Several positions expired over the weekend.

music selection:  “We Are Family” — Sister Sledge

weigh-in:  195.6 n/c

I use an income centric strategy in early retirement. I feel safe with a withdrawal rate up to 6% with this strategy.  Currently, I’m running 5.34%.  Primary to the strategy is a 40% allocation to fixed income and similar investments.  I supplement the remaining 60% with high yield sectors such as REIT, MLP, and BDC.  This results in passive income equal to 128.08% of my annual projected spending.  I also sell options for additional income and that income stream covers my annual projected spending by an additional 153.82%.  It is not a guaranteed income stream however.  There are lots of homeruns but I am frequently limited to bunting or ‘no trade’ by market conditions, thus the fixed income anchor.

Today, I made several options sells for income and I will be detailing them here.  In summary, I generated 1,525 in instant income with a projected average annualized return of 31.88%.  That is quite a lot better than Warren Buffet has averaged over his career and is achievable by anyone who is willing to do a little research.

Scott’s Miracle Grow (SMG) is an investment I made to capture the upside of recreational marijuana without the outrageous risk associated with pure plays.  The company has a profitable mainline business and is branching out into providing services and equipment to marijuana growers.  The investment has struggled a little bit and I am down about 12.5%.  I am selling covered calls to generate income while I wait for price recovery.  I sold SMG181116C00080000 for 60 cents a share.  The trade will be in force for 26 days and yields an expected 10.53% annualized.

Viper Energy (VNOM) is a best in class shale drilling MLP.  I hold the underlying shares for price appreciation and a growing distribution.  I also write covered calls against the position for bonus income.  Today, I sold VNOM181116C00040000 for 65 cents a share.  The trade will be in force for 26 days and yields an expected 22.81% annualized.

Match Group (MTCH) is the leading provider of online dating services.  It is a free cash flow gushing business with great growth numbers.  It pays fat premiums and I write puts until assigned and then write calls until called away for income.  Today, I sold MTCH181116C00055000 for 2.45 a share.  The trade will be in force for 26 days and yields an expected 62.53% annualized.  (Outstanding!)

Ingersol Rand (IR) is a low risk defense contractor that I am playing for a combination of its underlying yield and options premiums.  I was assigned over the weekend at 100 and am writing covered calls at 100 while waiting for the price to rebound.  I sold, IR181116C00100000 for 70 cents a share.  The trade will be in force for 26 days and yields an expected 9.83% annualized.

ON Semiconductor (ON) is a provider of semiconductor chips to the automobile industry and other customers.  The company enjoys strong margins and free cash flow.  It also sports juicy premiums for options sellers.  I have been taking advantage of those rich premiums for some time writing either puts or covered calls depending on whether I have been assigned recently.  Today, I sold ON190118P00016000 for 85 cents a share.  The trade will be in force for 26 days and yields an expected annualized return of 74.58% while enjoying 5.67% downside protection against an undesirable move in share price.  This is my best trade to today.  A lizard can get mighty fat on 74.58% annualized returns!

Finally, Enterprise Products Partners (EPD) is a best in class pipeline MLP with great growth prospects.  The balance sheet is solid and future growth is expected to come organically instead of through acquisition and dilution of shareholders.  The underlying distribution is over 6% and growing.  I own shares with a cost basis of 28.69.  Today, I sold EPD181130C00029000 for 35 cents a share.  The trade will be in force for 40 days and yields an expected 11.01% annualized.

Devour your prey raptors!

Selling Options for Early Retirement Income SMG, VNOM, MTCH, IR, ON, EPD

Never miss another opportunity to devour prey!

2 thoughts on “Selling Options for Early Retirement Income SMG, VNOM, MTCH, IR, ON, EPD

  • October 25, 2018 at 6:10 pm
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    Nice plays, but the timing on the put sales was unfortunate. That said, I’d rather sell put options into a volatility event / correction than at low volatility levels. Reversion to the mean is on your side that way.

    The paradox is that after a correction has usually been a bad time to sell covered calls. The market is more likely to recover and then you lose your shares. Nothing to do now but sit long and wait. But if all hell breaks lose (down 20%, VIX > 40) I might switch to long calls or long VIX puts.

    Reply
    • October 25, 2018 at 8:23 pm
      Permalink

      It has been an unusual market lately. I gave up on trying to time it a long time ago. Just stick with the plan (generate income) and sell options rather than buy them to lower your risk.

      Reply

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