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Friday Fixed Income

Three possibilities in the closed end fund debt space.

music selection:  “Come On Eileen” — Dexy’s Midnight Runners

Each Friday, I post three closed end funds invested in debt and debt like securities.  These can serve as the anchor of a income centric portfolio to support early retirement.  I keep 40% of my portfolio in this sector and it is sufficient to cover my early retirement budget.  I have another 60% available for trading and growth to ensure I stay ahead of inflation.

KKR Income Opportunities Fund (KIO) is a closed end fund that seeks a high level of current income with a secondary objective of capital appreciation through investment in loans and fixed-income instruments of U.S. and non-U.S. issuers.  It pays an income only distribution on a monthly basis.

  • Discount to NAV – 8.06%
  • Yield – 9.32%
  • Effective leverage – 29.57%
  • Expense ratio – 2.60%
  • Learn more

Barings Global Short Duration High Yield Fund (BGH) is a closed end fund that seeks a high level of current income with capital preservation through investment in high yield bonds, loans and other income-producing securities. It pays an income only distribution on a monthly basis.

  • Discount to NAV – 8.37%
  • Yield – 9.49%
  • Effective leverage – 26.38%
  • Expense ratio – 2.37%
  • Learn more

NexPoint Strategic Opportunities Fund (NHF) is a closed end fund that seeks current income with capital appreciation through investment in floating and fixed rate loans, bonds, debt obligations, mortgage backed and asset backed securities, collateralized debt obligations and equities.  It pays an income only distribution on a monthly basis.

  • Discount to NAV – 15.81%
  • Yield – 10.86%
  • Effective leverage – 14.77%
  • Expense ratio – 2.21%
  • Learn more

Devour your prey raptors!

{ 4 comments }

Financial Transparency as of 31MAY2018

May 2018 results.

music selection:  “Wonderful Tonight” — Eric Clapton

ASSETS:

Wells Fargo (taxable): This is up 394 dollars, a 1.33% gain versus last month. The new mark is at 30,062.  Year to date, this account is down 2.02%, not fully recovered from the volatility events of January and February.

Interactive Brokers (taxable): This is up 17,784 to 305,253 a gain of 6.17% versus last month. Rising interest rates have begun to impact my fixed income investments.  Year to date, this account is down 18,584 or 5.74%.  This is largely driven by the dead money in the UVXY trade.

Interactive Brokers (tIRA): I show 383 in declines here this month to 166,438 which is good for a 0.23% monthly loss. I am watching my trailing stops here but nothing seems threatened at the moment.  Year to date, this account is up 2.08%.

Checking: I’m up here to 12,612 a gain of 3.22% on the month and 4.99% on the year.

HSA: This account is up 179 dollars to 3,459.  That is a 5.45% increase.  This account is small and highly volatile as I have it entirely in the triple levered UPRO.

Total Assets: Back above the half a million mark.  May finishes at 517,824. That is good for an overall monthly gain of 3.67%.  Year to date, I am down 2.22.  I am watching the yield curve closely for an inversion which will be my signal to tighten stops.

 

LIABILITIES:

House: Paid

Car: Paid

Taxes: I have a tax asset of 12,445.  I will prepay another 500 this month.

 

SIDE GIG:

I started with the local water board as a director this month.  I will be paid 150 a month for my services.  First check came out to 132 and change after OADSI and medicare taxes.

 

WITHDRAWAL RATE:

The budget remains set at 25,000.  Against a liquid networth of 517,824 that is a withdrawal rate of 4.83%.  Current annualized distributions, dividends, and interest come to 29,525 or 118.10% of budget. I also earned 4,278 in options income during May.  Annual options earnings  should easily cover the budget two times over this year.

 

SPENDING:

A little more spendy than usual this month.  I came in at 2,049 for the month of May.  That is a 17,930 annual pace so far.  October through December are more expensive as real estate taxes and insurance come due.  Should come in well under the 25,000 target however.

Devour your prey raptors!

{ 9 comments }

Bro, do you even lift?

Another workout complete.

music selection:  “Lubricated Muscle Drive” — Mother Love Bone

waistline:   40.5 inches

The Stronglifts 5×5 iPhone app is a little bewildering.  It adds weight to the exercises when I don’t expect it.  So it is now recommending things I literally cannot lift – yet.  I may delete the app and re-install after reading some documentation.

