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Calls assigned early – PSEC

My covered calls in Prospect Capital (PSEC) were called away early.

music selection:  “Change Of Heart” — Cyndi Lauper

Time value remaining on the options was less than the distribution so shares were naturally called away prior to the ex-div date.  This is something that happens.  Investing in options the raptor way can be very lucrative.  It isn’t a perfect strategy however.  You get lowered risk and upfront cash but you give away upside potential to get it.

PSEC is a little too pricey to get into at the current spot price and options premiums have gotten skinny.   I’m moving this one to my watch list for future consideration when pricing improves or premiums plump back up.

Devour your prey raptors!

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Update Discounted Bonds

I closed my position for Seventy Seven Energy.

music selection:  “Gutter Ballet” — Savatage

On 8DEC2015, I bought two bonds from Seventy Seven Energy for 36.55 cents on the dollar.  I paid 2 dollars in commissions plus 9.57 in accrued interest.  Seventy Seven later declared bankruptcy and went into debtor in possession status.  Court ordered restructuring wiped out equity holders and awarded shares in the newly (mostly) debt free company to bond holders.  I received 65 shares for my trouble.

On 20APR2017 Patterson-UTI (PTEN) acquired Seventy Seven in an all stock deal.  I received 1.7851 shares of PTEN for each share of SVNT in my brokerage account.  Today, I sold those shares of PTEN for 22.37 each, bringing in about 2,595 in cash.  During the bond holding period, I also collected 66.24 in coupon payments.  Overall, the trade was in force for 504 days and yielded 187.11% annualized.  Not too shabby for an investment where I was “wrong” in my assessment.  That’s the power of distressed bond investing.  Even when you lose, there can be some recovery.

I have two more positions similar to Seventy Seven where I either have received shares or expect to receive shares.  Those are Energy XXI and Erickson Aviation.  These two should see me earn a small net profit.  In addition, I have three issues that have gone bankrupt for which there will likely be no recovery.  I expect to declare these securities worthless on my 2017 tax return.  These are Midstates Petroleum (979 realized loss), Noranda Aluminum (190 realized loss), and Square Two Financial (531 realized loss.  Those are total realized losses of 1,700 dollars.  Which is less than just the gain on the SVNT/PTEN recovery.  All time gain across all discounted bond positions on the Raptor comes to 9,399 against what was at the peak of roughly 21,000 capital at risk. This is a great way to invest when the premium for distressed debt to treasuries is high (it is currently “low” and I’m waiting for the credit cycle to roll over to purchase more distressed debt.)

Devour your prey raptors.

 

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Monday Trades – AFSI, BX, TCEHY

I made three trades today.

music selection:  “Don’t Make Me Prove It” — Veruca Salt

weigh-in:  216.0 (0.8) – Back on the wagon!

Today was maybe not the best day to sell options as the VIX had a sharp drop on news the most likely candidate to win the French presidency is now someone who is in favor of keeping the EU intact.  I got pretty good pricing anyway.

First is AmTrust Financial (AFSI) which was assigned over the weekend.  This is a profitable insurer that is mired in an accounting scandal regarding revenue recognition in a non core part of the business.  It is pretty steeply discounted and sporting really fat options premiums right now.  I sold AFSI170519C00017500 for 70 cents a share.  The trade will be in force for 26 days and yields a tasty 56.15% annualized.  I plan to continue writing covered calls here until the premium falls below 18% annualized.  I think I can make 15% annualized with buy and hold and the tax adjusted equivalent is around 18%.

Next is a new trade in The Blackstone Group (BX).  This is a financial MLP that has done very well by its limited partners over its lifetime.  Investing as a limited partner requires accredited investor status as well as a lengthy lock up period of capital.  But we can invest in the general partner and still earn great distributions as well as capital growth.  The stock is also current sporting plump options premiums.  I sold BX170602P00030000 for 1.01 a share.  The trade will be in force for 40 days and yields 30.72% annualized yield while offering 4.73% downside protection.  I’ll be glad to get assigned here and become eligible for distributions while writing covered calls for bonus income.

