≡ Menu

Friday Fixed Income

Three fixed income selections.

music selection:  “You Make My Dreams Come True” — Hall & Oates

Each Friday, I provide three closed end funds invested in fixed income that I would consider putting money into today.  I allocate 40% of my main taxable portfolio to these and similar high yield instruments.  This covers my basic income needs for the year.  Importantly, I am free to trade with the remainder or NOT trade if nothing attractive is on offer.  Don’t pick up nickels in front of a steamroller!

Advent Convertible Securities & Income (AGC) is a closed end fund that seeks total return through investments in global convertible and non convertible securities and utilizing and option writing strategy.  It pays an income only distribution on a monthly basis.

  • Discount to NAV – 11.52%
  • Yield – 9.79%
  • Effective leverage – 40.91%
  • Expense ratio – 3.49%
  • Learn more

Aberdeen Income Credit Strategies (ACP) is a closed end fund that seeks a high level of current income with capital appreciation through investing in a portfolio of senior loans.  It pays an income only distribution on a monthly basis.

  • Discount to NAV – 6.75%
  • Yield – 10.21%
  • Effective leverage – 30.07%
  • Expense ratio – 3.11%
  • Learn more

Eaton Vance Tax Advantaged Bond and Income (EXD) is a closed end fund that seeks to provide tax-advantaged current income and gains through the use of a tax-advantaged short-term, high quality bond strategy and a rules-based option overlay strategy..  It pays a managed distribution on a quarterly basis.

  • Discount to NAV – 8.63%
  • Yield – 11.91%
  • Effective leverage – none
  • Expense ratio – 1.45%
  • Learn more

Devour your prey raptors!

{ 1 comment }

Assigned Shares of Target (TGT)

TGT was assigned to me on Friday.

music selection:  “Temptation” — Venom

weigh-in:  204.6 (2.2)

Target is showing sales growth.  This is largely driven by capex in omni-channel distribution.  They are positioning themselves to compete with Amazon and Wal-mart.  The market didn’t like the drag on the bottom line and punished shares.  As a result, I was assigned on Friday.

I’m keeping my position in Target and will write covered calls while I wait to collect the underlying dividend.  I sold TGT180427C00077000 for 49 cents a share.  The trade will be in force for 50 days and yields an expected 4.65% annualized.

Devour your prey raptors!

{ 2 comments }

Friday Fixed Income

For your consideration.

music selection:  “Super Freak” — Rick James

Each Friday, I highlight three closed end funds that are invested in debt and debt like instruments that I consider attractively valued and yield rich.  This week, the yields go up to almost 12%.  I recommend a healthy allocation to this sector of the market.  Bonds and bond like investments reduce volatility of your portfolio.  They also provide strong cash flow.  Today’s three choices would provide an after tax (for most taxpayers) yield equivalent to the long term return of the S&P 500.  You’d never have to sell a share.  Investors who hold these investments in a tax advantaged account would do even better.

I allocate 40% of my portfolio to “income”.  It can be worthwhile to go as high as 72% if you are super conservative.  But no higher as the increasing correlation of assets begins to increase volatility at that point.  Long time readers know that most of the rest of the 60% is deployed in a manner that is intended to generate short term income as well.  That is my ‘sleep at night’ secret sauce.

Brookfield Real Assets Income (RA) is a closed end fund that seeks total return through investments in global convertible and non convertible securities and utilizing and option writing strategy.  It pays a managed distribution on a monthly basis.

  • Discount to NAV – 9.52%
  • Yield – 10.83%
  • Effective leverage – 21.08%
  • Expense ratio – 0.13%
  • Learn more

Delaware Investments Dividend and Income Fund, Inc. (DDF) is a closed end fund that seeks current income and capital appreciation through investment in equity and non convertible debt securities.  It pays a managed distribution on a monthly basis.

  • Discount to NAV – 9.15%
  • Yield – 11.24%
  • Effective leverage – 30.26%
  • Expense ratio – 1.98%
  • Learn more

Eaton Vance Tax Advantaged Bond and Income (EXD) is a closed end fund that seeks to provide tax-advantaged current income and gains through the use of a tax-advantaged short-term, high quality bond strategy and a rules-based option overlay strategy..  It pays a managed distribution on a quarterly basis.