I am already having a little trouble with the squats.  I got through all 25 reps but I was feeling it.  Overhead press was today and I think I need to work on my form.  My back feels awkward during that exercise.  Deadlift felt clean.

Devour your prey raptors!

{ 4 comments }

Update UVXY

My UVXY puts continue to be ‘dead money’.

music selection:  “The Locomotion” — Grand Funk Railroad

weigh-in:  198.4 (1.4)

I have made a lot of money in the past on the UVXY long put trade.  I expect to make more in the future.  For now, my current trade is deeply impaired.  The volatility events of January and February caused a severe disruption in the markets for VIX futures.  One VIX oriented fund was forced to liquidate.  UVXY reduced its target leverage from 2x to 1.5x.  This action really kneecapped the time value on my 6 strike puts.  It is also going to take longer for the puts to reach the money as the underlying now moves slower.

I have given it a lot of thought and come up with a plan.  I will try to hold until UVXY reaches 6 and no longer.  I will take whatever gain or loss the market is offering at that time.  If there is a loss, I will sit out the trade 30 days to avoid the wash sale rule.  I will then re-enter the trade.  Alternatively, I will re-evaluate in December if it is to my advantage to harvest a tax loss.  If I can secure another ACA credit by taking the loss early, I will do so.

As another option, I have been running an experiment with shorting VXX directly.  I tried this before with a direct UVXY short but the borrow rates were punitive and I kept getting forced out of the trade when my broker could not locate shares to borrow.  I have not had that problem with VXX.  There seems to be a much deeper pool of shares to borrow and the borrowing rate is more favorable.

I shorted 531 shares of VXX at 42.20 on 15FEB2018.  I shorted another 81 shares at 39.12 on 26FEB2018.  I did it again with 26 shares at 36.22 on 15MAY2018.  A final short sale of 40 shares at 33.76 was made on 21MAY2018.  I am targeting 7.5% exposure in my taxable Interactive Broker account.  Whenever I am 1,000 dollars or more below the 7.5% target, I top up the short.  I am currently sitting on 4,661 in unrealized capital gains.  The interest line on my brokerage account has been showing between 90 and 150 dollars a month.  I’m going to estimate the trade has cost me about 400 dollars to maintain.  The strategy appears to be worthwhile so far.

Devour your prey raptors!

{ 4 comments }

Friday Fixed Income

Three Closed End Funds.

music selection:  “Highway 90” — Jane Jensen

Each Friday, I share three closed end funds invested in debt and debt like instruments.  These funds are chosen based on yield and discount to NAV.  I allocate 40% of my portfolio to this strategy.  The result has been a passive cash return that exceeds my annual budgetary needs.  It is a great relief to not be forced to make options trades when nothing attractive is on offer.  Don’t pick up nickles in front of a steam roller!

Aberdeen Inc 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 – 8.48%
  • Yield – 10.43%
  • Effective leverage – 30.07%
  • Expense ratio – 2.26%
  • Learn more

NexPoint Strategic Opps Fund (NHF) is a closed end fund that seeks current income with capital appreciation through investment in floating and fixed rate loans, bonds, debt obligations, mortgage backed and asset backed securities, collateralized debt obligations and equities.  It pays an income only distribution on a monthly basis.

  • Discount to NAV – 14.65%
  • Yield – 10.70%
  • Effective leverage – 14.77%
  • Expense ratio – 2.21%
  • Learn more

Eaton Vance Tax Advantaged Bond And Option (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 – 7.03%
  • Yield – 11.79%
  • Effective leverage – 0%
  • Expense ratio – 1.45
  • Learn more

Devour your prey raptors!

{ 2 comments }

Bro, do you even lift?

A new weekly (Wednesday) series from Lizard King.

music selection:  “These Eyes” — The Guess Who

waistline: 41 inches

I am starting the Strong Lifts 5×5 program.  I have a lot further to go that most would be weight-lifters as I’m certifiably ‘skinny-fat’.  I have poor balance, worse coordination, and limited body strength.  I have always been more of a geek than an athlete.  But I’ve accomplished some seemingly impossible things in my day including a 3.95 undergrad GPA, grad school, and then early retirement.  I think I can stick with this program and make halting but steady progress.

First step was to change gyms.  I have been at Planet Fitness which is effectively a cardio only gym.  There are free weights and machines but they kick you out of you lift heavy enough to make any noise.  There is an actual “Lunk Alarm”.  I switched to Gold’s Gym which is similarly priced.  Unfortunately, it started with a 40 minute “orientation” which was a prolonged sales pitch to sell meal plans and personal training.  I know it was just your job Andrew, but you came across as sort of a tool.

