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Monday trades – AFSI, SDLP, NAP

Over the weekend, AFSI and SDLP expired out of the money.

music selection:  “Blame Me” — The Pretty Reckless

weigh-in:  204.4 +0.0

AFSI is a promising insurance company that is suffering under an accounting scandal.  They recently sold the unit that the irregularities occurred in.  I’m down 9.26% in the trade but hope to recover.  Today I sold AFSI171215C00017500 for 15 cents a share.  The trade will be in force for 89 days and yields 3.52%.  My loss in the play falls to 8.40% with the collection of the premium.

Seadrill Partners is a drillship MLP that is struggling with the price of oil.  I got in after the price of shares fell sharply with a cost basis of 3.74.  I’ve been writing a covered strangle on this name for income.  My last strangle expired out of the money over the weekend.  Today, I sold SDLP171020C00005000 for 5 cents a share and SDLP171020P00002500 for 10 cents a share.  Both trades will be in force for 89 days and yield an average of 10.25% annualized.  I remain eligible to collect the underlying distribution of 11.94%.  I judge both contracts as being unlikely to be assigned and plan to repeat the trade at expiry.

Navios Maritime Midstream Partners L.P. (NAP) is a new name for me.  This is a dry goods bulks shipper that has seen recent share weakness.  I think the market is overreacting to the recent weakness in bulk dry goods shipping day rates as Navios has over 90% of its fleet locked into long term contracts.  They can weather this storm.  I sold NAP171020P00007500 for 40 cents a share.  The trade will be in force for 33 days and yields 58.99% annually while enjoying 5.71% downside protection.  I will be happy to get assigned at 7.50 as the underlying yields an additional 23% annually.

Devour your prey raptors!

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Update UVXY

I have finally re-entered the UVXY trade.

music selection:  “Tik Tok” — Ke$ha

Buying long dated puts on UVXY remains my highest conviction idea.  UVXY attempts to track twice the daily movement of the ^VIX by daily rolling the 14 and 40 day futures.  The 40 day futures will naturally almost always be more expensive than the 14 day futures as there is more time value to be accounted for.  Economists call this contango.

The long term effect of repeatedly selling a “cheap” asset to buy an “expensive” one is for UVXY to decline an average of 87% a year.  There are sometimes sharp price spikes but the long term trend is irreversible.  You can pick up some pretty easy money by buying long dated puts and holding for a short period of time to capture this decay.

Today, I bought UVXY190118P00020000 for 11.57 a share.  I’m targeting a minimum holding period of 30 days and looking to sell any time my annualized return exceeds 50%.  I’ll then roll down and out.  Annualized gains so far this year include 26.92% over 48 days, 65.43% over 28 days, 24.16% over 175 days, and 587.56% over 6 days.  Cash profits are 7,966, making up the largest portion of my options related income for the year.

Devour your prey raptors!

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Synthetic Shorts Macy’s (M) and JC Penny (JCP)

I’m betting on the death of retail.

music selection:  “Velcro Fly” — ZZ Top

weigh-in:  204.4 +1.6 – doh!

One of the surest trends in the market right now is the shift from brick and mortar to online retail.  The mall based retailers are hardest hit and most are going to zero.  The poster child for this is Sears Holdings (SHLD).  I looked into a short position there but found the pricing was prohibitive.  It is already a very popular short.  I found two names that are well suited to synthetic shorts and I’m jumping in.

Macy’s (M) continues to close stores and to see weakness in the top line.  A direct short does not work here because the borrowing rate is too high.  I’m going with a synthetic short instead.  I sold short M190118C00020000 for 3.875 a share.  I also bought M190118P00020000 for 3.775 a share.  My net credit is 10 cents a share and the trade will be in force for 495 days.  This position provides leverage but not in the same way as a direct short of the underlying as I did not receive the margin balance in cash.

JC Penny (JCP) is a hot mess.  Net income has recently been negative.  Aggressive cost cutting in 2016 resulted in a bottom line number for the year ending January 2017 to come to a measly 1 million dollars.  Free cash flow is negative for three years and the company is slowly bleeding to death.  I sold JCP190118C00004000 for 1.09 a share.  I also bought JCP190118P00004000 for 1.19 a share.  My net debit is 10 cents a share and the trade will be in force for 495 days.