  • Discount to NAV – 7.94%
  • Yield – 11.78%
  • Effective leverage – none
  • Expense ratio – 1.45%
  • Learn more

Devour your prey raptors!

{ 0 comments }

Express Scripts to be Acquired

I’m exiting my ESRX short.

music selection:  “Signed, Sealed, Delivered” — Stevie Wonder

My short position in Express Scripts (ESRX) was doing quite well.  This morning, Cigna announced it was buying the company.  Shares jumped 11%.  I bought to close my 100 shares this morning at 81.44.  Including all put premiums received, I book a 3.03% loss in the trade.  That is 18.72% annualized or 229 dollars in more concrete terms.  I am leaving the now unlikely to be exercised put open until expiry on 29MAR2018.  There really just anything else to be down here except capitulate.

Devour your prey raptors!

{ 0 comments }

New Diagonal Calls and Covered Put

Three new trades today.

music selection:  “Need You Tonight” — INXS

weigh-in:  206.8 +1.6

I’m losing faith in my Ford (F) short thesis.  I have been expecting their huge amount of subprime lending to rollover and cause big earnings misses.  With an economy that is hitting on cylinders, it could be some time before the subprime lending bubble bursts.  I’m trading some upside away for current income by writing a covered put on my short position.  To that end, I sold F180420P00010000 for 23 cents a share.  The trade will be in force for 47 days and yields and expected 17.86% annualized.

I’m adding a few diagonal calls to the mix today.  A diagonal call is a calendar spread that consists of a long dated call that is deep in the money.  This long call is used to anchor a position to sell short dated out of the money calls on.  This allows income to be generated on a moneyed call while waiting for leveraged upside appreciation.

My Grubhub (GRUB) covered call is running away from me a little.  I don’t think it will make sense to write new puts after my shares are called away.  But I do think there is a great deal of long term upside in the position.  To that end, I bought GRUB200117C00032500 for 71.60 a share.  This includes about 2.63 in time value.  Going deep into the money reduced the amount of time value I had to pay to gain my leverage.  I also sold GRUB180420C00115000 for 1.10 a share.  That trade will be in force for 47 days and yields an expected 11.93% annually.  41.83% of my outgoing time value has already been recovered and I have 13% in potential upside price movement before I might need to put more cash into the trade.

I am also starting a new diagonal position in Skyworks (SWKS).  This is a maker of mostly analog chip sets that handle the analog functions of cellphones and allow data to be converted back forth to digital for use by smart phone processors.  It is a highly profitable chip maker with no debt and a cheap valuation that I expect to price improvement in.  I bought SWKS200117C00050000 for 63.70 per share.  This includes about 2.50 in time value.  I also sold SWKS180420C00125000 for 60 cents a share.  The trade will be in force for 47 days and yields an expected 7.31% annualized while I wait for price appreciation.  My outgoing time value on this combo is reduced by 24% by selling the diagonal call.

Devour your prey raptors!

{ 4 comments }

Friday Fixed Income

Three more fixed income picks for your consideration.

music selection:  “Mickey” — Tony Basil

Every Friday, I present three opportunities in the debt space inside closed end funds. I isolate CEFs that are yield rich and attractively priced relative to their net asset value. These provide better safety for the long term investor than open end funds as there is no early redemption risk for the firm offering the fund. They can and do hold their debt securities to maturity, effectively allowing 100% of duration risk to expire over time. Open end funds are forced by liquidations to sell bonds at the worst possible time.

My personal target for this sector is about 40% of my main taxable portfolio.  This goes a long way to creating a portfolio where my distributions, dividends, and interest cover my annual budget by 120% or more.  I sleep well at night and am not compelled to trade to meet bills.  I have discretion to wait for fat pitches.

Advent Claymore Convertible Securities & Income (AGC) is a closed end fund that seeks total return through investments in global convertible and non convertible securities and utilizing and option writing strategy.  It pays income only distribution on a monthly basis.

  • Discount to NAV – 10.58%
  • Yield – 9.81%
  • Effective leverage – 40.91%
  • Expense ratio – 3.49%
  • Learn more

Brookfield Real Assets Income (RA) is a closed end fund that seeks total return through investments in global convertible and non convertible securities and utilizing and option writing strategy.  It pays a managed distribution on a monthly basis.

