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Devour Your Prey Lady Raptors!

Devour your prey raptors!

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Topping up rental car shorts

My rental car shorts are doing well so I’m topping them up to a full position size.

music selection:  “Lil’ Devil” — The Cult

weigh-in:  214.0 +2.0

Overall, my short positions are up a little over 1,000 dollars.  That is quite an improvement since I last checked in on them.  The drivers are a 363 unrealized profit in CAR and a 1,280 unrealized profit in HTZ.

To top the positions up (and hopefully earn additional return) I sold 13 shares of CAR short for 28.60 on Thursday.  I also sold short 72 shares of HTZ at 17.82.  This brings both positions up to about 2,500 each.  I consider a full short position to be 5,000 and CAR/HTZ are a paired bet on the entire car rental industry.  I don’t know which one, if either, will be a bigger loser so I spread the bet out.

Bad economic news that is good news for the CAR, HTZ, and GM shorts: Fitch reports delinquencies greater than 60 days on subprime auto loans is over 5% and nearly 6%.  That puts us in the same territory as the beginning of the 2008 financial crisis.  Meanwhile, the National Automobile Dealers Association (NADA) reports used car prices have fallen 1.6% for the month.This was the 8th straight week of declining used auto prices.  Rental companies rely on firm used car prices to rotate into newer inventory and maintain their balance sheet position.  Things are getting tight for automakers on new car sales as well.  Cash incentives from manufacturers are rising at an alarming rate.  Among the U.S. Big Three, GM raised incentives by 27.4% in February to an average of $5,125 per unit. Spending at Ford Motor Company rose by 20.9% to $4,012 per unit, while Fiat/Chrysler increased incentives by 10.6% to $4,365.  It is harder to sell new cars and financing for marginal buyers is certain to get tighter.  Things could get ugly for the big three.

CNQ and GM have been moving in the right direction lately but are both still underwater.  I’ll top them up as appropriate if fortune turns.

Devour your prey raptors!

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Tuesday Trades – PMT, SDLP, SXCP

I sold three covered calls today.

music selection: “Fortress Around Your Heart” — Sting

On Monday, I failed to sell covered calls in Penny Mac (PMT), Seadrill Partners (SDLP), and Suncoke (SXCP).  I went further out on the expiry today and found some liquidity.

PMT is one I’ve held for some time and written multiple calls against.  It trades in a tight range while paying a fat distribution, making it perfect for a covered call strategy.  I sold PMT170721C00017500 for 35 cents a share.  The trade will be in force for 124 days and yields 5.89% annualized.  The underlying distribution is another 10.97%.

SDLP is the best in class offshore drilling rig MLP.  With oil prices subdued, it is struggling and I may have to cut bait on this one and run.  Until then, I will try to reduce my risk and improve my returns with covered calls.  I sold SDLP170915C00005000 for 15 cents a share.  The trade will be in force for 180 days and yields 6.08% annualized.  The underlying distribution, which I am likely to collect, is 11.87%.

SXCP is an MLP provider of metallurgical coal.  Financial results are strong but the stock is struggling while the general partner makes low ball offers to purchase the remaining shares.  I expect shareholders to reject the offer and the price to recover somewhat.  I sold SXCP171117C00020000 for 40 cents a share.  The trade will be in force for 243 days and yields 3.00% annualized.  The underlying distribution pays an additional 15.23%.

Devour your prey raptors!

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Monday Trades – AFSI, SHOP, NVDA, EOG, GEL

I opened four new positions and rolled one old one today.

music selection:  “Bad To The Bone” — George Thorogood

weigh-in:  212.0 +0.8

I was unable to find buyers for three positions I was trying to roll forward.  Those are SXCP, SDLP, and PMT.  I’ll try again tomorrow with longer expiries to see if I can’t hunt down some liquidity.

The first new position is in AmTrust Financial Services (AFSI).  This is a property and casualty insurer I have been watching for some time.  The company  has grown book value per share by over 1000% in the trailing ten years.  They have hit a small snag in the accounting department.  They have a side business operating call centers and it has been determined earnings from that segment have been misstated.  Shares fell by about 13% on the news making this one attractively priced.  It is important to note management reports there are no known accounting problems with the core insurance business.  From the press release, “The 10-K delay and restatement largely relate to the timing of recognition of revenue, as previously announced, in the Company’s service and fee business, which we expect will remain profitable in each of the fiscal years 2014, 2015 and 2016. In addition, we believe the corrections will have no material impact on the Company’s ongoing insurance operations, statutory entities or statutory surplus.”  The scare has sent the volatility premium soaring so I have written an in the money put to try to capture premium while acquiring attractive priced shares.  I sold AFSI170421P00017500 for 1.50 a share.  The trade will be in force for 33 days and yields an impressive 94.81% annualized while enjoying 6.38% downside protection.

