Three positions expired over the weekend.
music selection: “Break Our Hearts Down” — Bullet Height
weigh-in: 198.0 +0.4
One position finished in the money over the weekend (CVS) and was called away. Two more finished out of the money and I retain shares (BX & EPD). I’m letting CVS go without initiating a new position. I like the company and its move to integrate vertically in the healthcare space. I’m just over exposed in general and would like to raise cash, especially after recent volatility rattled me just a little bit. It is always a good move to raise cash.
I run an income centric portfolio here at the raptor. Important to that effort is a 40% allocation to fixed asset and debt like securities. I am currently running at a pace of 30,301 in expected forward 12 month dividends, distributions, and interest. This comes to 121.20% of my 25,000 spending target for the year. I have made it an essential part of my strategy that I will never have to “sell low” into a bear market.
I also invest the residual in equity that has options. This allows me to sell options, either calls or puts, for immediate income. I think of this like being able to create my own on demand dividend payment. This has been a good year for that strategy with my expected total for 2018 coming to about 36,000. Quite a lot better than my expected spending for the year. This is where my portfolio growth comes from and is my interest rate and inflation hedge as rising interest or inflation will show up as increasingly plump premium payments.
CVS was good for 313 dollars in profits since 17SEP2018. The two trades were in force for 67 days. My all in annualized return on 7,750 capital at risk was thus 22.00%. This was a low risk trade that significantly beat the long term average of the S&P 500 (I benchmark against the S&P as it is what I recommend to investors who fear options and would rather index). I think similar returns would be available in CVS in the future. But I need to raise cash so will let the fact shares were called away plump up my cash balance by 7,750.
Blackstone (BX) has given me a little trouble since initially entering the trade but is recovering nicely of late. I am writing a covered call that has a strike 50 cents higher than my entry price. As you’ll see, the trade still offers a very good expected annualized return while making room for some capital gains to boost returns. I sold BX190111C00036000 for 63 cents a share. This trade will be in force for 40 days and yields an expected annualized return of 16.19%. That is quite a lot better than the long term average of the S&P (about 9%) and still leaves room for capital gains upside. Should shares be called away at expiry, the annualized return will improve to 29.05%.
Finally, there is Enterprise Products Partners (EPD). I originally purchased shares at 28.69 on 04SEP2018. The underlying has a nice 6.36% annual distribution. Management has provided strong guidance for its future operations due to expanded capacity. The company has been able to grow (mostly) organically without the need for a lot of debt or secondary offerings. The result is a company with a solid balance sheet and great prospects for distribution growth. I’m glad to make a few percent from options while waiting for this company to fulfill its destiny as a cash flow machine.
I have already collected 204 dollars in premiums from writing covered calls above my entry price. I was not able to complete a covered call trade today in EPD at an attractive price. I will content myself with the underlying (growing!) distribution and continue scanning the horizon for opportunities to write covered calls for bonus income.
It is just noise to look at daily returns but I was pleased to see my combined Interactive Broker holdings up by almost 12,000 today. “Good” days in the market can really drive your returns long term.
Devour your prey raptors!