  • Discount to NAV – 10.26%
  • Yield – 10.96%
  • Effective leverage – 21.08%
  • Expense ratio – 0.13%
  • Learn more

Eaton Vance Tax Advantaged Bond and Income (EXD) is a closed end fund that seeksto provide tax-advantaged current income and gains through the use of a tax-advantaged short-term, high quality bond strategy and a rules-based option overlay strategy..  It pays a managed distribution on a quarterly basis.

  • Discount to NAV – 10.31%
  • Yield – 12.09%
  • Effective leverage – none
  • Expense ratio – 1.45%
  • Learn more

Devour your prey raptors!

 

{ 0 comments }

Financial Transparency as of 28FEB2018

It was a difficult month.

music selection:  “Two Out Of Three (Ain’t Bad)” — Meatloaf

Wells Fargo (taxable): This is down 460 dollars, a 1.53% loss versus last month. The new mark is at 29,525.

Interactive Brokers (taxable): This is down 40,505 to 299,457 a loss of 11.91% versus last month. This is really quite ugly.  The problems in the portfolio are mostly widespread with no individual position nearing its stop loss.  One big pain point is the UVXY puts which are down 5 figures.  Proshares made the surprise decision to cut the leverage target from 2x to 1.5x, hammering the premia.

Interactive Brokers (tIRA): I show 5,483 in losses here this month to 160,379 which is good for a 3.31% monthly loss. Obviously, a portfolio of mostly P&C insurers has a lower Beta than one with a lot of short options positions.

Checking: I’m up here to 2,522, a decline of 19.26% on the month. A withdrawal of 3,450 was made to fund my first HSA account after changing my Obamacare provider to a compliant plan.

HSA: I deposited 3,450 in a Livelyme HSA with self managed investment options through TD Ameritrade.  The account closed the month at 3,663, my one bright spot for the month.

Total Assets: I managed to stay above the half a million mark but just barely.  February finishes at 503,594. That is good for an overall monthly loss of 8.25%. I hope to see some recovery as volatility recedes.

 

LIABILITIES:

House: Paid

Car: Paid

Taxes: I expect to have a “refund” of about 5,000 for 2017. I will apply that forward to 2018 and need to make quarterly payments of about 1,250 to meet the current year’s liability.

 

WITHDRAWAL RATE:

The budget is again set at 25,000.  Against a liquid networth of 503,594 that is a withdrawal rate of 4.96%.  Current annualized distributions, dividends, and interest come to 30,119 or 120.47% of budget. I also earned 4,233 in options income during February which puts me well ahead of pace to generate an additional 25,000 for safety factor.

 

SPENDING:

It was a good month.  Spending was only 1,159 dollars for the month of February.  This is even better than last month.  Next month will see an outgoing payment of 1,250 for income tax prepayments.

Devour your prey raptors!

{ 4 comments }

Monday Trades 20.65% annualized returns

I have two new trades this morning.

music selection:  “Back In The U.S.A.” — Linda Ronstadt

weigh-in:  205.2 (1.2)

No positions expired over the weekend.  I have seen some nice recovery since the correction ended.  The UVXY puts remain well underwater however.

Brighthouse Financial (BHF) is an insurance and annuity provider that was recently spun off from Met Life.  They came out the gate reporting an accounting loss that appears to have hurt shares.  This is to me irrational as most of the P&L in the first quarter was non cash spin off related charges.  In addition, sales of annuity products grew about 25% in the first quarter.  The company is clearly more nimble as an independent than as a division of Met Life.  I like the prospects for this business at the current price.  Therefore, I sold BHF180420P00055000 for 2.20 a share.  The trade will be in force force for 54 days and yields an expected 27.04% annualized while enjoying 5.66% downside protection.  I’ll be glad to be assigned at 55 and begin writing covered calls on the position.

