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Capitulation in General Electric (GE)

I’ve been stopped out of GE.

music selection:   “Irresistible” — Fall Out Boy

I was assigned 300 shares of GE on 13APR2017 at the 30.50 strike.  Shares have performed poorly since.  I was stopped out of my 25% trailing stop loss of 27.68 as of yesterday’s close.  I sold at 27.21 realizing a short term loss of 987 dollars.  Over the duration of the trade I collected 1.06 in options premiums reducing my loss to 669 dollars.

It always hurts to take a loss but I’ve learned you have to cut your losers fast to keep them from turning into disasters like the time I lost over 90% on Vanguard Natural Resources (VNR).  Respecting stop losses is the Raptor way.

Devour your prey raptors!

 

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The Long Portfolio

I’ve had some requests to reveal my full long stock portfolio.

music selection:  “Up All Night” — Hinder

weigh-in:  215.4 +1.8

A large portion of my strategy relies on buy and hold high yield investments.  This is mostly in the form of Closed End Funds (CEF) and Master Limited Partnerships (MLP).  This is how I am able to make most of my budget without needing to trade.  That is an important element because sometimes the market isn’t offering any favorable trades and I need to sit on my hands waiting for a fat pitch.

LONG PORTFOLIO

TICKER GAIN BASIS OPTIONS WHAT
AFSI        (1,308)        (10,500.00) Y Insurance
AGC          584        (3,213.45) N Convertible bonds CEF
AMLP          1,182        (19,725.00) N Alerian MLP index
AWP          1,898        (10,002.46) N Alpine Global CEF
CNXC        3,098        (3,494.08) N Coal MLP
EFR            98      (4,997.68) N Floating Rate CEF
EOG            400        (9,500.00) Y Low Cost Shale Driller
ERICK            (997)        (1,042.40) N Shares received in lieu of bonds in BR
EXXI            (167)            (489.29) N Shares received in lieu of bonds in BR
GE            (351)        (9,150.00) Y General Electric
GEL            (477)        (7,500.00) Y Oil and Gas MLP
GIM          (448)      (20,001.03) N Intl Short duration bond CEF
GLO        1,957      (9,999.64) N Clough Global CEF
HNW            524        (2,513.95) N Pioneer CEF
IGD        1,885        (17,971.20) N Voya CEF
IIM            33        (1,695.83) N Value municipal CEF
IQI          273        (1,664.17) N Municipal CEF
JPS        8,758        (19,998.45) N Preferred shares CEF
JRO          2,457        (15,000.00) N Senior variable debt CEF
MON          188        (9,970.20) N Monsanto merger arbitrage play
MORL          2,847        (29,280.00) N Double levered mREIT ETN
NEA          205        (1,709.32) N Municipal CEF
NVDA          2,374        (10,800.00) Y Nvidia – growth stock
NVG            163        (1,692.97) N Municipal CEF
NYRT        (1,320)        (10,009.44) N NY REIT – Liquidation play
OXLC          420        (5,658.49) N Oxford Lane Capital BDC
PCI          555        (2,523.30) N PIMCO CEF
PMT          1,250        (10,011.60) Y Penny Mac REIT
QCP            158            (894.00) N REIT received from spinoff
REM          845        (4,088.30) N Unleveraged mREIT ETN
SDLP            263        (4,862.00) Y Seadrill MLP
SXCP            (606)        (10,000.00) N Coal MLP
TCEHY            435        (5,052.84) N Tencent – Facebook of China
TRV          252        (9,997.70) N Traveler’s Insurance
TWO          6,770        (24,594.98) Y Two Harbors REIT
Grand      34,037     (309,603.77) /

Devour your prey raptors!

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Update Short Positions (AGAIN)

The shorts have been performing well so I’m topping up again.

music selection:  “What Difference Does It Make?” — The Smiths

Avis Rent A Car (CAR) fell another 3.5% yesterday and it’s time to top up again.  I sold short another 10 shares at 25.28 to bring my exposure back to 2,500.  I’m up 637 dollars so far.

Hertz (HTZ) cratered over 11% yesterday which is what prompted me to go back to the trough this morning.  I sold short another 56 shares at 11.04.  I am up 2,360 in HTZ so far.

I initiated a new short position this morning in Ford Motor Company (F).  I sold short 457 shares at 10.941 for 5,000 worth of exposure.  This play is on the same theme as CAR, HTZ, and GM; the bubble in subprime auto lending has to pop which will deflate used car prices.  GM and Ford will both find themselves with tons of returning leases that are not worth their book value just as new car sales are in cyclical decline.

GM remains 395 dollars in the red. CNQ on the other hand has improved to 8 dollars in the black.  My total return on short positions is 2,608 as of yesterday’s close.  That is on 16,000 worth of exposure since 10OCT2016 or 27.75% annualized.

