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Friday Trades PSEC, BPT, GEL, MAA, CNNX, DLR, NAP

I rolled several positions on Friday.

music selection: “Nikita” — Elton John with George Michael (In Memorium)

weigh-in:  210.4 (3.8)

Shares of PSEC were called away and I am getting back in by writing an in the money put.  I sold PSEC170120P00009000 for 70 cents a share.  The trade will be in force for 29 days and yields a very strong 97.89% annualized while enjoying 1.31% downside protection.

I sold puts on BPT on Friday as well.  The last set of puts expired out of the money so I have had to increase the strike.  I sold BPT170120P00025000 for 1.25 a share.  The trade will be in force for 29 days and yields 62.93% annualized while enjoying 7.05% downside protection.

A covered call expired out of the money on GEL.  I wrote a new call on Friday.  I sold GEL170120C00037500 for 15 cents a share.  The trade will be in force for 29 days and yields 5.03% annually.

A covered call expired in the money and I’m going back to the well.  I sold MAA170120P00095000 for 2.15 a share.  The trade will be in force for 29 days and yields 28.48% annualized while enjoying 3.19% downside protection.

A put on CNNX expired out of the money so I’m writing a new one for more income.  I sold CNNX170120P00022500 for 30 cents a share.  The trade will be in force for 29 days and yields 16.78% annualized with 5.45% downside protection.

A put on DLR expired out of the money.  I’m using the same strategy again.  I sold DLR170120P00095000 for 1.80 a share.  The trade will be in force for 29 days and yields 23.85% annualized with 4.06% downside protection.

A new position for me is Navios Maritime Midstream Partners (NAP).  This is a hydrocarbon shipping company that is well positioned to profit from increased exports from the US to Europe. The underlying stock yields 15.50% and is very attractive as an income producing investment.  I can do better with options though.  I sold NAP170217P00010000 for 50 cents a share.  The trade will be in force for 57 days and yields 32.02% annualized while enjoying a very strong 11.63% downside protection.

The simple average annualized return of the above seven investments is a powerful 38.14%.  All of this comes with front loaded cash flow and downside protection simple longs do not enjoy.  I hope you can see why I think the 4% rule is unreasonably conservative for an options investor.  In my opinion, much higher withdrawal rates can be sustained.

Devour your prey raptors!

{ 3 comments… add one }
  • Chris B December 27, 2016, 5:51 pm

    All your naked positions are puts. I wonder if you could offset the systemic risk of a market decline by buying a few calls in SPY or similar with low bid/ask spreads?

    That also makes me wonder if options pricing models adjust to the season of low volatility traditionally seen in late Dec. Or does the reduction in participants just increase the spread?

    • Chris B December 27, 2016, 5:53 pm

      *buying a few PUTS

      • The Lizard King December 27, 2016, 10:21 pm

        Being net short volatility is a feature not a bug. The majority of the portfolio is in conventional long positions with no options offset. The options positions provide immediate income and thereby lower risk at the expense of capping upside gains. This is where I want to be as it mitigates sequence of returns risk in the portfolio.

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