Four new options positions.
music selection: “For You” — Staind
weigh-in: 212.4 (0.8)
Prospect Capital Corporation (PSEC) is a range bound stock that offers opportunities to buy around 8 and sell around 9. Price has fallen back to close to 8 so I’m writing puts to try to get assigned. Assignment will result in a yield of 12.5% while I write covered calls at 9 waiting for a profitable exit. I sold PSEC170721P00008000 for 20 cents a share. The trade will be in force for 40 days and yields 22.81% on an annualized basis while enjoying 3.23% downside protection.
With Oracle (ORCL) I’m getting back to my roots of writing puts on Big Cheap Tech. There are several dominate businesses in the tech space that are quite a lot like digital utilities in that they sell an essential service and have stable mature businesses. They tend to have options premiums that reflect their early go-go growth days though so offer an excellent balance between safety and return. I sold ORCL170721P00044000 for 1.42 a share. The trade will be in force for 40 days and yields 29.45% on an annualized basis while enjoying 3.27% downside protection.
I was assigned shares of Archer Daniels Midland (ADM) over the weekend. My thesis here is that Big Corn is here to stay and has a strong tailwind in the form of a growing middle class in India and China. I sold ADM170721C00045000 for 29 cents a share. The trade will be in force for 40 days and yields 5.88% annually. Until shares are called away, I stay eligible to collect the 3% dividend yield.
EOG Resources (EOG) was assigned to me in a prior month. A covered call expired out of the money over the weekend so I am writing a new one. I sold EOG170721C00095000 for 1.35 a share. The trade will be in force for 40 days and yields 12.97% on an annualized basis. I have collected 5.65 in options premiums on EOG to date or almost 6% of my cost basis. All since just mid March.
The four positions have a simple average annualized return of 17.78%. After adjusting for a 25% marginal tax rate, my return is 13.33% on an annualized basis which far outstrips the long term average of buy and hold S&P indexing. At the same time, I have reduced my risk and lowered my Beta. That is the goal of selling options for income.
Devour your prey raptors!