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Covered Call Archer Daniels Midland Co. (ADM)

I failed to get filled when rolling this position yesterday.

music selection:  “Gemini” — Slayer

ADM has sort of languished recently.  It is a stock with a great future because China and India will consume more grain per capital over the next decade as roughly a billion people ascend from poverty to the Middle Class.  I am seeing some short term pain however.

I sold ADM171124C00045000 for 58 cents a share.  The trade will be in force for 39 days and yields 12.06% annualized.  Overall, the position in ADM is now up 220 dollars.  That is about 2.44% gross and 6.80% annualized.  Life isn’t so bad when a meager profit represents one of your “failures” as an investor.

Some of you may have noticed the site was down briefly.  Word from my hosting provider is the server was subject to a DDoS attack from the Ukraine.  These things happen from time to time.

Devour your prey raptors!

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Sell Monsanto (MON)

Monsanto is fully valued.

music selection:  “Hush” — Deep Purple

weigh-in:  203.0 (2.0) – yeah!

Back on 6MAR2017, I bought 87 shares of MON for 114.60.  The thesis was that Bayer was making an all cash buyout offer at 122 dollars a share.  The offer was tentatively accepted by the Monsanto board and looked liked to successfully complete.  I saw some easy merger arbitrage money on the table and decided to deploy some capital.

On Friday, Bayer cleared up the last of the market uncertainty on whether the deal would be approved by regulators and whether they would be able to come up with the cash by divesting of the assets most likely to be of regulatory concern for almost 7 billion in cash.  Shares jumped about 4% to a hair over 122, the offer price.  Shares were fully valued and it became time to cash in.

Today, I sold MON for 122.50 a share.  Along the way, I collected 1.62 in dividends.  The trade was in force for 224 days and yielded 13.54% annualized.  Not bad for a low risk trade.

Devour your prey raptors!

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Write Puts GrubHub Inc. (GRUB)

Choosing a high growth company for today’s trade.

music selection:  “The Thunder Rolls” — Garth Brooks

weigh-in:  205.0 +0.8 – I blame yesterday’s gourmet food truck grilled cheese.

GrubHub is a fast moving company in the sharing economy space.  They have a popular cell phone app for ordering food delivery.  Top line growth is in excess of 30% a year.  Unlike most high growth companies, GRUB delivers solid free cash flow performance.  They can support their growth organically without buying out competitors or racking up burdensome debt.  The valuation looks a little frightening at a P/E over 75 but I think it is justified in this case.  To my way of thinking, the market is not yet pricing in the value of the company’s data.  They know who is eating what and where and that information is going to be very valuable to the competitive restaurant business.  Sooner or later, they will monetize.

I sold GRUB171117P00050000 for 2.45 a share.  The trade will be in force for 40 days and yields 44.71% annualized (nice!)  The trade also enjoys 7.47% downside protection against a decline in share price.  This one is going to be volatile.  It will support high premiums for some time but will eventually result in an unfavorable assignment.  I will write covered calls while waiting for price recovery.

Devour your prey raptors!

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Five Years

Today marks Five Years of financial freedom.

music selection:  “For My Sake” — Shinedown

It was 5OCT2012 when I walked out of the office at Baker Hughes for the final time.  I was on the insider roster and trusted with all kinds of important company secrets but they escorted me out anyway.  Just in case I had a mind to steal a coffee pot or something on the way out.  Huge faceless corporations are peculiar creatures.

I celebrated today with a McDonald’s Egg and Sausage McMuffin for breakfast around 10:00 AM and then a glorious nap.  Because I can do that on any given Thursday now.  Let me tell you.  It feels great.

I tell you these things not to brag but to motivate.  The people in my personal circle are doing very little to secure their retirement in most cases.  They overspend.  They under-invest.  And they bust their butts trying to make as much money as they can in a career they hate.  That is no way to live.

So I offer the Velociraptor Challenge today.  Declare your intentions in the comments.  What is your target date to walk away from conventional work for good?  Take a stand.  And…

Devour your prey raptors!

