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Buy Fannie Mae (FNMA)

Today, I’m joining Einhorn and other hedge funds in Fannie Mae speculation.

music selection:  “Garbage” — Blaze ya Dead Homie

weigh-in:  213.4 +2.0 – Too much pizza!

Fannie Mae (Federal National Mortgage Association) is the subject of a great deal of controversy.  After the bailout, the agency was still struggling to pay its preferred dividend to the government.  Just before the agency returned to profitability, the government changed the rules of the deal to a sweep of all profits.  The government is now reaping a massive distribution while shareholders are completely shut out.  There are numerous lawsuits underway challenging this scenario.  This article at WSJ explains it well.

FNMA is now profiting a couple billion dollars every quarter.  It has paid over 10 billion in dividend payments to the government in the prior four quarters.  If these dividends had been paid to investors instead, the imputed yield would be a little over 95%!  If the lawsuits are successful, the stock could easily gain 1000%.

This one isn’t for the rent money or anything you might want to return to cash in the next three years.  But for my money, it is a safe speculation that could pay off big.  I am committing 5,000 to stock.

Devour your prey raptors!

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MAA 30% SDLP 16%

I wrote contracts on two more tickers today.

music selection:  “Chalk Outline” — Three Days Grace

I had a couple trades that didn’t go through yesterday as I couldn’t get filled at an attractive price.  I got filled today at what I consider very attractive positioning.

First, I went a little bit into the money on MAA160916P00095000 as I’m hot to get assigned. I think Mid-American is well positioned for a long term trend of rising rents in the mid tier housing space.  I got 2 dollars a share for an annualized yield of 30.74%.  The trade will be in force for 25 days and enjoys 1.44% downside protection.

I also sold SDLP161021C00005000 for a dime a share.  The trade will be in force for 60 days.  Since my cost basis here is 3.74, the annualized yield 16.27%.  That is a nice bonus on top of the 10% distribution yield.  I also have room for some capital gains if oil prices continue to firm up.  I’m very happy to own this one at 3.74.

Devour your prey raptors!

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Update Discounted Bond

Two posts in one day!

music selection:  “Silver Lake” — Dark Moor (Spanaird Metal!)

Another sell limit order on a bond cleared today.  On 21DEC2015 I purchased the 8.875 coupon December 2020 maturity bond from Rex Energy (REXX).  I paid 2 dollars in commissions and 11.43 in accrued interest and 20.40 cents on the dollar for the rest.  Today, I sold the bond for 42 cents on the dollar.  I paid 2.75 in additional commissions and received 41.42 in accrued interest.  During the holding period, I collected 88.76 in coupon payments.

The trade was in force for 245 days and yielded 193.02% on an annualized basis.  Because you can take advantage of distressed sellers when entering the trade, the returns on discounted bonds are often better than those on equities or options.  There is risk so be sure to assess a ballpark estimate for whether there is sufficient collateral to satisfy your capital at risk before buying.

Devour your prey raptors.

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22AUG2016 Trading for Income

I rolled forward some trades from my Friday expiries.

music selection:  “Centuries” — Fall Out Boy

weigh-in:  211.4 (2.4) – w00T!

I sold BSM160916P00015000 for 30 cents a share.  Blackstone Minerals is an MLP that I have covered earlier.  It is a well run business yielding over 7 percent.  My trade yields a strong 28.08% on an annualized basis over 26 days and comes with 5.89% downside protection.

I sold covered calls on Genesis Energy, another MLP yielding over 7%.  I sold GEL160916C00037500 for 50 cents a share.  The trade will be in force for 26 days and yields 18.72% on an annualized basis.

I’m back with more PennyMac.  This one is a REIT that is a hedge fund favorite.  I sold PMT160916P00015000 for 25 cents a share.  The trade will be in force for 26 days and yields a very strong 23.40% annually while enjoying 2.32% downside protection.  I will be delighted if I get assigned and can begin collecting the 12% distribution while writing covered calls for extra income.

I topped of a position in Prospect Capital.  This one is a Business Development Company (BDC) that yields over 11%.  It is a little harder to get filled at an attractive price on this one but the market shined favor upon me today.  I sold PSEC160916P00008000 for 10 cents a share.  The trade will be in force for 26 days and yields 17.55% annually while sporting 5.5% downside protection.

I have to make a correction on Seadrill Partners (SDLP).  I thought I had puts that were due to be exercised on Friday but it turns out that limit order never cleared.  My records were incorrect.  So I’m trying to get into a buy/write covered call setup.  I bought 1300 shares of SDLP at 3.74 this morning. I have a 10.53% yield at that cost basis.  I was not about to get filled on a limit for front month covered calls.  I’ll go out another month tomorrow and try again.

My shares of SunCoke Energy Partners (SXCP) were called away over the weekend.  I still like the stock at the current valuation (and 18% yield!)  So, I have written some cash secured puts to try to get back in at an attractive price.  I sold SXCP160916P00012500 for 70 cents a share.  That trade will be in force for 26 days and [brace yourselves] yields 78.62% on an annualized basis while enjoying 4.68% downside protection.  This is a volatile stock that demands fat premiums.  I think the market is misassessing the risk involved here by lumping metallurgical coal in with thermal coal.  I expect to play this one for quite some time.

