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31.96% annualized return on Monday’s trades

Two positions expired over the weekend.

music selection:  “I Won’t Pay” — The Offspring

weigh-in:  205.0 +1.6 – it is really challenging to put two good weeks together i a row.

Blackstone and Oracle expired out of the money over the weekend.  I still hold shares of BX and will write a fresh covered call against the position.  Oracle moved higher and became less attractive for a new written put trade as premiums were weak this morning.  I’m taking a pass and replacing them with Micron (MU) as an income play.

I am going with a new firm today, MarketAxess (MKTX).  For those of you who don’t know about the trading of bonds, most of the market does things the same way they have done them for literally centuries.  Someone literally picks up the phone and makes a call for each and every bond transaction.  The big banks maintain an inventory of popular bonds and act as broker-dealers, earning a spread on each bond sold.  This is a very profitable business for the broker dealers but is obviously inefficient.  One company (MKTX) has begun automating the process as a neutral broker.  They are gaining market share and should do well in coming years as new European regulations require bond brokers to document “best execution”.  Not only is the old way inefficient, it lends itself poorly to the new paperwork required.  MarketAxess will excel in the new regulatory enviorment.

MKTX is also wildly profitable and is a beneficiary of Metcalfe’s Law.  As they gain market share, their network becomes intrinsically more valuable.  Competitors will have a hard time overcoming their first mover’s advantage.  Today, I wrote a put MKTX171215P00180000 f0r 6.70 a share.  The trade will be in force for 40 days and yields 33.94% annualized while enjoying 3.03% downside protection against a decline in share price.  This is a larger than normal trade size for me but I’m willing to stretch a little for such a great business with fat underlying premiums to trade.

Blackstone (BX) is still a holding after the weekend’s covered calls expired worthless.  I sold BX171222C00034500 for 45 cents a share.  The trade will be in force for 47 days and yields 10.13% annualized.  I remain eligible for the underlying distribution of 6.57%.

Finally, I replace Oracle (ORCL) with Micron (MU).  Micron is a computer memory manufacturer with strong margins and cash flow.  It is also enormously cheap at under 10 times P/E.  I feel there is a strong margin of safety here in the event I end up holding for the long term.  I sold MU171222P00043500 for 2.90 a share.  The trade will be in force for 47 days and yields 51.77% annualized while enjoying 6.97% downside protection.  I’m very happy with this outcome.

The simple average of the three trades today is 31.96% annualized.  That should easily beat the S&P 500 or any other broad index this year.  I’m glad to be an active trader rather than indexer when I can earn superior returns while lowering my risks with options.

Devour your prey raptors!

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Financial Transparency as of 31OCT2017

Happy Halloween!

music selection:  “I Like It Heavy” — Halestorm

ASSETS:

Wells Fargo (taxable): This is down 281 dollars.  This account holds mostly closed end funds holding debt instruments.  It rarely moves much.  The month end total is 31,307.

Interactive Brokers (taxable): This moved only a tiny bit by 121 dollars or about 0.04% on the month.  There was actually more action than that but strong gains in UVXY puts was offset by losses in Celgene.  The new mark is 311,698.

Interactive Brokers (tIRA):  Not much going on in this account either as the balanced increased 3,630 to 160,413.  Gains were broadly distributed across multiple property and casualty insurance companies.

Checking:  This is down 950 dollars.  The new month end total is 12,618.  That is about six months of expenses if I had to forgo withdrawals from the main brokerage account.

Total Liquid Networth: The new high water mark is 516,036, up 2,520 versus last month.  Current annualized gain on entire portfolio is down this month to 18.43%, which is still an impressive amount considering there is a 25,000 a year drag in the form of my distributions for living expenses.

 

LIABILITIES:

No real changes here.

Home – Paid

Car – Paid

My income tax asset is roughly a wash with my income tax liability.  I will probably send Uncle Sugar another 500 dollars in January just to be sure.

 

WITHDRAWAL RATE:

I am budgeting 25,000 for annual spending.  Against a liquid networth of 516,036, my withdrawal rate is 4.84%.   Projected 12 month distributions, dividends, and interest come to 29,705 or 118.82% of budget.  I picked up an additional 3,533 in options income during the month.  Average monthly options premium income annualizes to 32,205 or 128.82% of budget.  My cash spending needs are currently met more than twice over and the withdrawal rate continues to fall.

 

SPENDING:

Spending for the month came to 3,371.  My expenses go up this time of year due to real estate taxes and home insurance.  I paid insurance this month and one of three real estate tax bills.  I’m still on track to be around 3,000 under budget for the year.