Now for something a little different.  There is a Chinese company called Tencent.  They own the WeChat messaging and mobile payments system that is a near monopoly in China.  This phone app is very sticky and its users spend a lot of time using it daily.  Margins are high and the growth rate is very high.  These guys are going to be the market leader in an important niche in the worlds biggest economy for a long time.  I think they could ultimately be the company with the world’s largest market cap.  Yes, bigger than the likes of Google and Apple.  There are no options so I’m going with a half position size of around 5,000.  I bought 162 shares of TCEHY for 30.81 a piece today.  I will hold these shares with a 25% trailing stop loss.  The dividend here is currently trivial and I like it that way while the growth rate is still very high.  It could eventually be a high yield stock though as its technology is very scale-able and they have expertise that can be exploited in other countries as well.

Devour your prey raptors!

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Friday Expiries: NAP, AFSI, SHOP

Three positions expired this afternoon.

music selection:  “Because I Got High” — Afroman

The three expiring positions averaged a yield of 43% annualized.  I’ll be going with three names on Monday that should mirror that return.

First is Navios Maritime Midstream Partners (NAP).  This expired out of the money.  The valuation is getting a little rich so I’ll be moving on but putting that one on the watch list for future put writing.  The return was 12.17% annualized earned over 60 days.

Next is insurer AmTrust Financial Services (AFSI).  This is an insurer with strong operating numbers beset by an accounting scandal.  The scandal appears to be limited to accounting treatments in a noncore part of the business and I think it will blow over.  I will be assigned this weekend here and will write a covered call at my entry strike of 17.5 as premiums are quite high for AFSI right now.  Going forward, I will only write covered calls here if I can earn at least 18% in annualized premium as I expect at least that much upside from just being long.  I earned 94.81% here annualized over 33 days.

Finally, we have Shopify (SHOP).  I’m high on this company and so is the market.  It has rallied since my put was written and offers less attractive entry point.  I’m going to take my 22.12% annualized return over 33 days and run.  This one is a candidate for writing puts again if it falls back below 70 a share.

Monday, I’ll have the AFSI covered call trade, two puts in new names, and a new long idea in a ticker that has no options as of yet.

Devour your prey raptors!

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Covered Call General Electric (GE)

I was assigned shares of GE on Thursday.

music selection:  “Let The Good Times Roll” — Shirley & Lee

weigh-in:  216.8 +3.4 – doh!

I had three contracts of a short put on GE open.  All three assigned early on Thursday.  I used the opportunity to go ahead and roll then instead of waiting until Monday.  I sold three contracts of GE170526C00030500 for 32 cents a share.  The trade will be in force for 44 days and yields 8.70% annualized.

GE is a little beaten up right now but I expect it to be back.  The opportunity with  the PREDIX operating system is huge.

Devour your prey raptors!

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I made two trades today with strong annualized returns.

music selection:  “Outshined” — Soundgarden

I’ve been watching Sirius XM (SIRI) the satellite radio provider for some time.  It is a growing business with strong margins and great capital efficiency.  It costs very little to add a new user now that the satellite constellation is in place.  My only concern is that revenue growth seems to be driven largely by new car sales.  This one could become a secondary victim of a rollover in the subprime auto loan cycle.  So I’ll be keeping trades short and exiting if the auto loan bubble pops.

I sold SIRI170519P00005000 for 16 cents a share.  The trade will be in force for 38 days and yields 30.74% annualized.  I enjoy 5.10% downside protection from a decline in stock price.

Seadrill Limited Partners (SDLP) has been really struggling of late.  The market is concerned about the debt load and a slowdown in offshore drilling due to the depressed price of oil.  I noted a few days ago that the company managed to sign a major new contract with BP Canada.  This gives me confidence the company is solvent in the 45 to 50 dollar a barrel range that crude seems to be mired in.  So I’m converting the covered call to a strangle.