I did manage to steer my orientation to demonstrating the five core exercises in Strong Lifts 5×5.  It is clear that I cannot start any heavier than twenty pounds.  I’m planning to stick with the program for about a year before exploring other things so even I can only add 10 pounds a month, I’ll be lifting a reasonable amount by this time next year.

I will be taking a waistline measurement each Wednesday.  I’m already tracking body weight but I hope to exchange some fat for muscle and see that show up in a shrinking waistline even during periods my weight is stable.  I was at a 46 inch waist when I started my weight loss journey on 1MAR2015.  Today’s mark is 41 inches which might be a temporary mark as I lost a lot of fluid over the weekend to a stomach bug that had me expelling noxious substances out both ends.  I apparently devoured something the internal flora didn’t like very much.  Wish me luck, raptors.

Devour your prey raptors!

{ 11 comments }

Monday Trades

Nine positions expired over the weekend.

music selection:  “Babe” — Styx

weigh-in:  See Dietary Milestone

First, some portfolio maintenance.  In my tIRA account, I stopped out of Altria (MO).  I sold and redeployed those funds plus some extra from dividends into Dow Dupont (DWDP).  The Dow/Dupont merger has always been intended to be short lived.  They were two companies trading at a conglomerate discount that lacked the breadth of product offerings to make productive spinoffs.  The new combined company will be broken up into three companies (a “new” Dow, a “new” Dupont, and a “new” agricultural chemical and seed company.)  I expect the conglomerate discount to fade after the break up.  Additional spinoffs will probably follow.  The agribusiness company will be a strong candidate for buyout by larger players.  I am target a 400% return over a 8 year holding period.

I also sold out of JRO, a closed end fund invested in variable rate loans.  The investment had performed well enough but I grew concerned about the quality of the underlying credit as we are approaching an inversion of the yield curve.  I want to raise cash and hold the highest quality debt instruments.  The cash was no redeployed and instead I raised about 13,000 for the rainy day fund.

First up for expired positions to roll forward is Venator Materials (VNTR) my titanium dioxide play.  I sold VNTR180615P00017500 for 30 cents a share.  The trade will be in force for 26 days and the expected annualized return is 24.07% and the downside protection on the put is 4.87%.

Scott’s Miracle Grow (SMG) is my picks and shovels play for the marijuana industry.  It has not performed as well as hoped but still meets my minimum requirements.  I sold SMG180615C00090000 for 1.00 a share.  The trade will be in force for 26 days and the expected annualized return is 15.60%.

ON Semiconductor (ON) was assigned several weeks ago and I am writing covered calls to earn additional income.  I sold ON180615C00025000 for 45 cents a share.  The trade will be in force for 26 days and the expected annualized return is 25.27%, which is pretty strong considering the calls are a couple strikes out of the money.

Match Group (MTCH) took a kneecapping when Facebook announced it intended to begin competing with the company.  I don’t think this is a credible threat as I don’t believe people are going to want to mix their dating efforts with the site they use to share backyard bbq pics with grandma.  Shares have already begun to recover.  I was assigned over the weekend none-the-less and am writing calls while I wait for the price to come back to par.  I sold MTCH180615C00046000 for 30 cents a share.  The trade will be in force for 26 days and the expected annualized return is 9.16%.  I had already earned 8.69 in premiums from writing puts so despite the sharp price decline, I am up over 8% in the trade.

Macquarie Infrastructure is a buy to hold yield play that I am writing out of the money covered calls on for bonus income.  Calls expired worthless over the weekend and I am going back for more.  I sold MIC180720C00042500 for 15 cents a share.  The trade will be in force for 62 days and yields an expected 2.08% annualized.  In the unlikely event shares are called away, I will collect another 5.48 in short term capital gains.  I remain eligible to collect the underlying 10% yield.

Prospect Capital is a long term holding that has a strong and sustainable yield around 11%.  There are sometimes opportunities to pick up a few percent more with covered calls.  To that end, I sold PSEC180817C00007000 for 5 cents a share.  The trade will be in force for 89 days and yield an expected 2.93% annualized.

