≡ Menu

Buy/write PennyMac Mortgage Investment Trust (PMT)

I redeployed some of the cash from the JNJ sale into PMT this morning.

music selection:  “Walk This Way” — Aerosmith

weigh-in: 218.4 (0.0) — no change from prior week

PennyMac first came to my attention in a 13F filing by Leon Cooperman (Omega Advisors), famous for founding the asset management arm at Goldman Sachs and now as a top hedge fund manager.  That was quite an endorsement for me.  PMT is a mortgage REIT based in California and is mostly invested in residential mortgages.  It has an attractive 12.86% yield.  Somewhat unusual for a REIT under 2 billion market cap, options are available providing an opportunity to create a real cash flow machine.

I’m taking just  nibble for now with a purchase of 100 shares at 14.69.  I collected 22 cents in immediate income by selling PMT151120C00015000.  The annualized yield over the 19 days the trade will be open is 28.77%.  This is an income play rather than a growth play so covered calls and cash secured puts will be written at the money.

I have two more trades today to deploy my recently available JNJ funds from the exercise of the covered call.  I’ll be posting about those on Wednesday and Friday.

Devour your prey raptors!

{ 3 comments… add one }
  • Elysian Fields November 3, 2015, 3:25 pm

    Hi Raptor,

    I discovered your site from MMM and enjoying reading your articles. I’m cash-poor / fully invested right now, but as it’s the end of the year, it’s time for my portfolio review and maybe some gain / loss harvesting to free up some cash to try my hand at option writing. I’ve been an IB customer for years, they rock.

    On a somewhat different tack, I’m wondering whether you’ve ever tried ETF arbitrage. I use ETFs for my (still somewhat small) HSA portfolio but often find a huge premium over the IIV for some of them (VEA is my current headache). I end up putting in GTC bids at the IIV, but when the ETF trades at 20-25 cents more a stub, I end up waiting long times for a fill. Isn’t there an angle at making money on the arbitrage here?

    I’ve read a bit elsewhere about SPY/IVV arbitrage, but it seems as if you have to monitor prices very closely as the difference can close in as little as a few minutes.

    Cheers,

    Elysian

    • The Lizard King November 3, 2015, 4:39 pm

      Welcome Elysian Fields!

      I’ve never tried to arbitrage ETF’s trading above NAV. Theoretically, you could buy all the underlying securities with funds from shorting the ETF. You’d profit as the spread closed. But what a hassle. That’s the type of trade ruled by mostly big hedge funds with computerized trading that can flip positions in milliseconds. I don’t think it would be worth much doing it manually. Selling options is pretty simple and only requires one transaction once a month or so. No computer programming required!

      Glad to have you.

Leave a Comment

CAPTCHA
*