Some people don’t like to short stocks because they think their upside is limited to 100% as the shares can not fall below zero.  I think it is important to note you can make MORE than 100% on a short if you are diligent about topping up exposure as prices fall.  HTZ is down 70% since I initiated.  But I am up 94.4% on the position thanks to piling on the stock experiences misery.  I think my 27.75% return so far is excellent considering I also get leverage and hedging as a bonus to the positions.

Devour your prey raptors!

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Update Short Positions

Topping up the shorts today.

music selection:  “Bullet The Blue Sky” — U2

weigh-in:  213.6 (1.4) – three consecutive weeks of progress!

I have four short positions open and three of them are in the green.  The market is a little frothy so I’ll try to add more short positions as time goes on to increase my hedging.  High on the list for  a new short is Ford (F).

Canadian Natural Resources (CNQ) is a Canadian oil sands producer of bitumen.  They have been having execution issues with developing their mine including multiple cost overruns and downward revisions in the estimate of available barrels.  They also are a high cost producer of a low economic value form of crude that sells at a discount to WTI.  I expect them to struggle mightily over the long term so long as WTI stays priced below 55 a barrel.  I put on a synthetic short on 9NOV2016 of 2 contracts at the 30 dollar strike.  As of Friday’s close, the position is 6 dollars in the green.

Avis Rent A Car (CAR) is another short position.  I have three short positions open on the theme of a bubble in sub prime auto lending.  Fitch reports that auto loans in default are on the rise.  This ultimately leads to depressed used car prices hurting rental companies and automakers.  The CAR short was opened on 10OCT2016 and topped up on 23MAR2017.  The two positions together are 270 dollars in the green.

Hertz (HTZ) is the second of my rental car positions.  Each of these is half a position of 2,500 dollars at risk each.  I opened the position of 10OCT2016 same as CAR.  Also like CAR, I topped up the position on 23MAR2017 after price declines significantly reduced my capital at risk.  I topped up AGAIN this morning selling 31 shares short at 14.54 a share.  This one has been my best performing short and is 1,714 in the green.

Finally, I have a full position short in General Motors (GM).  GM has been the biggest offender when it comes to loaning money to people who can’t pay it back to buy cars.  I may join them soon with Ford.  I originally shorted 155 shares at 32.32 each on 10OCT2016.  The position is currently in the red by 342 including payments I had to make in lieu of dividends to the original share holders.

Overall, my short positions are in the green by a combined 1,648.  They also provide 12,096 in leverage for my portfolio while acting as a hedge in a general downtown in prices.

Devour your prey raptors!

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Update Discounted Bonds

There has been a change with Erickson Aviation.

music selection:  “Strange Currencies” — R.E.M.

On 7DEC2015, I bought two 8.250 coupon 1MAY2020 maturity bonds from Erickson Aviation.  Last November, the company entered bankruptcy with Debtor In Possession financing.  I got word from my broker last Wednesday that something was afoot.

On Tuesday, my bonds were removed from my brokerage account and replaced with 2.3254 shares of the newly formed Erickson Aviation (ERICK).  It is too soon to try to cash out.  When a company exits bankruptcy this way, there is forced selling of the shares.  In the same way that many bond funds must sell their bonds when the credit rating changes, many bond funds that were able to hold through bankruptcy are legally prohibited from owning equity shares.

Share prices for ERICK should be greatly depressed from their reasonable market value for several  month.  In the meantime, the company has shed a great deal of debt and now is likely an attractive acquisition target.  My cost basis in the new shares is 521.20 each so it is unlikely I will see full recovery of my investment.  But I am going to get something if I’m patient.

Devour your prey raptors!

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Written Put SM Energy Company (SM)

I’m going with a tip from old oilfield services industry contacts.

music selection:  “Passenger” — Deftones

SM Energy is a shale drilling company that has struggled under the falling price of oil.  I have a tip that they have nearly completed a reinvention of the company.  Underperforming assets have been sold and premium acreage in the Permian basin has been purchased.  Debt has been reduced and all maturities have been rolled out past 2021.  The company has sufficient liquidity to drill its high performing Permian assets and should return to profitability in Q2.  It also offers sweet options premiums.

I sold SM170519P00022500 for 1.00 a share.  The trade will be in force for 18 days and yields an impressive 90.12% on an annualized basis while enjoying 5.58% downside protection.  I sold 5 contracts so picked up a clean 500 before commissions.

This one will require tight monitoring as it will be very sensitive to movements in the price of oil.  The Permian acreage should be profitable down to about 35 dollars a barrel though so I’m not overly concerned about a pullback.

Devour your prey raptors!

 

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Update Archer Daniels Midland (ADM)

ADM reported today.

music selection:  “I Want It All” — Queen

ADM’s first quarter profit jumped 47%.   So the stock should be soaring, right?  Nope.  They missed “estimates” and the stock is down almost 9% on the day.  That puts me down about 450 dollars on the two written puts I have outstanding.  The market is really fickle sometimes.  That’s the beauty of options investing though.  You get a margin of safety from your options premiums.  If I had bought the underlying, I’d be down closer to 650 dollars.  And I can still write covered calls to recover from the oops once shares are assigned in early June.  It’s a marathon and not a sprint.