I got a partial fill in covered calls on Suncoke (SXCP).  This is a high yield metallurgical coal play that sometimes has a covered call opportunity.  I sold one out of five calls SXCP180817C00020000 for 5 cents a share.  The trade will be in force for 89 days and yields an expected 1.03% annualized.  I will try to sell the other four calls again tomorrow but liquidity is very low at this strike.

I failed to get a fill today in covered calls for Brighthouse Financial (BHF) and a covered put in AMC Networks (AMCX).  I will probably try to go out to further expiries to find more liquidity tomorrow.

Devour your prey raptors!

 

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Dietary Milestone

Weighed in under 200 pounds.

music selection:  “Night Moves” — Bob Seger & The Silver Bullet Band

weigh-in:  199.8

On 1MAR2015, I hit 250 pounds.  I decided to do something about my weight.  It has not been easy.  It has taken almost 3 and quarter years to lose 50 pounds.  Importantly, I still have 35 pounds to go to my target weight.

I find that the process of losing weight is a lot like saving for early retirement:

  • It takes discipline
  • It takes time
  • Small wins add up over time
  • It is a marathon and not a sprint

I need a little extra oomph to lose that next 35 pounds as progress has gotten really slow.  Starting this week, I will be doing the Strong Lifts 5×5 program.  It was recommended by some early retiree aficionados at local meetups as an effective way to gain lean muscle mass and lose fat.  I am prepared to give it a try.

To that end, I’ll be posting a series each Wednesday (Bro, do you even lift?) that tracks my progress.

Devour your prey raptors!

{ 1 comment }

Friday Fixed Income

Three Closed End Funds.

music selection:  “Jet” — Paul McCartney & Wings

Each Friday, I share three closed end funds invested in debt and debt like instruments.  These funds are chosen based on yield and discount to NAV.  I allocate 40% of my portfolio to this strategy.  The result has been a passive cash return that exceeds my annual budgetary needs.  It is a great relief to not be forced to make options trades when nothing attractive is on offer.  Don’t pick up nickles in front of a steam roller!

First Trust Strategic High Income 2 (FHY) is a closed end fund that seeks high current income with capital growth through investment in non investment grade and investment grade debt and equity securities.  It pays an income only distribution on a monthly basis.

  • Discount to NAV – 14.00%
  • Yield – 8.05%
  • Effective leverage – 26.73%
  • Expense ratio – 1.96%
  • Learn more

Advent Claymore Convertible & Income (AVK) is a closed end fund that seeks total return from current income and capital appreciation through investment in convertible and non convertible debt securities.  It pays an income only distribution on a monthly basis.

  • Discount to NAV – 10.91%
  • Yield – 9.21%
  • Effective leverage – 39.07%
  • Expense ratio – 2.37%
  • Learn more

Advent Claymore Convertible Securities And 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 – 10.83%
  • Yield – 9.93%
  • Effective leverage – 40.91%
  • Expense ratio – 3.49%
  • Learn more

Devour your prey raptors!

{ 0 comments }

No Trade

SIRI expired out of the money over the weekend.

music selection:  “Crazy” — Seal

weigh-in: 202.4 +1.0 – doh!

My puts in Sirius XM (SIRI) expired safely out of the money over the weekend.  I earned 552 for my trouble.  This morning, I entered a limit order for SIRI180622P00006500 at 10 cents a share.  That trade would have been in force for 40 days and yield an expected 14.04 annualized.  Unfortunately, the order never cleared the market.  I was unwilling to go lower and take on more risk for such a small amount of income.

I am in the process of dialing down my risk now that the yield on the 10 year Treasury has breached 3%.  This removes about 15,000 in liability from my account.  I have said it several times before and the best trade you can make is often times – no trade.  It makes no sense to pick up pennies in front of a steam roller.

Being able to pass on trades while early retired requires a strategic fixed income allocation.  Like I often discuss during Friday Fixed Income, I earn enough passive income to cover about 126% of my budget.  This is critical to ensure I can wait out the markets if nothing attractive is on offer.  Volatility is back near all time lows and option premiums are getting weaker.  I may have to pass on several more trades before the big money starts rolling in again.

In the meantime, I will de-risk and raise cash.  When the business cycle rolls over again, probably driven by inversion of the yield curve, I will be poised to strike.  Premiums will be plump again (and further supported by higher interest rates).  There will be attractive risk-reward setups in deeply discounted high yield bonds again.  And there might be good opportunities for short trades as well.  I am planning ahead to weather the storm.

Devour your prey raptors!

{ 4 comments }