My cost basis in the long shares is 4,862 and I’m roughly doubling my exposure.  I sold 19 contracts at the 2.5 strike for new exposure of 4,750.  That was on contract SDLP170616P00002500 which I sold for 20 cents a share.  The trade will be in force for 66 days and yields 44.24% annualized.  There is also impressive 24.34% downside protection.  The recent low before the BP contract was 2.70 so I think it is highly likely the stock will stay out of the money and earn the full premium.

Devour your prey raptors!

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Longer term strategy.

Chris B. had a great question last week.  I’m going to try my best to answer it.

music selection:  “Tears In Heaven” — Eric Clapton

weigh-in:  213.4 +0.4 – devouring too much prey!

Chris asked, “With a 5.27% withdraw rate, you will soon have a decision to make. Is your end game to:
1) Scale back to a lower risk portfolio that will fall less in the next recession, and get to a point where you can set it and forget it, or…
2) Maintain a growth perspective and generate as much reinvestable income as possible here and now. Continue active trading of riskier-than-average assets in the foreseeable future?”

For recent past years I’ve been in a good position tax wise.  I’ve run out of tax loss harvesting and other shenanigans to lower my taxable income to a negligible amount and will have to start paying more.  I have about enough on deposit with Uncle Sugar to cover most or all of the 2017 liability but will have to save about a 1,000 a month for 2018 and beyond without a major Trump tax reform.

So my withdrawal rate will probably continue to fall to right around 5.00% this year before jumping up to about 7.5%.  Eight percent is right around what I think is sustainable for an income centric portfolio right now (higher is possible in a higher interest rate world.)  I won’t have much wiggle room but its not as dire as it looks.  Core expenses will continue to be covered by dividends, distributions, and interest income.  The part I’m paying taxes on will be gravy like trading profits from options and discounted bonds.  I’ll only pay a “high” rate when I’m successful.  If I’m finding it difficult, I’ll pay almost no taxes at all.

I don’t talk much about bond ETFs here because I don’t trade in and out of them.  My positions have been set and have ridden for years.  It might surprise some of you to learn I target a 60/40 equity to income ratio.  The income portion of my portfolio includes bond CEFs, preferred CEFs, funds that specialize in variable rate loans, and municipal CEFs.  These positions cover most of my budgetary needs.  So, I’m actually already in a ‘set it and forget it’ mode and plan to be more so over time as I add more income investments to maintain allocation.  But I’m also in growth mode as I have another 60% in equity names that pay high yield, offer good growth characteristics with a margin of safety (insurance stocks), and option writing.  These portions of the portfolio should outperform the market during a downtown.  Probably as a lower loss rather than a gain but should still provide some peace of mind.

I’d also like to point out that my approach to options investing is intended to lower risk rather than raise it.  If you invest in an underlying stock without a written put or call, you are exposed to a 100% potential loss.  When you write an option, you take income up front.  This effectively lowers your basis in the investment.  You have traded away some top end upside for safety against the risk of a market decline.  You have less risk than the non options investor, not more.

The real risk for me is with inflation.  We will probably have more inflation than the near zero amount we’ve seen for about 10 years.  This could be damaging to the 40% of the portfolio I have in mostly fixed income investments.  But it should lead to rising equity and fattening of options premiums (prevailing interest rate is a major component of options premiums).  I think I’m well positioned but will continue to be transparent so everyone can see whether my unconventional ideas are right or wrong.

Devour your prey raptors!

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The following is a guest post from http://www.tradingbeasts.com

If any other readers would like to guest post, just drop me a line at financial.velociraptor [at] gmail.com


Making money on the internet is in most cases not an easy thing to do and usually, you will just waste your time. In case you are looking for a real opportunity to earn some good money, you’ll have to sooner or later start some kind of online trading. A lot of people are scared from the term „trading“ and they think that it will be definitely something that’s risky and something that’s not for them. Of course, that trading is not for everyone, but those of you who try it, will have a tremendous chance to become financially independent for the rest of your life and in exchange for what?

Well, mostly for your time and for a small start-up capital, with which you can start trading only in the case that you are ready to succeed! When you trade either forex or binary options you earn money from predicting the movement of underlying assets. Let’s say that you know that the price of oil will go up due to a current economic situation.  When you trade binary options you would choose “call option” and some expiry time. On the other hand when you trade forex and you think that the euro will do better than the American dollar, then you choose a long position. As you may know, forex trading means trading currency pairs and nothing else, but when it comes to binary trading you can also invest in stocks, commodities, indexes and also in currency pairs.