Devour your prey raptors!

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Financial Transparency as of 30APR2017

It’s Financial Transparency time again!

music selection:  “Talk Dirty To Me” — Poison

ASSETS:

Wells Fargo (taxable): This finished the month at 31,266, up from 30,686 last month.  The Trump rally has been treating me well.

Interactive Brokers (taxable): This finished the month at 290,811 up from 286,018 last month.  That is a 1.68% increase.

Interactive Brokers (tIRA): This finished the month at 148,466 up from 147,687 last month.  A pedestrian 0.53% gain.

Checking: This finished the month at 11,538 up from 10,345 at month end.  A 11.53% increase.

Total investable assets finished at 482,041 up 1.54% from last month.  Year to date, I am up 7.76%.

 

LIABILITIES:

Home – paid.

Car – paid.

Income tax liability: I have about 9,000 on deposit with Uncle Sugar to defray 2017 liability.  I’ll probably add another 1,500 or so to that depended on how trading goes in the remainder of the year.

 

WITHDRAWAL RATE:

Assuming withdrawals of about 25,000 for the year, my rate is 5.19.  This has steadily continued to fall as total investable assets has climbed for a few years without any real retrenchments.  Withdrawal rate will be a little higher in 2018 as I will not have prefunded income tax liabilities to rely on.  First world problems, ya’ll.

Forward twelve month distributions, dividends, and interest come to 25,350 or 101.40% of budget.  I collected an additional 2,290 in options premiums in the month and am pacing for 25,229 for the year or an additional 100.1% of budget.  I feel very secure at the moment despite running over the recommended 4% safe withdrawal rate the Bogleheads all swear by.

 

SPENDING:

Spending was quite low but will be higher next month as I have 500 in tax prepayments and a couple hundred dollars in auto repairs that will hit next month’s credit card statements.  Total spending came in at 1,233, a new low for the year.  It’s good to build a little cash in the checking account since I know year end is always a little harder on the budget with insurance and real estate taxes all coming due right as Christmas arrives.

Devour your prey raptors!

 

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More options trades

I was assigned EOG and NVDA over the weekend.

music selection:  “Change It” — Stevie Ray Vaughan

weigh-in:  215.0 (1.0) – progress!

EOG Resources (EOG) was assigned over the weekend at 95 dollars a share.  I wrote a covered call at the same strike this morning.  I sold EOG170609C00095000 for 1.70 a share.  The trade will be in force for 40 days and yields 16.33% annualized.  EOG is the low cost producer of shale so I expect to do well here.

Nvidia (NVDA) was also assigned over the weekend at the 108 strike.  I wrote a covered call at 108 to keep the cash coming in.  I sold NVDA170609C00108000 for 4.20 a share.  The trade will be in force for 40 days and yields a strong 35.49% on an annualized basis.  I was surprised to see the stock drop but I expect it will be back due to a strong position in the specialty chip market.

A new position for me is Micron Technology (MU).  This is a maker of computer memory.  I like this sector because it is highly cyclical.  It takes a long lead time to build out new capacity so memory goes through boom and bust pricing cycles.  It appears a new boom cycle is upon us.  I sold MU170609P00028000 for 1.12 a share.  The trade will be in force for 40 days and yields 36.50% annualized while enjoying 4.58% downside protection.

Finally is Archer Daniels Midland (ADM).  I’ve traded in and out of this one a few times in the past.  It is a big and stable mega cap with a bright future due to a rising middle class in China and India.  It makes for a great and safe trade when options premiums get plump.  I sold ADM170609P00045000 for 1.00 a share.  The trade will be in force for 40 days and yields 20.28% annualized while enjoying 3.89% downside protection.

I’ll be back tomorrow with April Transparency.

Devour your prey raptors!

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Update Discounted Bonds

Positive news from Erickson Aviation (EAC).

music selection:  “I Don’t Care Anymore” — Phil Collins

On 7DEC2015 I bought two 8.250 coupon 1MAY2020 maturity bonds from Erickson Aviation (EAC) for 60.50 cents on the dollar.  On 9NOV2016, the company declared bankruptcy.  The bonds have since been trading under 4 cents on the dollar.  I’ve been patient expecting to receive shares post bankruptcy and see some recovery.

On Wednesday, Interactive Brokers reported that Erickson was the target of an acquisition.  There was no indication who the interested party is.  There is nothing about this on the Erickson website and Investor Relations does not respond to emails about the rumor.  Yahoo Finance and Google Finance have nothing to report either.  Today, the bonds briefly traded above 62 cents on the dollar.  The current price is back down to 2.25 cents on the dollar.

I’ll keep monitoring this situation and will report when I have a resolution.

Devour your prey raptors!

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