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Update UVXY

I rolled UVXY today.

music selection:  “Tales Of Brave Ulysses” — Cream

weigh-in:  204.2 (0.4)

I’ll get to UVXY shortly but first up is SIRI.  My old position expired in the money over the weekend and shares were called away.  I wrote a new put to stay in the trade.  I sold SIRI171110P00005500 for 19 cents a share.  The trade will be in force for 40 days and yields 31.52% annualized while enjoying 3.63% downside protection against a decline in share price.  Very tasty.

I had a good till canceled sell order open on my UVXY puts at 12.55 which triggered this morning.  It is important to use a limit order and not pay the bid/ask spread.  But I don’t think I’ll use a good till canceled order again.  Contracts were going for 12.74 shortly after my shares cleared at open so it looks like I left some money on the table in exchange for some minor convenience.

The contracts were originally purchased at 11.57 on 12SEP2017.  Selling today at 12.55 resulted in the trade being in force for 20 days.  The annualized yield is 154.58%.  Very nice!  That soothes my butthurt over leaving some money on the table.

I’m going to do some A/B testing to see if it makes sense to go into the money on this trade instead of always going out of the money.  Somehow, I have never tried this.  I bought this morning, UVXY190118P00015000 for 8.55 a share.  I also bought half as many contracts of UVXY190118P00025000 for 16.80 a share.  On the first, the time value will increase as the underlying decays.  On the second, the opposite will happen but that will be offset by gaining intrinsic value as this contract is already in the money.  The second contract also starts off with a penalty of requiring more capital outlay to enter.  I think from some paper trading assuming the middle of the bid/ask spread that the returns will actually be very similar.  If I am right, I will switch to going in the money as this is a move that also reduces risk.

Devour your prey raptors!

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Financial Transparency as of 30SEP2017

Almost 1 percent growth on the month

music selection:  “Splish Splash” — Bobby Darin

ASSETS:

Wells Fargo (taxable): This finished the month at 31,588, down from 31,667 last month. The account is up 2,454 on the year or 8.42%.

Interactive Brokers (taxable): This finished the month up 1.47% at 311,577. The account is up 42,051 on the year or 15.60%.

Interactive Brokers (tIRA): This one was down 326 dollars to 156,783. Gains for the year come to 16,556 or 11.81%.

Checking: Cash on hand is up 872 dollars to 13,568. The change in cash since the beginning of the year is 5,125 or up 60.70%.

Total Liquid Networth is up 4,987 on the month to 513,516. Total gains for the year are 66,196 or 14.80%, which annualizes to 19.73%.

 

LIABILITIES:

No real changes here.

Home – Paid

Car – Paid

Income tax liability is still tracking around 11,000 for the year and I should have that much prepaid by the January 15 deadline.  If the market kicks me in the teeth on any of my long or short positions, I’ll take my lumps and harvest the tax loss to reduce this burden.

 

WITHDRAWAL RATE:

I am budgeting 25,000 for annual spending.  Against a liquid networth of 513,516, my withdrawal rate is 4.87%.   Projected 12 month distributions, dividends, and interest come to 29,858 or 119.43% of budget.  I picked up an additional 1,071 in options income during the month.  Average monthly options premium income annualizes to 29,161 or 116.64% of budget.  My cash spending needs are well met and I’m picking up strong growth to insulate me against inflation and the inevitable downturn.

 

SPENDING:

Spending for the month came to 1,407.  That is my second best month so far this year, trailing April’s 1,233.  Spending will be higher during the later months of the year as I contend with home insurance and real estate taxes.  I am on track to finish almost 5,000 under budget.  That is going to be helpful next year when I expect a much higher out of pocket for Federal Income Tax.

Devour your prey raptors!

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Stopped out General Motors (GM)

I hit my stop loss on GM.

music selection:  “Don’t Dream It’s Over” — Crowded House

I sold shares of General Motors (GM) short on 10OCT2016 for 32.32 a share.  The thesis is the growing amount of deep subprime lending is destined to end badly for the big auto makers.  I still believe in that thesis and see used car prices are beginning to fall.  But Mr. Market is feeling euphoric about Detroit.  I hate to realize the loss but I respect my stops.  I’ve learned the hard way on that point.

I bought to close today at 40.42 a share.  The trade was in force for 353 days and yields a negative 26.49% annualized.  I am recording a loss of 1,255 on the transaction.

