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Assignments and Trades

SMG was assigned early.

music selection:  “The Humpty Dance” — Digital Underground

weigh-in:  200.6 (0.4) – so close!

I had two puts open on SMG at the 90 strike and April 20 expiry.  One was assigned on Thursday and the second on Friday.  I sold SMG180518C00090000 on Thursday for 74 cents a share and again on Friday for 85 cents a share.  The trades will be in force for 37 and 36 days respectively and yield an expected annualized 8.11% and 9.58% respectively.  This position is a little disappointing but I think I will get a lot of earnings out of it long term with relative safety.

Two puts in MSFT finished in the money on Friday and were assigned over the weekend.  I am in with a cost basis of 93.50 and have an opportunity to write covered calls that seek to earn some bonus capital gains.  I sold MSFT180525C00094500 for 3 dollars a share.  The trade will be in force for 40 days and yields an expected 29.28% annualized if unassigned.  If shares are called at the end of the 40 days, the annualized return will be 39.04%.  Not too shabby.

I am entering a buy-write on CenturyLink (CTL).  This is a company that has been known as a telecommunications provider to rural areas and was heavily invested in the old “copper cage” technology.  They bought Level3 and shares have fallen by about half on concerns the company has too much debt.  The bond market disagrees and the bonds still sell for around par.  I expect the price to recover to 30 or so over the next couple years.  This provides an opportunity to write out of the money covered calls while collecting the excellent underlying 12+% distribution.  I purchased shares at 17.38 and sold CTL180525C00019000 for 24 cents a share.  The trade will be in force for 40 days and yields an expected 12.60% annualized if unassigned.  In the unlikely event shares rally to 19 in the six week period, the annualized yield will be 97.66%.

Devour your prey raptors!

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Friday Fixed Income

Three CEFs for your consideration.

music selection:  “Misunderstanding” — Genesis

Each Friday, I present three closed end funds invested in debt and debt like securities that are yield rich and attractively priced.  I keep a 40% allocation to this category and it has served me well.  Current projected 12 month distributions, dividends, and interest on my portfolio meets 112.98% of my budgetary needs.  This is my ‘sleep well at night’ allocation.

NexPoint Strategic Opportunities Fund (NHF) is a closed end fund that seeks current income with capital appreciation through investment in floating and fixed rate loans, bonds, debt obligations, mortgage backed and asset backed securities, collateralized debt obligations and equities.  It pays a managed distribution on a monthly basis.

  • Discount to NAV – 11.71%
  • Yield – 10.44%
  • Effective leverage – 14.77%
  • Expense ratio – 2.21%
  • Learn more

Brookfield Real Assets and Income (RA) is a closed end fund that seeks to achieve its investment objective by investing primarily in Real Asset Companies and Issuers.  It pays a income only distribution on a monthly basis.

  • Discount to NAV – 8.42%
  • Yield – 10.71%
  • Effective leverage – 21.08%
  • Expense ratio – 2.36%
  • Learn more

Eaton Vance Tax Advantaged Bond and Income (EXD) is a closed end fund that seeks to provide tax-advantaged current income and gains through the use of a tax-advantaged short-term, high quality bond strategy and a rules-based option overlay strategy.  It pays a managed distribution on a quarterly basis.

  • Discount to NAV – 7.86%
  • Yield – 12.07%
  • Effective leverage – none
  • Expense ratio – 1.45%
  • Learn more

Devour your prey raptors!

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Sell Puts Venator Materials (VNTR)

Opening a new position in Venator Materials (VNTR).

music selection:  “Turn The Beat Around” — Vicki Sue Robinson

weigh-in:  201.0 (3.6)

Venator Materials (VNTR) was spun off from Huntsman in August.  Huntsman retained 80% ownership but then began offloading shares in the public market.  Shares plummeted.  VNTR was also hit with a fire that shut down a key plant for months hurting shares further.  Today, shares have begun to recover.

VNTR is the world’s third largest producer of Titanium Dioxide.  This is a critical component in paints, dyes, and an additive to plastics, fiber products, and more.  Chinese production has been shut down (perhaps permanently) due to environmental violations that led to hefty fines and imprisonment of executives.  VNTR should see strong pricing going forward.