The second new position is Shopify (SHOP).  This is a very strong business with great margins and rapid growth.  They are a fierce competitor.  Amazon was unable to pry away market share with their online store software offering and have instead teamed up with them and recommend the service to their own customers.  I see opportunity for a long series of written puts and covered calls against this ticker.  I sold SHOP170421P00065000 for 1.30 a share.  The trade will be in force for 33 days and yields 22.12% annualized while enjoying 6.75% downside protection.

Also new to the portfolio is Nvidia (NVDA).  This is a chip manufacturer that specializes in small heat efficient chips and parallel processing for machine learning applications.  It is well positioned to capture market share in wearable components and self driving car applications.  The company has a core business providing chips for gaming applications that is highly profitable and funds vigorous R&D into machine learning.  This is another one that I think will throw off years of profitable written put and covered call trades.  I sold NVDA170428P00108000 for 3.85 a share.  The trade will be in force for 40 days and yields 32.53% annualized while enjoying 4.92% downside protection against a fall in market price.

The final new position to the portfolio is shale oil producer EOG Resources (EOG).  I’ve been doing some digging into shale operators and I think this one is best in class.  The balance sheet is very strong, they have excellent acreage and are productive drillers.  The last part can’t be overstated.  They are sometimes getting double the production versus competitors from similar wells.  Their estimated all in sustaining cost in the Permian is 12 dollars a barrel.  They will remain wildly profitable even with another crash in commodity pricing back down to 24 dollars a barrel.  The current market offers excellent chances to hedge future production.  I sold EOG170428P00095000   for 2.60 a share.  The trade will be in force for 40 days and yields 24.97% annualized while enjoying 3.41% downside protection.

Finally, I have an old position in Genesis Energy (GEL) that I am writing a new covered call on.  This is a midstream operator organized as a Master Limited Partnership (MLP).  It enjoys tax exempt status so long as it distributes most of its free cash flow to unit holders and thus sports a high yield.  We can do better than just the underlying yield though by writing covered calls for additional income.  I sold GEL170616C000375000 for 15 cents a share.  The trade will be in force for 89 days and yields 1.88% annualized.  I remain eligible to collect the underlying distribution yield of 8.7%.

Devour your prey raptors!

 

 

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Friday Expiries

All four covered call positions expiring today finished out of the money.

music selection:  “Out Of Exile” — Audioslave

SDLP finished a long way out of the money.  The general partner issued lower guidance and the limited partner suffered as a result.  I’ll have to watch this one for triggering a stop loss.  I collected 195 in cash over 54 days for a 20.28% annualized return.

PMT finished a little over 2% out of the money.  I should be able to get good pricing on a new covered call here on Monday.  I collected 60 dollars in cash over 25 days for an annualized return of 8.34%.  The underlying shares yield almost 11% as well.

SXCP received a low ball a low ball buyout offer from the general partner today sending shares down over 11%.  I don’t think the limited partners will accept the offer but for now, I’m under water.  I collected 50 dollars over 25 days for an annualized return of 7.30%.

GEL has been a little disappointing and finished 15.46% out of the money.  I really expected more of Trump bounce here.  I collected 30 dollars over 39 days for an annualized return of 5.84%.

I might not be able to roll all of these positions on Monday but I expect to have some new written puts to trade that will boost income.

Devour your prey raptors!

 

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Review of Open Short Positions

I have short positions open in CNQ, CAR, HTZ, and GM.

music selection:  “Save Tonight” — Eagle-Eye Cherry

weigh-in: 211.2 (0.2)

I have four short positions open to hopefully profit off troubled stocks while providing a small amount of hedging.  Those positions are mixed bag and I’m going to review them all here.

Canadian Natural Resources (CNQ) is a tar sands producer in Canada.  They are struggling to bring new production online on schedule and under budget.  This is a high cost producer of low quality crude and I think it can’t long compete with Eagle Ford and Permian shale oil.  Unfortunately, the stock has rallied recently (after being a  strong winner for me) and is an underwater play.  This is a synthetic short (naked call/long put) at the 30 strike and 19JAN2018 expiry.  My unrealized P&L is a 238 dollar loss.

Avis Rent A Car (CAR) is a small winner for me.  I am betting against this one (and Hertz, half positions each) because I think there is a bubble in subprime auto lending.  This ultimately means depressed prices for used cars which will be very damaging to the rental car business economics.  I’m up 27 dollars here.

Hertz (HTZ) is doing much better for me and is my best short.  It faces the same headwinds as CAR but it seeing more heat in the market.  I am up 40% or so.  That’s an unrealized profit of 1,008.