Another new position is in Scott’s Miracle Grow (SMG).  There is a lot of hype around marijuana stocks right now.  I expect most pot investors are going to get burned.  I still want exposure to the space so I’m going with a classic “picks and shovels” play.  Scott’s has a fast growing indoor and greenhouse gardening segment that sells both nutrients and equipment.  It is a high margin business that is capturing the leading market share when it comes to supplying marijuana growers.  To that end, I sold SMG180420P00090000 for 1.90 a share.  The trade will be in force for 54 days and yields an expected 14.27% annualized while enjoying 3.30% downside protection.  Assignment would result in being eligible to collect a dividend stream that currently exceeds 2% and grew at a rate greater than 10% from 2016 to 2017.  Covered calls for bonus income would also be an option.  I think there is very little downside for SMG.

Devour your prey raptors!

{ 8 comments }

Friday Fixed Income

Three more fixed income closed end funds for your consideration.

music selection:  “Turning Japanese” — The Vapors

Every Friday, I present three opportunities in the debt space inside closed end funds.  I isolate CEFs that are yield rich and attractively priced relative to their net asset value.  These provide better safety for the long term investor than open end funds as there is no early redemption risk for the firm offering the fund.  They can and do hold their debt securities to maturity, effectively allowing 100% of duration risk to expire over time.  Open end funds are forced by liquidations to sell bonds at the worst possible time.

I personally try to keep an allocation to this space of about 40% of my taxable portfolios.  The result is cash flow (that is often on a monthly basis) that exceeds my annual budget. I have discretion to not trade in the markets for months or even years at a time if nothing attractive is on offer.  The best investors are always the ones who can afford to wait for fat pitches.

Advent Claymore Convertible Securities & Income (AGC) is a closed end fund that seeks total return through investments in global convertible and non convertible securities and utilizing and option writing strategy.  It pays income only distribution on a monthly basis.

  • Discount to NAV – 11.88%
  • Yield – 9.88%
  • Effective leverage – 40.91%
  • Expense ratio – 3.49%
  • Learn more

Brookfield Real Assets Income (RA) is a closed end fund that seeks to achieve its investment objective by investing primarily in Real Asset Companies and Issuers.  It pays managed distribution on a monthly basis.

  • Discount to NAV – 9.55%
  • Yield – 10.83%
  • Effective leverage – 21.08%
  • Expense ratio – 0.13%
  • Learn more

Eaton Vance Tax-Advantaged Bond and Income (EXD) is a closed end fund that seeks to provide tax-advantaged current income and gains through the use of a tax-advantaged short-term, high quality bond strategy and a rules-based option overlay strategy. It pays managed distribution on a quarterly basis.

  • Discount to NAV – 8.88%
  • Yield – 12.03%
  • Effective leverage – none
  • Expense ratio – 1.43%
  • Learn more

Devour your prey raptors!

{ 4 comments }

Four New Trades

Five positions expired over the long weekend.

music selection:  “Last Dance” — Donna Summer (Disco, raptors!)

weigh-in:  206.4 +2.2

My short puts in Match Group (MTCH) expired well out of the money on Saturday.  I am returning to this trade by selling more puts.  I sold MTCH180316P00041000 for 1.55 a share.  The trade will be in force for a scant 25 days and yields an whopping expected 55.20% annualized while enjoying 5.37% downside protection.

Next up is Suncoke Energy Partners (SXCP).  This is a metallurgical coal MLP that I have held for some time.  The price action has disappointed by the strong yield over 12% has kept me in the black.  I sold SXCP180316C00020000 for a nickel a share.  The expected annualized yield is only 3.65% over 25 days but I remain eligible for the fat underlying distribution.  So this is all “bonus” yield.

My strangle in Sirius XM (SIRI) ended with shares being called away.  I still like SIRI at the new price so I’m writing some more puts to take advantage of a great business with excellent scalability.  I sold SIRI180329P00006000 for 22 cents a share.  The trade will be in force for 38 days and yields an impressive expected 35.22% annualized while enjoying 4.93% downside protection.

Finally, my covered put in short position Express Scripts (ESRX) expired out of the money.  I am writing a new out of the money put to earn some more income while I wait for the short thesis to play out.  I sold ESRX180329P00072500 for 2.07 a share.  The covered put yields an expected 27.42% annualized over 38 days.  I have room for 3.55 in short term capital gains before shares are called away.

Devour your prey raptors!

{ 2 comments }