I also had a new limit order out today for Mid-America Apartment Communities.  This is a REIT that plays in the Mezzanine level apartment space.  It is neither slums nor luxury apartments but right in the middle where the average Joe lives.  It yields about 3 and 1/2 percent but should be able to grow distributions for years to come.  I was not able to get filled at my minimum required yield and will try again tomorrow.

Devour your prey raptors!

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Friday Expiries

I had some positions expire this afternoon.

music selection:  “Regular People (Conceit)” — Pantera

Covered calls in SXCP and PSEC expire with shares being called.  I’ll re-enter the positions on Monday with written puts.

Written puts in BSM, ARLP, and AHGP expired out of the money.  I will re-enter BSM on Monday but ARLP and AHGP have moved up into a less attractive price so I’ll let those go.

Written puts in GEL and SDLP closed in the money and will result in assigned shares.  I’ll write covered calls on both on Monday.

Devour your prey raptors!

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Update Discounted Bonds

I received shares from a bankruptcy agreement.

music selection:  “Drop Dead Legs” — Van Halen

Seventy Seven Energy went through a prepackaged bankruptcy about a month back.  My bonds are worthless (the debt was repudiated) and I received 65 shares of equity in lieu.  I’ve been holding off on reporting this because the shares were not trading until today so there was not a good way to estimate what the financial result would be.  Shares are currently trading for about 15 dollars.

On 8DEC2015, I paid 36.55 cents on the dollar for two bonds.  I paid 2 dollars in commissions, and 9.57 in accrued interest.  During the holding period, I collected 66.24 in coupon payments.  The trade has been in force for 254 days.  Assuming I sell tomorrow for 15 (and I hope to), the annualized yield will be 44.76%.

Value is what you get but price is what you pay.  You can often times get a very favorable price on discounted bonds because the original holders are forced hands.  In this case, even though I was “wrong” about the solvency of the company, I did very well.  That is the power of buying low.

Devour your prey raptors!

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Update UVXY Puts – 296.75% annualized return

I sold my long UVXY puts today for a 296.75% annualized return.

music selection:  “Knights Of Cydonia” — Muse

weigh-in:  213.8 +0.2 – disappointing result

UVXY is a volatility tracking index that is double leveraged.  It tries to mimic the movement in volatility by buying the 14 and 40 day VIX futures and rolling them daily.  Contango in the futures markets means that on  most days, the fund will sell a cheap asset to buy a more expensive one.  This has resulted in a great deal of decay in net asset value and share price over time.  Split adjusted, the price has fallen from 2,058,000 to about 20 since 2011.  That is not a typo.  It is a near sure thing to bet against this dog using long dated out of the money put options.  I have never lost money on that trade.

Today, I sold 123 of the (pre-split) 4 strike 19JAN2018 expiry puts for 2.45.  I originally purchased them on 22JUL2016 for 2.05.  I usually prefer to wait 30 days before rolling the trade but the strike moved into the money so I closed early.  The trade was in force for 24 days and yielded 296.75% on an annualized basis.  I pocketed 4,920 in profit.

I rolled forward by purchasing 37 contracts of UVXY180119P00013000 for 6.95 a share.  I like to go about 30% out of the money on the longest dated expiry available.  I’ll be looking to hold 30 days or until the strike moves into the money.  Whichever comes first.

Devour your prey raptors!

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Write Put American Express (AXP)

I wrote a put on American Express (AXP).

music selection:  “Scars” — Papa Roach

weigh-in:  213.6 (2.6)

American Express is a great credit card company to own.  It has a closed loop as both the card and the processor so it earns more fees than Visa or Mastercard.  It also charges cardholders an annual membership fee for an extra revenue stream.  It’s customers are more affluent than those of other cards and it has superior collection results as a result.

Operating margins are around 25% and annual free cash flow is close to 8 billion a year.  The P/E is a lowly 11.65.  I think AXP is being unfairly punished by a market that is high on alternative forms of payment like PayPal, Apple Pay, and crypto-currencies.  I’m getting in.

I sold AXP160916P00065000 for 1.09 a share.  The trade will be in force for 40 days and yields 15.3% on an annualized basis while enjoying 2.46% downside protection.

Devour your prey raptors!

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Update Discounted Bonds

I sold another bond today.

music selection:  “The Air That I Breathe” — All That Remains

I’ve had a good till canceled order open on the Natural Resource Partners bond for awhile and today it finally cleared.  I originally purchased the bond on 20NOV2015.  I paid 68 cents on the dollar, 2 dollars in commissions, and 27.38 in accrued interest for two units.  Today, I sold for 85 cents on the dollar.  I paid 7.75 in commissions and received 65.40 in accrued interest.  I also received 45.62 in coupon payments during the holding period.  The trade was in force for 259 days and yielded 41.98% on an annualized basis.

Devour your prey raptors!

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Update Apple (AAPL)

My shares of Apple were called early.

music selection:  “Just Like Me” — L7

I got notification this morning that my shares were called overnight.  The trade was opened on 18JUL2016 and paid 1.98.  That was 16 days in force.  Against my cost basis of 100, the annualized return on that call was 45.17%.  I also picked up one dollar in short term capital gains.

I got back into the position by selling AAPL160916P00105000 for 2.36 a share.  That trade will be in force for 44 days and yields 18.65% annualized.  The trade enjoys 2.48% downside protection.  Apple remains very cheap after backing out the cash on the balance sheet.  I expect to be able to play this one for a long time.

Devour your prey raptors!

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