Finally, I am short General Motors (GM).  I was doing pretty well here but the company wisely unloaded its struggling European business to a competitor.  This will improve margins and provides much needed cash.  I still think sales will take a hit when the sub prime auto lending bubble pops.  It is also evident this company is being run by and for the autoworkers union.  If I can stay in the position long enough, it should be a big winner.  So far, I am down 820 including payments made in lieu of dividends.

Altogether, I’m down 23 dollars on these four combined short positions.  I feel like I am getting hedging at a fair price considering the market has been mostly up since the election.   I will continue to look for more attractive short opportunities.

Devour your prey raptors!

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Opening a merger arbitrage play.

music selection:  “A Stroke Of Luck” — Garbage

weigh-in:  211.4 (0.6)

I purchased Monsanto (MON) today at 114.60.  The company is attractive in its own right.  It gushes free cash flow and has a dominate market position in its segment.  Bayer has made a buyout offer of 128 dollars a share – Cash.  That is an 11.69% premium over my purchase price if the deal goes through.  It will probably take some months for the deal to go through but I expect to do well with with very low risk.  If the deal doesn’t go through, I own a great business yielding 1.88%, is optionable, and MON will collect a 2 billion dollar breakup fee if the deal fails.  That two billion is an important kicker as it would like MON with a fortress of a balance sheet.  As the spread between the offer price and spot price narrows, it may become worthwhile to juice returns with covered calls written at the 128 strike.  Right now there is no liquidity at that strike.

I also sold puts on General Electric (GE).  My previous puts expired out of the money on Friday.  I’ve gone 50 cents in the money again as I’m eager to get assigned.  I sold GE170413P00030500 for 74 cents a share.  The trade will be in force for 39 days.  It yields 22.71% annualized and enjoys 2.43% downside protection from a downward move in the stock price.  GE remains attractive due to restructuring that has greater lowered risk in the financial division and the development of the Predix operating system that promises to do for GE what iOS did for Apple. If assigned, I will begin writing covered calls 10% out of the money to collect some income while I wait on price appreciation.

Devour your prey raptors!

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Friday Expiry – General Electric (GE)

My puts in GE expired out of the money today.

music selection:  “Tahitian Moon” — Porno For Pyros

I wrote three puts at the 30 strike on 23JAN2017.  I pulled in 87 cents a share in premium.  This trade was in force for 40 days and yielded 26.46% annualized.

My plan was actually to get assigned and write out of the money covered calls to capture upside appreciation as I think GE has years of gains ahead of it due to capital restructuring and the new Predix operation system.  I’ll try again on Monday.

Devour your prey raptors!

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Financial Transparency as of 28FEB2017

Month two of 2017 is in the bag.

music selection:  “Black Mambo” — Glass Animals

 

ASSETS:

Wells Fargo (taxable): This increased 2.65% over last month to 30,536.  This portfolio has a current yield over 10%.

Interactive Brokers (taxable): This decreased this month by 0.71% to 277,750.  Current yield here is a little over 6%.

Interactive Brokers (tIRA): This increased 3.77% to 147,684.  This is where most of my insurance holdings are.  I expect this portfolio to do well under Trump financial deregulation.

Checking: This is up 5.13% to 9,596.

Total liquid networth sits at 465,566, up 1.00% over last month.

 

LIABILITIES:

Home – paid.

Car – paid.

Income tax liability should be zero for 2016.  I have enough not taken as prior year refunds to cover my liability and should also collect an Obamacare subsidy.  I’m still waiting on K-1s before I can file.

 

WITHDRAWAL RATE:

My withdrawal rate (based on assumed 25,000 annual withdrawals) is 5.37%.  Projected twelve month dividends, distributions, and interest come to 25,922 or 103.69% of budget.  I collected 2,985 in options income for the month of February, of which 1,365 was from rolling UVXY puts.  Based on my current pace for the year, annual options income will come in around 29,500 or over 110% of budget.  Things look pretty rosy.

 

SPENDING:

This was a good month on spending containment.  Total outflows totaled 1,643.   I am pacing to finish the year about 5,000 under budget.  I’m still kicking around the idea of doing 20,000 in Roth conversions which would consume that 5,000 surplus.

 

Devour your prey raptors!

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Going to FinCon 2017

I’m registered for FinCon!

music selection:  “Spoonman” — Soundgarden

weigh-in:  212.0 +1.0

FinCon is in Dallas this year.  That’s close enough for me to drive so I’m taking the plunge.  The conference is October 25-28 this year at the downtown Dallas Sheraton.  I’ve booked tickets and a hotel (not the Sheraton, it was expensive!)

I hope to learn a few things to improve this blog.  I fully recognize I’m doing this as an amateur.  There is probably a lot of room for improvement.  Hope to meet some of you there!

Learn more about FinCon at: https://finconexpo.com/

Devour your prey raptors!

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