How can I predict whether the price will grow or fall?

Predicting in which direction the price moves would be without using any technique very difficult, some may even dare to say impossible, therefore we use either binary strategies or forex strategies (depends on what you trade). They have a simple purpose, dramatically increase your percentage of successful trades. These trading strategies are in most cases built from a repeating formula that is proven on historical prices. If we manage to find such a pattern, it is very easy to apply it to the current market.

How much can I earn by trading forex or binary options?

Unfortunately, I cannot give you a specific amount which you can make as a trader. And why? Because no one can tell in advance how you will do. Personally, I trade about an hour per day and last month I earned from trading about $ 352.7 (net profit from closing 140 trades).  I know that it’s not much, but this extra income comes in handy for me. Your results can be significantly better, but also worse. You need to be open-minded and not to be naive that you will earn huge amounts right from the beginning. No one can predict how you will do, it’s all about you. But remember one thing, trading is about earning money in the long run. Not about one trade, or about a serious of trades for that matter. The only thing that matters is, how you are doing overall. After all, every type of trading is about that.  

Free trial of trading (demo account)

Do you like the idea of trading binary options or forex, but you are too scared that you won’t be successful right from the start? Try free demo account which will guarantee you that you won’t be throwing your money right from the window. And how the demo works? Exactly the same way as a real account. Yes, that’s right, there is no difference from a real account and a demo account. Well, maybe one that you trade with imaginary funds and you can’t earn anything with them. But that’s completely all right if you are new to binary options or forex. Some brokers offer demo version totally for free (you don’t even have to make your first deposit to your real account) and some others offer them after first deposit.

I highly recommend demo version to all novice traders who don’t have any real experience with trading yet. It’s a risk-free ticket, how you can pretty easily try to enter the world of binary trading or forex. So don’t hesitate and create your demo account today, because you have got nothing to lose.

 

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Financial Transparency as of 31MAR2017

Month three of 2017 is in the bag.

music selection:  “Wild Thing” — Tone Loc

weigh-in:  213.0 (1.0)

 

ASSETS:

Wells Fargo (taxable): This is up 150 dollars to 30,686.  Yield on market price is 10.49%.

Interactive Brokers (taxable): This is up 8,268 from 277,750 to 286,018.  That is a monthly gain of 2.98%.  Yield against market price is 8.02% in this account.

Interactive Brokers (tIRA): This is up … wait for it … 3 dollars since last month.  Current mark – 147,687.  I’m still waffling on whether to start converting this to a Roth account.  I will probably now wait to see how the Republican tax reform shakes out before making an election.

Checking: Cold hard cash is up 749 dollars since last month to 10,345.

Tax refund applied to 2017 liability: This is up to 8,510 thanks to tax loss harvesting and another year of collecting the maximum Obamacare subsidy.  That trick is probably played out as I am out of material tax losses to harvest and hope not to create any new ones!

 

LIABILITIES:

Home – paid.

Car – paid.

Tax liability for 2017 is hard to pin down but it looks like it could be a few thousand over what I have applied from prior refunds.  I’ll probably make some estimated payments just to be sure.

 

WITHDRAWAL RATE:

My withdrawal rate (based on assumed 25,000 annual withdrawals) is 5.27%.  Projected twelve month dividends, distributions, and interest come to 26,148 or 104.59% of budget.  I collected 596 in options income for the month of March.  Based on my current pace for the year, annual options income will come in around 28,839 or over 115% of budget.  Things look pretty rosy.

 

SPENDING:

Total spending for the month came in at 1,453.  That is an improvement from prior months.  My current pace annualizes out to 19,412, leaving 5,588 of slack in the budget.  Some of that will go to pre-paying 2017 tax liability though.

Devour your prey raptors!

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Devour Your Prey Lady Raptors!

Devour your prey raptors!

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