and sell half
But here is an even better reason if you are not already convinced:
- It makes it more efficient to employ an income strategy like covered call writing against your long stock position.
Options always work in round lots. On most if not all stocks you might hold and use a covered call writing option strategy for, 1 option is for 100 shares of the stock.
(If you are looking for a great online stock broker for options, consider OptionsHouse)
What brought this to mind was a blog post over at Yahoo Finance about Nokia and RIMM (one of my “cleanup accounts” has some Nokia in it, bought in 2000 – down over 90%. Another argument against FULL SERVICE, HIGH COST stock brokers! – but I digress).
Here is what they said about owning Nokia and RIMM at these depressed “value play” levels:
For those inclined to play, Najarian suggests owning the common but writing call options aggressively against the position.
Obviously then, you want to own Nokia and RIMM in “round lots” to take advantage of the strategy. NOTE: I am NOT recommending anything here regarding Nokia and RIMM, just making a point about odd lots versus round lots.
Interestingly enough, covered call writing is how I got started in the stock market almost 30 years ago. The guy who was my guidance counselor in Junior High School decided to get a more meaningful job and took a position at a small local brokerage firm.
Looking back, his advice at the time really wasn’t too bad. I lost track of him when I moved from the area and ended up becoming a Series 7 licensed broker myself. (That didn’t last long, I had integrity…)
Bottom line: There are reasons to keep your stock positions in round lots even though some of the disadvantages of owning and trading odd lots have gone away.