Devour your prey raptors!

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114% Annualized Return on UVXY Puts

The results of the A/B Test are in.

music selection:   “King Of Pain” — The Police

Back on 2OCT2017, I set up an A/B test on different strikes of UVXY.  I bought strikes 5 dollars out of the money and 5 dollars in the money to determine once and for all which strategy performs better.  The results are in and out of the money wins by a large margin.  This makes sense as the out of the money strike carries more risk of loss of investment.

I originally purchased UVXY190118P00015000 for 8.55 a share.  Today, I sold for 9.50.  The trade was in force for 30 days and yields 135.19% annualized.  Likewise, I purchased UVXY190118P00025000 for 16.80 a share.  Today’s sell price was 18.05.  That trade was also in force for 30 days and yields 93.65% annualized.  The simple average of the two returns is 114.42% (annualized.)  I am very happy with this outcome.  And I will buying my puts about 1/3 out of the money going forward.

I got back into the trade with 55 contracts of UVXY190118P00010000 at 5.55 a share.  That is a roughly 10% allocation of my main IB account and curiously, a lot of “lucky” fives.  I will target a holding period around 30 days but will sell sooner if the contracts move into the money.  I will be a very happy lizard if I can repeat today’s performance.

Devour your prey raptors!

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Stopped Out Short Position Santander Consumer (SC)

Lizard King stepped in brontosaurus poo yet again.

music selection:  “I’m America” — Cilver

On 10JUL2017, I opened a short position in Santander (SC) at 13.11 a share.  I had high hopes that their reckless subprime lending would result in poor financial performance.  Mr. Market disagrees with me.

I hit my 25% stop loss at yesterday’s close and I’m honoring that today.  I bought to close at 16.73.  For 380 shares, my short term capital loss comes to 1,375.

This is my second failure in the week.  Some blogs report only their gains and present a sunshine and roses view of the markets.  I feel like the readers have a right to know when things don’t go well so they develop a complete view of my approach to trading the markets.

Not all is doom and gloom however.  I will report monthly transparency tomorrow morning and look to be on pace for over 19% annualized.

Devour your prey raptors!

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Stopped Out Celgene (CELG) – Ouch!

No putting lipstick on this pig.

music selection:  “Sweet Caroline” — Neil Diamond (So Good! So Good! So Good!)

weigh-in:  203.4 (1.4)  – back on the wagon

I opened a diagonal call on Celgene (CELG) on 15AUG2017.  I had high hopes of earning a decent income while slowly building strong capital gains.  Since that time, CELG has had a promising new drug fizzle out in clinical trials and has reported a down quarter that included lowered forward guidance.  The share price has taken a beating.

My long call CELG190118C00055000 was purchased for 78.90 a share.  I discovered after returning from FinCon17 that I was stopped out and then some.  I sold this morning for 47.55.  I book a 3,135 short term capital loss.

In positive news, the UVXY puts are performing well and are nearing my exit target.  I should book around 2,700 in gains with an annualized return over 100%.

Devour your prey raptors!

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Monday Trades – PMT and NAP

Four positions expired over the weekend.

music selection:  “Jamming” — Bob Marley; speak up in the comments if you dig it!

weigh-in:  204.8 +1.8 – doh!

PMT, SM, and NAP expired out of the money over the weekend.  EOG shares were called away.  I say goodbye to EOG and SM for now as I seek to reduce exposure to a stubbornly weak oilfield.  Unrelated, I got a great deal on close to expiry pork loin at Kroger today.  The freezer is well stocked.

I sold NAP171117P00010000 for 1.10 a share.  It was necessary to move up to the 10 strike from 7.5 as NAP has had strong performance over the last month.  The strike is in the money by about 70 cents so the time value is really only about 40 cents out of the buck-ten.  The trade will be in force for 26 days and yields a terrific 154.42% annualized in the event it expires out of the money.  The time value portion alone is worth 56.15% annualized.  Either way this is  a good trade.  I’d be delighted to be assigned this solid company with long term contracts on its vessels and collect the underlying 16.9% yield while writing covered calls for strong bonus income.

I  also sold PMT171215C00017500 for 15 cents a share.  The trade will be in force for 54 days and yields 5.79% annualized.  That is bonus income as the underlying yields 11.14% on the distribution.  This is one of my favorite mortgage REITs.  I expect the sector as a whole to do well as the Fed tightens gradually.  The best REITs will be hedged against this and will see margin expansion on new assets.