I sold VNTR180518P00017500 for 85 cents a share.  The trade will be in force for 40 days and yields an expected 44.32% while enjoying 6.98% downside protection.  I sold 9 contracts picking up 765 in income on 15,750 in capital at risk.  I expect to do well in this position and think I have something that is well differentiated from my normal fare.

Devour your prey raptors!

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Friday Fixed Income

Three more CEFs with high yields.

music selection:  “Dead And Bloated” — Stone Temple Pilots

Each Friday, I present three closed end funds invested in debt or debt like securities that are yield rich and attractively priced.  This is a category of my asset allocation I target at 40% of the taxable portfolio.  Importantly, even in today’s low interest rate environment, I am able to meet my entire annual budget and then some with just this 40% of my taxable accounts.  The rest is free to trade, or not trade as market opportunities dictate.  I would never have retired early with such a high withdrawal rate (north of 9%!) had it not been for this safety net.

NexPoint Strategic Opportunities Fund (NHF) is a closed end fund that seeks current income with capital appreciation through investment in floating and fixed rate loans, bonds, debt obligations, mortgage backed and asset backed securities, collateralized debt obligations and equities.  It pays a managed distribution on a monthly basis.

  • Discount to NAV – 11.11%
  • Yield – 10.46%
  • Effective leverage – 14.77%
  • Expense ratio – 2.21%
  • Learn more

Aberdeen Inc. Credit Strategies (ACP) is a closed end fund that seeks a high level of current income with capital appreciation through investing in a portfolio of senior loans.  It pays a income only distribution on a monthly basis.

  • Discount to NAV – 8.04%
  • Yield – 10.56%
  • Effective leverage – 30.07%
  • Expense ratio – 3.11%
  • Learn more

Brookfield Real Assets and Income (RA) is a closed end fund that seeks to achieve its investment objective by investing primarily in Real Asset Companies and Issuers.  It pays a income only distribution on a monthly basis.

  • Discount to NAV – 8.04%
  • Yield – 10.92%
  • Effective leverage – 21.08%
  • Expense ratio – 2.36%
  • Learn more

Devour your prey raptors!

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Write Put Sirius XM (SIRI)

My puts in SIRI expired over the weekend.

music selection:  “Shake Your Booty” — KC & The Sunshine Band

weigh-in:  204.6 (0.4)

Sirius XM is a great stock to write puts on.  The price action is slowly upward and stable and the premiums are fat.  My old puts expired safely out of the money and I’m going back for more.  I sold SIRI180511P00006000 for 23 cents a share.  The trade will be in force for 40 days and yields an expected 34.98% annually while enjoying 7.38% downside protection.  This is my seventh consecutive time writing options for income on SIRI and it is going quite well.

Devour your prey raptors!

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Financial Transparency as of 31MAR2018

Happy Easter Raptors!

music selection:  “Never Tear Us Apart” — INXS

ASSETS:

Wells Fargo (taxable): This is down 134 dollars, a 0.45% loss versus last month. The new mark is at 29,391.

Interactive Brokers (taxable): This is down 13,970 to 285,487 a loss of 4.67% versus last month. Rising interest rates have begun to impact my fixed income investments.  I have a few that are variable rate and they are curiously not rising yet.

Interactive Brokers (tIRA): I show 3,876 in gains here this month to 164,255 which is good for a 2.42% monthly gains. P&C insurers continue to treat me well with gains and low Beta.

Checking: I’m up here to 11,371 a gain of 7.58% on the month.

HSA: This account is down 267 dollars to 3,396.  That is a 7.29% decline.

Total Assets: I fell back below the half a million mark.  March finishes at 493,900. That is good for an overall monthly loss of 1.92%. I will continue to monitor trailing stops.

 

LIABILITIES:

House: Paid

Car: Paid

Taxes: This is a real bright spot.  I qualified for an Obamacare credit on my recent 2017 filing. I am rolling forward a prepaid tax asset of 11,945.

 

WITHDRAWAL RATE:

The budget is again set at 25,000.  Against a liquid networth of 493,900 that is a withdrawal rate of 5.06%.  Current annualized distributions, dividends, and interest come to 30,734 or 122.91% of budget. I also earned 5,325 in options income during March.  Annual options earnings are already 19,742 so I should easily cover the budget two times over this year.  That is a great comfort when my balances are declining as I know I will not be forced to sell low.