I am still in Ford (F) and have a 13.68 stop loss on the short.  Shares closed yesterday at 11.96, so I still have some wiggle room.  Here’s to hoping F works out better for a lizard.

Devour your prey raptors!

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Monday Trades BX and ORCL

Blackstone expired out of the money over the weekend.

music selection:  “Wolves At The Door” — Bad Seed Rising

weigh-in:  204.6 +0.2

Blackstone (BX) has disappointed but thanks to options premiums, I’m roughly breakeven on the position.  My covered call expired out of the money over the weekend.  This morning, I sold BX171103C00034500 for 27 cents a share.  The trade will be in force for 40 days and yields 7.14% annualized.  I remain eligible to collect the 6.6% annualized return on the underlying distribution.

I also decided to get back into the Big Cheap Tech theme with written puts on Oracle (ORCL).  Oracle is a mature business that is still growing and sports fat cash flows.  It also rewards shareholders.  I sold ORCL171103P00048000 for 1.09 a share this morning.  The trade will be in force for 40 days and yields 20.72% annualized while enjoying 2.21% downside protection against a decline in share price.  I’ve done very well with this theme in the past and expect to continue to do so.

The simple average for today’s trades is 13.93% annualized.  I collected 299 dollars of instant income that is mine to keep regardless of how the trades ultimately work out.  This upfront cash payment leaves me with lower risk than buy and hold investors.  That leaves me a happy lizard this morning.

Devour your prey raptors!

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Investing in the Financials Sector. My Thoughts And Picks.

The following is a guest post by Patty Moore of Working Mother Life. Show her some love with some traffic to her blog.


By Patty Moore

The financials sector includes a wide range of organizations, including:

  • Asset management companies
  • Banks
  • Consumer finance
  • Custody banks
  • Finance exchanges
  • Insurance
  • Investment banking and brokerage
  • Mortgage finance companies
  • Mortgage REITs
  • Thrifts

As of August 22, 2017, the Dow Jones U.S Financials Index has had a 12-month return of 19.93 percent. During the same period, the S&P 500 Index had a 12.35 percent return.

Outlook

The intermediate-term bullish case for the financials sector stems from several factors:

  • Rising yields: Unlike most other sectors, the financials do well when yields rise, which translates into higher income from interest. A forecast for higher interest rates is therefore bullish for the sector, which bodes well for the sector in the intermediate term. The Federal Reserve is expected to continue boosting interest rates, albeit at a slower pace than previously thought.
  • Consumer spending: Another bullish factor is the continued strength of consumer spending that benefits consumer finance companies and mortgage lenders, among others.
  • GDP growth: The quickening rate of GDP growth increases the demand for commercial credit as businesses continue to launch and expand.
  • Deregulation: Finally, the Trump administration’s war on regulation will likely increase profits in the financials sector.

These factors suggest that now could be a good time to invest in this sector.

Nevertheless, investors must always pay attention to short term trends, which have been volatile as of late. Recently, yields have dipped and the yield curve has flattened, although long-term rates seem to be rebounding. A little patience is likely to be rewarded, due in part to continued economic growth and a tight job market. These are inflationary trends, which will inevitably steepen the yield curve, push up interest rates and expand sector profit margins.

Stocks to Consider

Lenders in both the personal and commercial markets should continue to benefit from the growing economy. Here is a summary of three leading companies.

LendingTree

LendingTree (TREE) operates in the online loan marketplace, including personal loans, mortgages and home equity loans, reverse mortgages, credit cards, business loans, auto loans, insurance and student loans. In addition to its wide range of offerings, LendingTree is well known for its online tools, services and tutorials, covering topics such as free credit reporting, credit repair, debt relief and home improvement. LendingTree acts as an agent that provides loan products from a large network of competing lenders. The online marketplace allows customers to shop for loans from home and to easily compare competing offers.

LendingTree’s trailing twelve month (TTM) results outpaced the average from the thrift & mortgage finance sector. TREE had TTM earnings per share of $2.36, versus the industry average of $1.25. Its stock price rose more than 120 percent over the prior 52 weeks. The stock merits attention due to the company’s strong return on capital and robust profit trend. LendingTree has a high price/earnings ratio that is about four times higher than the industry average. Temporary price weakness would allow investors to purchase TREE shares at a lower P/E ratio.

