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Options trades: GRUB, ABBV, SWKS, EPD, VNOM

Three positions expired over the weekend and two more were opened.

music selection:  “White Room” — Cream

weigh-in:  197.0 (1.0)

I had a diagonal call open on GrubHub (GRUB) with the short leg about 20% out of the money.  The company surprised with a blowout quarter that sent shares far above my strike price.  Shares were called away and assigned short at 130.  I exercised my long call at 32.5.  The long call was purchased for 71.60 and I collected premiums of multiple short calls of 1.10, 2.15, 0.50, and 1.75.  Total profit was thus 5,930 over 179 days on 14,320 put at risk or 84.44% annualized.  I’m moving on from this great trade and seeking other profit making opportunities.

My short leg of a diagonal call in SkyWorks (SWKS) expired out of the money over the weekend.  I wrote a new short call SWKS181012C00100000 for 30 cents per share.  Against my cost basis of 63.70 per share this trade has an expected yield of 4.41% over 39 days.  I retain access to upside on share appreciation above 50.

A short put in AbbVie (ABBV) expired out of the money over the weekend.  I rolled by selling ABBV180907P00094000 for 3.60 per share.  The trade will be in force for 39 days and yields an expected 35.84% annualized.

A new position this week is in Viper Energy Partners LP (VNOM).  This is a best in class oil and gas MLP that is making an aggressive move into the “Austin Chalk”.  Distributions have shown strong growth in the past.  I am opening a buy/write position by buying shares at 39.28 and selling VNOM180921C00042000 for 30 cents a share.  The trade yields an expected 12.60% annualized over 22 days while enjoying 0.76% downside protection.  I also remain eligible to collect on the underlying distribution of 6.11%.  In addition there is room for up to 2.94 in capital gains if shares rise.

Another new position is a second buy/write trade in Enterprise Product Partners LP (EPD).  This is a pipeline MLP with a solid balance sheet and strong past distribution growth.  Management is committed to organic growth without excessive debt.  I purchased shares at 28.76 and sold EPD181019C00030000 for 16 cents a share.  The trade  yields an expected 3.98% annualized over 51 days while enjoying 3.98% downside protection.  I remain eligible to collect the underlying distribution of 6.00%.  Also there is room for 1.24 in capital gains if shares rise.

Devour your prey raptors!

{ 2 comments… add one }
  • Chris B September 5, 2018, 5:54 pm

    Looks like more bullish exposure. Have you changed your asset allocation yet, in response to the continued fall in the yield curve?

    https://fred.stlouisfed.org/series/T10Y2Y

    Of course, the recession often comes months or years after the yield curve hits zero, but the stock correction usually arrives months before the recession, so the timing can be awkward.

    • The Lizard King September 5, 2018, 6:10 pm

      I’m sticking with 40% fixed and income like securities for now. I still have most stops set at 25%. Historically (at least since the 60s) inversion of the yield curve led the next market crash of 20% or more by at least 6 months and almost 2 full years. Upon inversion, I’ll tighten my stops to generally 15% and selectively 10%. I’ll then rotate into more fixed income as cash is made available by stop outs. The thing about getting out NOW is the most explosive gains tend to be just before the crash. I don’t want to miss out on the next potential 50%+ move upward.

      I am working towards rotating out of closed end funds and more into individual discounted bonds where I think the risk/reward ratio is more attractive. It is just hard to find good bonds right now as the yield chasers have bid up high yield bonds to unsustainable levels. Yield premium over the treasury is near the historical low. That will reverse. Possibly violently when the credit cycle rolls over.

      Also, look for some short side exposure in the next Friday Fixed Income

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