≡ Menu

PennyMac Mortgage Investment Trust (PMT)

Today is ex-div day for PMT and my shares were called away.

music selection:  “Good Times” — Chic

One of the risks you take with writing a covered call is that shares can be called away early on or before the ex-div date to allow the counterparty to collect the distribution.  Whenever the dividend rate is higher than the remaining time value on the contract, it makes sense for the counterparty to exercise.  I came away with a capital gain but missed collecting a second distribution.  I was well compensated for taking this risk however.

The shares were originally purchased on 9JAN2017 at 16.69 a share.  They sold today for 17.50.  Along the way, I collected covered call premiums of 25 cents, 10 cents, and 35 cents.  I also collected one 47 cent distribution.  That is a total of 1.98 a share over 183 or 23.66% annualized.  I did quite a lot better than regular holders of PMT over the period and had lower risk at the same time thanks to my premium income.  That is exactly the way covered calls are supposed to work.

I wrote a new cash secured put on PMT this morning.  I sold PMT170818P00017500 for 38 cents a share.  That trade will be in force for 39 days and yields 20.32% annualized while enjoying 4.04% downside protection against a downward move in the underlying.  Twenty percent is an excellent return and well outpaces the long term average of buy and hold S&P investors.  I’m happy with this risk-reward profile.

Devour your prey raptors!

{ 5 comments… add one }
  • Chris B July 12, 2017, 3:39 pm

    Looks like a good play. Another mortgage crisis would take longer than 39 days to play out anyway. I’m considering a similar move.

    • The Lizard King July 12, 2017, 9:29 pm

      Mortgage debt is much lower than the 2008 crisis. Three areas have made up the difference and then some: student lending, sub-prime auto lending, sub-prime credit card lending. I think we are clearly approaching a new debt bubble.

      • Chris B July 13, 2017, 3:01 pm

        If that’s the case, the contagion would quickly move to other categories of consumer debt IMO, even if they were performing well. PMT will move based on their own or investors’ write downs, not necessarily actual foreclosures.

        I’ll never forget the lesson of owning WMT stock during the tech bubble, thinking I was immune because I wasn’t in tech, and watching it fall 35% anyway. Different domain, same lesson.

  • Vish July 22, 2017, 10:06 pm

    Playing the options game now, after 2 years. Selling fear is good, had to have a paradigm shift in thinking , coming from a DGI perspective.

    Sold the same PMT contract , for a slightly higher price
    Thanks

Leave a Comment

CAPTCHA
*