These trades give me leverage and diversification in the form of negatively correlated assets.  It has been hard to be short during a raging bull market but I’m not going to give up on betting against truly miserable companies.

Devour your prey raptors!

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Tuesday Trades – ADM, EOG, CELG

ADM and EOG expired over the weekend.

music selection:  “Times Of Trouble” — Temple of the Dog

Archer Daniels Midland (ADM) covered call expired out of the money on the weekend.  I sold ADM171013C00045000 for 10 cents a share.  The trade will be in force for 39 days and yields a miserable 2.08% annualized.  Including all premiums received, ADM is down 4.04% since 9JUN2017.

EOG Resources (EOG) also expired out of the money over the weekend.  I sold EOG170908C00095000 for 35 cents a share.  The trade will be in force for 46 days and yields 2.92% annualized.  Including all premiums received, EOG is down 1.73% since 29APR2017.

The diagonal call on Celgene moved into the money last week and I’m putting more money into the trade to roll the covered call leg.  I bought to close the 139 strike with 22SEP2017 expiry for three dollars a share.  I sold CELG171013C00145000 for two dollars a share.  Net proceeds to roll the trade were minus one dollar even.  The trade will be in force for 39 days and yields -11.86% annualized.  The full trade is up 5.31 on 55.60 basis since 15AUG2017.  That is good for 9.55% gross.  I’ll refrain from annualizing that as the result would be misleading for a trade that will remain open for more than another year.

Devour your prey raptors!

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Financial Transparency as of 31AUG2017

Happy Labor Day (US) everyone!

music selection:  “Closer to Fine” — Indigo Girls

weigh-in: 202.8 (1.8)

ASSETS:

Wells Fargo (taxable): This is up 224 dollars on the month to 31,667.  On an annual basis, this account has gained 2,533.

Interactive Brokers (taxable): This is up 405 dollars to 307,057.  Year to date the account is up 37,531.

Interactive Brokers (tIRA): This is up 4,344 to 157,109.  On an annual basis the account gained 16,892.

Checking: Boring old cash is up to 12,696 from 12,259.  The annual gain in the checking account is 4,253.

Total liquid networth is up 5,400 to 508,529.  Year to date gains are 61,209 or 20.53% annualized.  That is how you devour your prey.

 

LIABILITIES:

Home – paid.

Car – paid.

Income tax liability: I have 9,510 in prepaid taxes I’ll add 500 more before the 15th and 500 more before year end to bring my prepaid up to 10,510.  That should cover this year’s tax liability.

 

WITHDRAWAL RATE:

Assuming 25,000 in withdrawals for the year, my WR is 4.92%.  Twelve month forward distributions, dividends, and interest come to 29,708 or 118.83% of budget.  I collected 1,327 in options premiums and earned another 3,325 in option profits from my long UVXY puts.  I’m on pace to earn 28,491 in options income for the year or an additional 113.96% of budget.  My budget needs are covered over 200%!

 

SPENDING:

Spending came in at 1,677.  That will be at least 500 dollars higher for September as I’ll make a tax prepayment.  Spending for the year has been 13,657 so far.  That is a 20,486 annual pace or 4,515 under budget.  I feel pretty good about my chances to stay under budget even after my higher year end expenses to pay real estate taxes and insurance.  I also have about 100 dollars in roof and drywall repairs coming up due to Harvey.

Devour your prey raptors!

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Damp

Things got a little moist.

music selection: NONE.  My internet was down for five days robbing me of Pandora Radio.  This made me a very sad lizard.

It has finally stopped raining in Houston (after 26.4 inches per my backyard rain gauge) and things are largely back to normal for me.  I got no water in the house.  I sustained some minor roof and drywall damage that will cost about 100 dollars to repair if I do the work myself.  Many of my neighbors were not so lucky.  Many had water up to the doorknob and a few had water up to the roof line.

Around Saturday morning things looked like it was just going to be another minor inconvenience.  We had one family at the clubhouse taking shelter with their dogs because water was close to getting in the house.  A friend came and got them and we locked the clubhouse back up.  Shortly after dark on Saturday, things started getting bad.  We don’t know where the boats started coming from but they were in the neighborhood backing up to people’s front doors to pull them and their pets out.  I was high and dry and began offering shuttle service to the few hotels in the area that still had rooms.

