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Assigned shares of Sirius XM (SIRI)

My SIRI put expired in the money over the weekend and was assigned.

music selection:  “Black Sheep” — Metric

weigh-in:  204.8 (0.2)

I was assigned 1,800 shares of Sirius XM (SIRI) over the weekend with a cost basis of 5.50 a share.  Sirius is a fine company with great scalability and strong cash flow but I’m more interested in the fat options premiums it supports.  I sold this morning, 18 contracts of SIRI171222C00005500 for 14 cents a share.

The trade will be in force for 40 days and has an expected annualized yield of 23.23%.  I collect 252 in instant income that is mine to keep win, lose, or draw.  Importantly, the expected yield trounces the long term return of the S&P easily.  I’d much rather invest this way than to buy and hold the index.  My returns are better and because of the upfront income, my risk is actually lower.

I got a little bit of bad news from my broker.  Interactive Brokers is no longer going to allow any type of partnership holdings in its tax advantaged accounts after the 30th.  I will have to exit my UVXY long put trade by then and find a way to redeploy the funds.  With some excess cash I have on hand in that account, I expect to have about 20,000 to deploy.

I am currently leaning towards adding more insurance exposure with that 20k.  When they are underwriting properly, insurance companies are powerful compounders of wealth.  The float serves as a margin loan with a negative interest rate.  Even very conservative insurance companies that put most of their float in bonds can do very well.  I like Arch Capital Group (ACGL) and HCI group (HCI) for their long history of profitable underwriting and strong growth in book value per share.  Both appear to be attractively priced.  I’ll keep you posted on what I do once I exit the UVXY position held in the tIRA account.

Devour your prey raptors!

{ 10 comments… add one }
  • Chris B November 13, 2017, 5:29 pm

    I’m intrigued by the idea of using puts and calls to rotate in and out of stocks as you are doing. Returns are good, as also supported in theory by the market’s well documented tendency to slightly overprice volatility. The only problem is that as long as you’re selling options, you are essentially long the stock.

    I’m thinking about butterflies and condors, which can be inverted bullish or bearish. A portfolio mix of these, with some long and some short at any given time, might be a good way to detatch oneself from market outcomes.

    The news from your broker strikes me as odd. I wonder if this was a regulatory change, or if IB just decided to screw up its customers? Definitely affects my thoughts about migrating to them.

    What was the annualized return of the assigned put? E.g. if you had decided to sell this morning and write another put?

    • The Lizard King November 13, 2017, 11:11 pm

      Chris,

      You can invert the strategy and go short easily enough. Start by writing a naked call. If you get assigned short, write a ‘covered put’ to exit the trade. Put/call parity says the return should be similar to the opposite strategy. Expect some drag in the form of borrowing fees when you are short the underlying though. And of course, your risk is uncapped that way.

      I’m not sure how to best calculate your question. I wrote puts that went unassigned before I got into the trade. There is a multiple month long string of trades to unwind. But theoretically, if you want to look at ‘starting fresh’; put/call parity theory tells us the return on puts should match or be very close to the return on calls. Else, there is an arbitrage opportunity. So about the same 23% (annualized).

      • The Lizard King November 13, 2017, 11:22 pm

        As far as why IB is disallowing partnerships in tax advantaged accounts, I’m assuming they are limiting their risk of being held liable if a client exceeds the annual contributions due to UBTI. Partnerships often have distributions to unit holders that are considered ‘return of capital’ rather than income. It is possible to hold a partnership long enough that these ROC distributions leave you with a negative cost basis. Uncle Sugar considers that a contribution of new capital to the account. It wouldn’t be a problem with UVXY as there are no distributions. But I find IB is very risk averse. For example, if you violate margin; they do not give a call. A computer algorithm just starts liquidating your positions until you are compliant.

        • Steve November 15, 2017, 10:05 pm

          My 401K brokerage has some similar restrictions. The problem with partnerships (I assume you’re talking about MLPs) is that they’re technically still sometimes taxable despite being in a 401K. It has to do with something called Unrelated Business Income. As an aside, I used to own shares in a couple of MLPs, but decided that the hassle at tax time wasn’t worth the return, especially with BX generating income all over the world.

          As far as UVXY, I don’t really know.

  • financialfreedomsloth November 14, 2017, 2:52 pm

    To bad you have to exit the UVXY trade early. Hoping you make enough profit to cover your trading costs to close the position at IB and reopen it somewhere else.
    And yes, IB is very risk adverse. I had a large margin position on SABMiller when the brexit vote came, the GBP took a nose dive and I got a margin call because of it. Totally ridiculous because the only currency risk I had was in the profits I was going to book on the trade but that is not how their algorithm saw it … Forced me out of the trade and seriously impacted my profit. I have switched to a Portfolio Margin type of account since then which should not have the same problem but yeah, they are very risk adverse …

    • The Lizard King November 14, 2017, 6:46 pm

      DoH! Any trade that involves currency is kind of weird. Pretty much every broker on the planet will give a complete novice 200:1 leverage. That probably needs regulatory reform.

  • Chris B November 15, 2017, 10:32 pm

    Off topic a bit: On this “bad” day when UVXY soared 7.18%, my portfolio of LONG PUT positions is up – yes up! – by $42.76 as measured by bid prices.

    My far OTM puts ($8 and $10 strikes) rose, driven by increased volatility, and my near/ITM puts ($14 and $20 strikes) dropped, driven by change in price. Are my far OTM puts offering me both more leverage and less short term downside? Maybe.

    It’s weird that UVXY puts were the best performing part of my portfolio on a day like today.

    • The Lizard King November 15, 2017, 11:25 pm

      I’ve been known to exit UVXY for a profit on days where the underlying is rising sharply because the put premium got so fat. It can be a weird bunny.

      • Chris B November 18, 2017, 6:23 pm

        In my play money account, I’m analyzing a trade where I buy 1 synthetic long VIX and 1 synthetic short UVXY. VIX options are only available 6 months out, but if it works like I think it will, one might not need such a wide margin of “time safety” as we do with long puts. I’ll watch this pair for a few weeks and report back on whether the long VIX can hedge short UVXY. I’m analyzing 1:1 despite UVXY being a 2x fund because I suspect 2:1 might be overkill over the course of 3-5 months. The risk of this hypothetical trade is that UVXY can spike more than 2x VIX because of the way their leverage works. Also, deltas and the impact of volatility change unevenly.

        • The Lizard King November 18, 2017, 8:01 pm

          Chris,

          VXX is the unleveraged version of UVXY. You can resolve the 2x problem by switching tickers. Keep us posted. In fact, do me a write up to financial [dot] velociraptor [at] gmail [dot] com and I’ll make it a guest post!

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