≡ Menu

Monday Trades SM, CNNX, SDLP, YINN

Four new trades to start the week.

music selection:  “Stairway To Heaven” — Led Zeppelin

weigh-in:  211.6 (0.8) – three consecutive weeks of progress!

SM energy is doing quite poorly for me.  I wrote a covered call on my shares to earn a few pennies while I wait for recovery. I sold SM170721C00022500 for 5 cents a share.  The trade will be in force for 33 days and yields a paltry 2.46% annualized.  It is more than I’d make by sitting on my hands though.

I am getting back into CONE Midstream LP (CNNX) after some price weakness.  This one seems to fall with the price of oil even though it is backed by midstream assets that process mostly natural gas.  I sold CNNX170721P00020000 for 1.30 a share.  The trade will be in force for 33 days and yields 71.89% on an annualized basis while enjoying 0.74% downside protection.  This one was written well into the money to ensure assignment and access to a 6% and growing distribution.

My written puts in SDLP expired out of the money and I have written more to keep the strangle position open.  I sold SDLP170915P00002500 for 15 cents a share.  The trade will be in force for 89 days and yields 24.61% annualized while enjoying 29.64% downside protection.  This one may look a little risky as offshore drilling assets aren’t fetching the huge premiums they once did with oil at 100 dollars a barrel.  But the lowest this one got with oil much lower than today was 2.70.  Assignment at 2.50 would result in a 16% annualized distribution yield while allowing additional income to be earned from covered calls.  I like my chances here.

The simple average of these three positions is an annualized return of 32.99%.  Even after deducting short term capital gains tax, this is likely to well outpace buying and holding a broad index.  That is the magic of selling options for income.  Higher returns with lowered risk.

I am also making a special situations play with a synthetic long at the 22 strike for YINN.  That is a triple levered  instrument invested in Chinese equity.  The MSCI votes tomorrow on whether to finally include Chinese equities in its global indexes.  Literally trillions of dollars follow the MSCI global indexes.  With China deserving a roughly 25% weight, this would mean hundreds of billions of dollars would have to flow into Chinese equity over the next 18 months.  I’m taking a small chance on what could be some easy gains driven by a structural inefficiency in the market that will pay off regardless of the strength of the underlying Chinese economy.

Devour your prey raptors!

{ 3 comments… add one }
  • Chris B June 20, 2017, 7:11 pm

    Would you say your portfolio is overweight the energy industry because of high dividends and implied volatility? I know it seems that crude oil can’t fall much further, but are you concerned about the correlation of these assets? I’m not looking at position size, but it sounds like you have a lot of short puts bet on one industry.

    • The Lizard King June 20, 2017, 7:17 pm

      Chris,

      I think its fair to say I’m overweight Oil and Gas. It is mostly midstream assets which have profit streams that are largely isolated from commodity pricing pressure. They are toll roads. I cut my teeth on that industry and feel comfortable there. Could be a dangerous bias I need to move away from.

  • The Lizard King June 20, 2017, 10:02 pm

Leave a Comment

CAPTCHA
*