National Oilwell Varco: A Dividend Cut Success Story

Last year I wrote an article about GNC Holdings (GNC) and my covered call option writing strategy to exit my position without getting harmed post dividend cut. That article can be read here. Although many commenters applauded my strategy, many did not like it either. Many investors felt it was too risky to “wait” to exit out of my GNC position due to the rapid price movement and wild volatility. Every time GNC reported earnings, the stock price either dropped by 20% or rose by 20% due to the wild retail industry swings at the time.

This volatility made many investors feel queasy and blinded them from the benefit and idea of writing calls to exit an unwanted position.
After some thought, I realized that GNC wasn’t the best example of using covered call options because of the behavior of GNC stock after their announced dividend cut. Although most stocks do decline after announcing a dividend cut, most stocks also go through a period of flat trading while the company deploys cost saving measures while using its additional cash from the dividend cut to pay down debt, reinvest in the company, and/or acquire other businesses. In other words, most stocks do not trade wildly from 10-20% swings after a dividend cut.
Today, I want to provide a better example of how I avoided large losses after experiencing a gut-wrenching dividend cut announcement from one of my less volatile dividend growth holdings; National Oilwell Varco (NOV).
I will explain why I... Read more

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