By Sunday morning, we had 40 refugees plus their animals at the clubhouse speaking English, Spanish, Vietnamese, Korean, and Tagalog.  I huddled the other board members and persuaded them we should expend association funds to buy those people food.  I drove to four pizza joints and four chicken places before I found someone open.  It took an hour and half to get food.  I ordered 80 pieces mixed, 16 sides, and 40 rolls to go.  People who previously said they wouldn’t eat because the stress had killed their appetite changed their tune when they smelled fresh fried chicken.  Generous neighbors brought additional food and no one went hungry through the duration of the crisis.

On Monday, I continued giving rides to and from hotels and the shelter that opened at the Lone Star College for people and their animals.  I had cats, small dogs, medium dogs, large dogs, one VERY large dog, a cockatiel, and a 7 foot boa constrictor named Lester in my back seat.  The car currently looks like Hurricane Harvey happened inside.  The back seat is quite literally muddy.  By Monday night some county high water vehicles had pulled a large number of our refugees out to relocate to a proper Red Cross Shelter.  We were down to about a dozen as people continued to be rescued from rising water in the neighborhood by boat all night.

Tuesday saw the population in the clubhouse fall to six souls and their animals.  We had plenty of food and pet food donated by neighbors.  We began accepting donations at the clubhouse which is now a full fledged donation center.  One board member who had water in his house up to the door knob has elected to remain at the clubhouse rather than return home to begin cleaning to manage the clubhouse donation effort 24/7.  All of our refugees have gone home or to be with friends and family.  We know of no one who died but have multiple calls from worried homeowners who cannot locate pets.

We currently have 6 tables full of clothes, shoes, and cleaning supplies.  If you are in Houston and want to help affected communities, we have found the greatest immediate need is cleaning supplies.  You cannot buy a mop, bucket, bleach, scrub buds, cleaning gloves, or paper respirator masks anywhere in Houston at the moment: everyone is sold out.  Consider donating your surplus to a local shelter or church.  Donating cash to the American Red Cross is another great way to help: http://www.redcross.org/ 

All in all, I am very fortunate.  I have been working tirelessly to serve my local community and will continue to do so until things return to normal.  Speaking of which, I really need to get back to it.  I’ll post Transparency for August over the weekend.  Until then…

Devour your prey raptors!

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Monday trades: SIRI, PMT, SM, CNNX

SIRI and PMT were assigned to me over the weekend.

music selection:  “Future Foe Scenarios” — Silversun Pickups

weigh-in:  204.6 (0.6) – progress

I have newly assigned shares of Sirius XM (SIRI) at the 5.50 strike.  This morning, I sold SIRI170929C00005500 for 20 cents a share.  The trade will be in force for 40 days and yields an impressive 33.18% annualized.  I’m high on the long term potential for this name but I’m highly on the volatility premiums and will be trading in and out of this one to capture current income.

I also have new shares of PennyMac (PMT) at the 17.50 strike.  Premiums proved weak this morning and I had to settle.  I sold PMT171020C00017500 for 15 cents a share.  The trade will be in force for 61 days and yields 5.13% annualized.  That isn’t very appetizing but the underlying does yield 10.84% so I’m doing pretty well on the whole.

I sold new covered calls in SM Energy (SM) and have to admit I’m very disappointed in my performance here.  In fact, I’m close to being stopped out of the position even though I have a wider than normal 35% trailing stop on this.  I sold SM171020C00022500 for a pathetic 5 cents a share.  The trade will be in force for 61 days and yields a miserable 1.33% annualized.  The additional 10 cents in annual distributions is worth a feeble additional 0.72%.  There is no putting lipstick on this pig.

Finally, I sold a covered call on CONE Midstream Partners (CNNX).  The ticker is CNNX170915C00020000.  The trade will be in force for 117 days and I received premium of 25 cents per share for an annualized yield of 3.90%.  Since shares are unlikely to be called away, I expect to collect the distribution which is worth another 6.56% a year.  Long term, I think this will be a distribution growth machine and price will recover with distribution growth.  This is one to be patient with.

Together, the average annualized yield on the four trades is 10.88%.  After a 25% tax drag, that is good for an expected after tax return of 8.16%.  Add in the distributions on the underlying and I am beating the long term average of a buy and hold S&P 500 investor.  Not bad for a period when I doing relatively poorly with my trading.  I’ll take it.