 

SPENDING:

It was a good month.  Spending was only 1,431 dollars for the month of March.  I am on pace to spend only 15,596 this year.  Next month will see an outgoing payment of 500 for income tax prepayments.

Devour your prey raptors!

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Friday Fixed Income

Three municipal funds for your consideration.

Each Friday, I highlight three fixed income closed end funds that are yield rich and attractively priced.  Since it is the last Friday of the quarter, I’m going to do something a little different and zoom in on three funds invested in federal tax exempt municipal bonds.  These do not belong in your tax advantaged accounts.  Yields are lower but these may be attractive if you are in a high tax bracket.

Nuveen AMT-Free Muni Credit (NVG) is a closed end fund that seeks current income exempt from regular federal income tax. The secondary investment objective is the enhancement of portfolio value.  It pays an income only distribution on a monthly basis.

  • Discount to NAV – 9.37%
  • Yield – 6.00%
  • Effective leverage – 39.20%
  • Expense ratio – 1.28%
  • Learn more

Blackrock Muni Holdings Quality (MUS) is a closed end fund that seeks current income exempt from regular Federal income tax through investment in investment grade municipal bonds. It pays an income only distribution on a monthly basis.

  • Discount to NAV – 7.26%
  • Yield – 6.09%
  • Effective leverage – 39.01%
  • Expense ratio – 1.93%
  • Learn more

Blackrock Muni  Yield Investment Quality (MFT) is a closed end fund that seeks current income exempt from regular Federal income tax through investment in insured investment grade municipal bonds.  It pays an income only distribution on a monthly basis.

  • Discount to NAV – 6.21%
  • Yield – 6.12%
  • Effective leverage – 40.36%
  • Expense ratio – 1.59%
  • Learn more

Devour your prey raptors!

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Michael Kors (KORS) and Prospect Capital (PSEC)

Shares of GRUB were called away over the weekend.

music selection:  “Queer” — Garbage

weigh-in: 205.0 (1.4)

I’m returning to holding a position in Prospect Capital Corporation (PSEC).  This is a business development corporation (BDC), that invests primarily in variable rate secured loans to mezzanine size firms.  These firms are generally too large to be serviced by regional banks but too small to draw the interest of investment banks to float a bond.  The corporate structure is similar to a REIT in that they can be federal tax exempt by distributing most of their earnings to shareholders.

I am going with a buy-write strategy, purchasing 1,400 shares to write covered calls against.  The shares were purchased at 6.65 and yield 10.83%.  That price is approximately 30% below the most recently published Net Asset Value.  I also sold PSEC180518C00007000 for 6 cents a share.  That trade will be in force for 54 days and yields a bonus 5.79% for an expected total yield of 16.62%.  That is a stunning yield for what is essentially a boring portfolio of senior debt.

I am also initiating a position in Michael Kors Holdings Limited (KORS).  This is a strong global brand selling men’s and women’s branded fashion accessories.  Margins are strong and the valuation is attractive.  Operation margins are 15%, the business returns 22% of revenue to shareholders via distributions and buybacks, and the enterprise value to EBITA is a scant 12.1.  At the same time, the stock is offering up plump options premiums.  I sold KORS180504P00062000 for 2.20 a share.  The trade will be in force for 40 days and yields an expected 32.38% annualized while enjoying 3.92% downside protection.

Devour your prey raptors!

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Friday Fixed Income

Three new possibilities in the CEF debt space.

music selection:  “Not Afraid” — Cilver

Each Friday I highlight three closed end funds invested in debt and debt like instruments.  These are safe high yield plays that can buttress an early retirement portfolio by making it completely unnecessary to sell shares to fund living expenses.  The next three are yield rich and attractively priced.

Franklin Limited Duration Income (FTF) is a closed end fund that seeks high current income and capital appreciation through investment in high yield corporate bonds, floating rate bank loans and mortgage and other asset backed securities.  It pays a managed distribution on a monthly basis.

