Shares of GRUB were called away over the weekend.

music selection:  “Queer” — Garbage

weigh-in: 205.0 (1.4)

I’m returning to holding a position in Prospect Capital Corporation (PSEC).  This is a business development corporation (BDC), that invests primarily in variable rate secured loans to mezzanine size firms.  These firms are generally too large to be serviced by regional banks but too small to draw the interest of investment banks to float a bond.  The corporate structure is similar to a REIT in that they can be federal tax exempt by distributing most of their earnings to shareholders.

I am going with a buy-write strategy, purchasing 1,400 shares to write covered calls against.  The shares were purchased at 6.65 and yield 10.83%.  That price is approximately 30% below the most recently published Net Asset Value.  I also sold PSEC180518C00007000 for 6 cents a share.  That trade will be in force for 54 days and yields a bonus 5.79% for an expected total yield of 16.62%.  That is a stunning yield for what is essentially a boring portfolio of senior debt.

I am also initiating a position in Michael Kors Holdings Limited (KORS).  This is a strong global brand selling men’s and women’s branded fashion accessories.  Margins are strong and the valuation is attractive.  Operation margins are 15%, the business returns 22% of revenue to shareholders via distributions and buybacks, and the enterprise value to EBITA is a scant 12.1.  At the same time, the stock is offering up plump options premiums.  I sold KORS180504P00062000 for 2.20 a share.  The trade will be in force for 40 days and yields an expected 32.38% annualized while enjoying 3.92% downside protection.

Devour your prey raptors!

Michael Kors (KORS) and Prospect Capital (PSEC)

Never miss another opportunity to devour prey!

4 thoughts on “Michael Kors (KORS) and Prospect Capital (PSEC)

  • March 26, 2018 at 9:47 pm
    Permalink

    I’m surprised you didn’t use a put to buy PSEC.

    What was your overall ROI from your dealings with GRUB?

    Reply
    • March 26, 2018 at 9:53 pm
      Permalink

      The options premiums aren’t enough to justify missing out on the underlying distribution for PSEC, thus a buy/write.

      GRUB returned 1,500 on 14,200 capital at risk over three months or about 42% annualized. But the story isn’t over. I still have the diagonal call open in GRUB at 32.5 and 115 strikes.

      Reply
  • March 27, 2018 at 2:36 am
    Permalink

    I’ve thought about buying into BDCs using the etf BIZD but haven’t pulled the trigger yet. BDCs along with mortgage REITs is supposed to be a good combination (mREITs do better in a recession, BDCs during growth). Maybe I will buy the REM etf along with BIZD.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

*