Devour your prey raptors!

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Early Assignment Blackstone (BX)

Shares of BX were assigned to me early today.

music selection:  “Beast Of Burden” — The Rolling Stones

On 17JUL2017, I sold BX170825P00034500 for 90 cents a share.  Shares have moved into the money and I was assigned early this morning.  There isn’t much demand for 34.50 strike covered calls but I took a swing anyway.  I sold BX170922C00034500 for 11 cents a share.  The trade will be in force for 38 days and yields 3.06% annualized.

The underlying shares yield 6.26% annualized based on distribution divided by 34.50 cost basis.  I could realistically end up collecting that as shares are showing some weakness.  I like Blackstone long term as dividend play.  They have a very strong underlying business with high margins and steady growth.  There is a lot of variability in the distribution but I expect distribution growth to be the trend over time.

Devour your prey raptors!

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Diagonal Call Celgene (CELG)

I opened a diagonal spread on Celgene (CELG).

music selection:  “A Stroke Of Luck” — Garbage

Celgene is an excellent candidate for a diagonal call.  It is stable with gushing cash flows and robust growth ahead of it due to a stocked full pipeline of promising drugs in Phase III trials.  I’ll leave breaking down the financials and valuation strengths to the Seeking Alpha types.  But I’ll also note there is a lot of meat on this tasty looking bone.  The diagonal call allows me to get leveraged exposure to that upside while earning an acceptable return on the deployed cash while I wait.  It also lowers risk as I have less capital deployed than on a simple written put or covered call strategy.

The diagonal call strategy is a spread composed of a long dated long call purchased deep in the money and a near dated short call sold somewhat out of the money to capture leveraged premium while leaving room for leveraged upside price appreciation.  The short call can be rolled repeatedly for additional income and to expand upside price appreciation potential.

I bought CELG190118C00055000 for 78.90 a share.  Going as deep into the money as possible maximizes my leverage in terms of cash deployed while minimizing the time value on the option which is a drag on long term returns of the long call.  Since shares are trading for about 132 dollars right now, I have about 40% leveraged exposure to upward or downward movement in the price of the underlying.  That is the primary reason for opening the diagonal call.

Since the above call is deep in the money, I effectively control 100 shares of CELG.  Writing a call against such a position carries no more risk that writing a call while owning the shares outright. In fact, it carries lower risk because less capital has been put at risk.  In the event of a bankruptcy, for example,  My loss is 7,890 instead of 13,200.  The lowered effective basis also provides leverage to the covered call position.  About 40% in this instance, thus allowing a lizard to write out of the money calls and still earn a good return on invested capital.

I sold CELG170922C00139000 for 1.28 a share.  The trade will be in force for 39 days and yields 15.18% annualized.  At the same time, there is room for 5.22% upward price appreciation in the shares during the holding period.  With the provided leverage, this would be a 8.75% gain on invested capital.  The hope is to capture a small amount of this potential appreciation and roll up six weeks for now to continue capturing price appreciation with leverage.

You may be wondering what the catch is.  It is simply that the long call has about 1.83 in time value on it.  It is a certainty this $183 will decay to zero by expiry.  The beauty of the setup is 128 dollars of this time value will be recovered in a little under 6 weeks.  The trade should then be producing a net profit in terms of time value while still providing leverage on the upside.

Devour your prey raptors!

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Update UVXY Puts

I sold the UVXY puts.

music selection:  “Between Love And Hate” — The Strokes

weigh-in:  205.2 +0.2

I originally purchased UVXY190118P00020000 on 8AUG2017 for 10.25 a share.  Volatility soared shortly thereafter on international tensions with North Korea.  I was able to sell today for 11.24 a share.  The trade was in force for a scant 6 days and yields and enormous 587.56% annualized.  For sure, this is not going to be very repeatable but you have to take big gains when you can get them.  I’ll be waiting for volatility to calm down a touch before re-establishing a position.

In other news, Avis (CAR) passed its stop loss of 18.05 on Friday.  I sold today for 18.79.  The position had 223 shares outstanding and basis of 5,929.61.  Proceeds were 7,825 for a net loss of 1,895.46.  The trade was in force for 308 days and yields negative 37.88% on an annualized basis.  It has been hard to be short lately but I am sticking to my guns.

Devour your prey raptors!

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