  • Discount to NAV – 7.01%
  • Yield – 10.88%
  • Effective leverage – 23.57
  • Expense ratio – 1.35%
  • Learn more

Brookfield Real Assets and Income (RA) is a closed end fund that seeks to achieve its investment objective by investing primarily in Real Asset Companies and Issuers.  It pays a managed distribution on a monthly basis.

  • Discount to NAV – 10.56%
  • Yield – 11.06%
  • Effective leverage – 21.08
  • Expense ratio – 2.36%
  • Learn more

Eaton Vance Tax Advantaged Bond and Income (EXD) is a closed end fund that seeks to provide tax-advantaged current income and gains through the use of a tax-advantaged short-term, high quality bond strategy and a rules-based option overlay strategy.  It pays a managed distribution on a quarterly basis.

  • Discount to NAV – 9.41%
  • Yield – 12.31%
  • Effective leverage – none
  • Expense ratio – 1.45%
  • Learn more

Devour your prey raptors!

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New Trades On Seven Positions

Six positions expired over the weekend.

music selection:  “I Won’t Back Down” — Tom Petty

weigh-in:  206.4 +1.8 – doh!

I have several trades today.  The first five are simple covered calls and written puts.  The other two are spreads.  One is a diagonal call in a new position.  The other is a call ratio spread on an existing position that needs some TLC.

First is a covered put on my still open short position in AMCX.  I sold AMCX180420P00045000 for 25 cents a share.  The trade will be in force for 33 days and yields 6.14% annualized while leaving 4.92 worth of room for capital gains.  The AMCX position is 407 dollars in the green with this new 25 dollars collected.

My shares in ON Semiconductor (ON) were called away over the weekend.  I am writing new puts for ongoing income.  I sold ON180420P00025000 for 90 cents a share.  The trade will be in force for 33 days and yields an expected 39.82% annualized while enjoying 4.78% downside protection.  The next trade looks even better though!

My puts in Match Group (MTCH) expired out of the money.  As with ON, I am writing more puts for ongoing income.  I sold MTCH180420P00046000 for 2.09 a share.  The trade will be in force for 33 days and yields an expected 50.25% annualized while enjoying 4.54% downside protection.

My calls in Suncoke (SXCP) expired out of the money.  This is a metallurgical coal play that I’d describe as having only fair performance.  The share price is depressed a small amount but options premiums and the underlying yield of 12.7% have kept me in the black for over a year.  I sold SXCP180420C00020000 for 10 cents a share.  The trade will be in force for 33 days and yields an expected 5.53% annualized.  I remain eligible to collect the strong underlying distribution.

Shares of Blackstone (BX) were assigned over the weekend.  I am writing calls against the position for additional income while I hope to collect the underlying distribution yield of 10.06%.  I sold BX180427C00035000 for 30 cents a share.  The trade will be in force for 40 days and yields an expected 7.82% annualized.  I am happy to hold shares or be called so I can write new puts.

Next is a new position.  A diagonal call in Lam Research (LRCX).  LRCX is the company at the very bottom of the semiconductor industry food chain.  They sell the plasma etching and metallic deposition machines that Intel, ADM, and others use to manufacture chips.  It is a cyclical but high margin business that is in an upswing.  During downturns, they have a strong business servicing and repairing installed machines.  I bought LRCX200117C00085000 for 129.80 a share.  That is inclusive of merely 10 cents in time value.  I am getting leverage very cheaply here.  I also sold for income LRCX180427C00250000 for 2.40 a share.  The trade will be in force for 40 days and yields an expected 16.87% while leaving room for 16.33% in upside price appreciation.

Finally, I entered into a call ratio spread on Tractor Supply (TSCO).  This is a position that has moved sharply against me.  The income available on break even strike calls is trivial.  I’d like to earn that same income while getting some leveraged upside to allow me to exit this trade at break even at the 75 strike instead of the 80 entry strike.  To that end, I bought one call at 70 and sold two calls against the position at 75.  This combines a covered call with a bull call spread.  Everything over 70, up to 75, earns two to one.  Call TSCO181019C00070000 was purchased at 3.39 and calls TSCO181019C00075000 were sold at 1.85 each.  That yields a 31 cent per share credit to provide a little boost while I wait for the position to try to repair itself.

Devour your prey raptors!

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