LendingTree appears well-positioned to continue profiting from the high demand for credit, especially for home purchases. High rents and low inventory levels provide demand and supply factors that favor higher home prices and larger mortgages. The automobile industry is in bullish cycle, creating strong demand for car loans. Barring a sudden economic collapse, LendingTree stock offers investors a convenient way to diversify into several different financial markets.

LendingClub

LendingClub Corporation (LC) is an online peer-to-peer lender that allows investors to fund personal loans, small business loans, auto refinancing and medical patient financing. Personal loan proceeds up to $40,000 can be used for any purpose, such as credit card paydown, debt consolidation, home improvements or major expenses. LendingClub is on its way out of a multi-year period of bad press. The company’s CEO had been fired for fault loans, and its rankings slipped across the industry. But the dust has settled and the management team has been increasingly positive on the last two conference calls.

LendingClub stock gained more than 11 percent in the last 52 weeks. The company has a small EPS loss on a TTM basis. LC’s gross margins have beaten industry averages for the last five years. Its TTL gross margin is 97.5 percent versus 76.6 percent for the industry. The high gross margin is a reason to buy shares in LendingClub despite its negative EPS number. In terms of timing, its forward-looking P/E ratio of 36.0 is at a 52 percent discount to its five-year average of 75.5. LC is a relatively volatile stock with a beta of 1.79 compared to the S&P 500, making it appropriate for aggressive investors.

SLM Corp

Sallie Mae was a government-supported agency that split into two for-profit corporations in 2014. SLM Corp (SLM), one of the spinoffs, is a provider of private student loans. It also offers savings products, such as CDs, money market accounts and high-yield savings accounts. SLM TTM EPS is $0.62, compared to a consumer finance industry average of $4.81. Its TTM EPS growth is 12.73 percent versus -4.64 percent for the industry. The stock price climbed more than 41 percent over the last 52 weeks.

SLM has an exceptionally strong TTM profit margin of 43.51 percent versus the industry average of 32.62 percent. It also has an excellent return on sales (20.93 percent vs 13.57 percent). SLM offers competitive private student loans for those who cannot access federal loans. Continued economic growth and the growing wage gap between college graduates and those who never graduated college bodes well for student loan demand, and SLM should continue to earn its share. Stock ownership gives investor exposure to this important financial market.

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Roll Celgene (CELG) diagonal up and out

The Celgene diagonal is threatening to have the short call move into the money again.

music selection:  “Seasons” — Chris Cornell

Celgene (CELG) has been on a tear since I opened a diagonal call on it on 15AUG2017.  I’ve already had to put more money in the trade once and now I’m going to have to do so again.  A real case of First World Problems.  My short call (CELG171013C00145000) was within 50 cents of being in the money so I bought it back for 2.48 a share.  Original proceeds were 2.00 a share so I take a 48 dollar short term capital loss of the short call.

I sold CELG171027C00150000 for 2.05 a share.  The trade will be in force for 38 days and yields 24.96% annualized assuming a 78.90 cost basis for my long call.  On net, I’m out 43 dollars to roll this trade.  I have earned another 5 dollars or so in capital appreciation on the long call however.

A total of 15 dollars have been added to the trade since opening (128 gain, 100 loss, 43 loss).  The cost basis is 78.90.  Capital appreciation for the duration of the trade is 12.10 a share.  Over 37 days, that comes out to 128% annualized.  It is still early in the trade and the annualized return is likely to fall as it is improbable that CELG will continue to gain 5 dollars every 6 weeks for the long term.  However, I expect to continue to do well.

Celgene has a fat pipeline of potential blockbuster drugs and a profitable business in several stellar cancer drugs.  The share price should be much higher by the time the long call expires in January 2019.  Because I hold a call to secure the trade instead of shares, I have leveraged exposure to those gains.  With any luck, the short calls will start to generate some net income as well instead of requiring me to put more money out of pocket to stay in the trade.

Devour your prey raptors!

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