The average return on these two trades is a ridiculous 80.11% annualized.  I collected 1,190 in instant income that is mine to keep no matter how the trades turn out.

In other news, my UVXY puts are close to ripe.  It looks like out of the money is going to beat in the money in the A/B test.  In additional other news, I am attending FinCon17 in Dallas Wednesday through Saturday.  Come join me for a beer.  Mr.1500 is allegedly buying.

Devour your prey raptors!

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Covered Call Archer Daniels Midland Co. (ADM)

I failed to get filled when rolling this position yesterday.

music selection:  “Gemini” — Slayer

ADM has sort of languished recently.  It is a stock with a great future because China and India will consume more grain per capital over the next decade as roughly a billion people ascend from poverty to the Middle Class.  I am seeing some short term pain however.

I sold ADM171124C00045000 for 58 cents a share.  The trade will be in force for 39 days and yields 12.06% annualized.  Overall, the position in ADM is now up 220 dollars.  That is about 2.44% gross and 6.80% annualized.  Life isn’t so bad when a meager profit represents one of your “failures” as an investor.

Some of you may have noticed the site was down briefly.  Word from my hosting provider is the server was subject to a DDoS attack from the Ukraine.  These things happen from time to time.

Devour your prey raptors!

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Sell Monsanto (MON)

Monsanto is fully valued.

music selection:  “Hush” — Deep Purple

weigh-in:  203.0 (2.0) – yeah!

Back on 6MAR2017, I bought 87 shares of MON for 114.60.  The thesis was that Bayer was making an all cash buyout offer at 122 dollars a share.  The offer was tentatively accepted by the Monsanto board and looked liked to successfully complete.  I saw some easy merger arbitrage money on the table and decided to deploy some capital.

On Friday, Bayer cleared up the last of the market uncertainty on whether the deal would be approved by regulators and whether they would be able to come up with the cash by divesting of the assets most likely to be of regulatory concern for almost 7 billion in cash.  Shares jumped about 4% to a hair over 122, the offer price.  Shares were fully valued and it became time to cash in.

Today, I sold MON for 122.50 a share.  Along the way, I collected 1.62 in dividends.  The trade was in force for 224 days and yielded 13.54% annualized.  Not bad for a low risk trade.

Devour your prey raptors!

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Write Puts GrubHub Inc. (GRUB)

Choosing a high growth company for today’s trade.

music selection:  “The Thunder Rolls” — Garth Brooks

weigh-in:  205.0 +0.8 – I blame yesterday’s gourmet food truck grilled cheese.

GrubHub is a fast moving company in the sharing economy space.  They have a popular cell phone app for ordering food delivery.  Top line growth is in excess of 30% a year.  Unlike most high growth companies, GRUB delivers solid free cash flow performance.  They can support their growth organically without buying out competitors or racking up burdensome debt.  The valuation looks a little frightening at a P/E over 75 but I think it is justified in this case.  To my way of thinking, the market is not yet pricing in the value of the company’s data.  They know who is eating what and where and that information is going to be very valuable to the competitive restaurant business.  Sooner or later, they will monetize.

I sold GRUB171117P00050000 for 2.45 a share.  The trade will be in force for 40 days and yields 44.71% annualized (nice!)  The trade also enjoys 7.47% downside protection against a decline in share price.  This one is going to be volatile.  It will support high premiums for some time but will eventually result in an unfavorable assignment.  I will write covered calls while waiting for price recovery.

Devour your prey raptors!

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Five Years

Today marks Five Years of financial freedom.

music selection:  “For My Sake” — Shinedown

It was 5OCT2012 when I walked out of the office at Baker Hughes for the final time.  I was on the insider roster and trusted with all kinds of important company secrets but they escorted me out anyway.  Just in case I had a mind to steal a coffee pot or something on the way out.  Huge faceless corporations are peculiar creatures.

I celebrated today with a McDonald’s Egg and Sausage McMuffin for breakfast around 10:00 AM and then a glorious nap.  Because I can do that on any given Thursday now.  Let me tell you.  It feels great.

I tell you these things not to brag but to motivate.  The people in my personal circle are doing very little to secure their retirement in most cases.  They overspend.  They under-invest.  And they bust their butts trying to make as much money as they can in a career they hate.  That is no way to live.

So I offer the Velociraptor Challenge today.  Declare your intentions in the comments.  What is your target date to walk away from conventional work for good?  Take a stand.  And…

Devour your prey raptors!

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