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Michael Kors (KORS) and Prospect Capital (PSEC)

Shares of GRUB were called away over the weekend.

music selection:  “Queer” — Garbage

weigh-in: 205.0 (1.4)

I’m returning to holding a position in Prospect Capital Corporation (PSEC).  This is a business development corporation (BDC), that invests primarily in variable rate secured loans to mezzanine size firms.  These firms are generally too large to be serviced by regional banks but too small to draw the interest of investment banks to float a bond.  The corporate structure is similar to a REIT in that they can be federal tax exempt by distributing most of their earnings to shareholders.

I am going with a buy-write strategy, purchasing 1,400 shares to write covered calls against.  The shares were purchased at 6.65 and yield 10.83%.  That price is approximately 30% below the most recently published Net Asset Value.  I also sold PSEC180518C00007000 for 6 cents a share.  That trade will be in force for 54 days and yields a bonus 5.79% for an expected total yield of 16.62%.  That is a stunning yield for what is essentially a boring portfolio of senior debt.

I am also initiating a position in Michael Kors Holdings Limited (KORS).  This is a strong global brand selling men’s and women’s branded fashion accessories.  Margins are strong and the valuation is attractive.  Operation margins are 15%, the business returns 22% of revenue to shareholders via distributions and buybacks, and the enterprise value to EBITA is a scant 12.1.  At the same time, the stock is offering up plump options premiums.  I sold KORS180504P00062000 for 2.20 a share.  The trade will be in force for 40 days and yields an expected 32.38% annualized while enjoying 3.92% downside protection.

Devour your prey raptors!

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Friday Fixed Income

Three new possibilities in the CEF debt space.

music selection:  “Not Afraid” — Cilver

Each Friday I highlight three closed end funds invested in debt and debt like instruments.  These are safe high yield plays that can buttress an early retirement portfolio by making it completely unnecessary to sell shares to fund living expenses.  The next three are yield rich and attractively priced.

Franklin Limited Duration Income (FTF) is a closed end fund that seeks high current income and capital appreciation through investment in high yield corporate bonds, floating rate bank loans and mortgage and other asset backed securities.  It pays a managed distribution on a monthly basis.

  • Discount to NAV – 7.01%
  • Yield – 10.88%
  • Effective leverage – 23.57
  • Expense ratio – 1.35%
  • Learn more

Brookfield Real Assets and Income (RA) is a closed end fund that seeks to achieve its investment objective by investing primarily in Real Asset Companies and Issuers.  It pays a managed distribution on a monthly basis.

  • Discount to NAV – 10.56%
  • Yield – 11.06%
  • Effective leverage – 21.08
  • Expense ratio – 2.36%
  • Learn more

Eaton Vance Tax Advantaged Bond and Income (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 – 9.41%
  • Yield – 12.31%
  • Effective leverage – none
  • Expense ratio – 1.45%
  • Learn more

Devour your prey raptors!

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New Trades On Seven Positions

Six positions expired over the weekend.

music selection:  “I Won’t Back Down” — Tom Petty

weigh-in:  206.4 +1.8 – doh!

I have several trades today.  The first five are simple covered calls and written puts.  The other two are spreads.  One is a diagonal call in a new position.  The other is a call ratio spread on an existing position that needs some TLC.

First is a covered put on my still open short position in AMCX.  I sold AMCX180420P00045000 for 25 cents a share.  The trade will be in force for 33 days and yields 6.14% annualized while leaving 4.92 worth of room for capital gains.  The AMCX position is 407 dollars in the green with this new 25 dollars collected.

My shares in ON Semiconductor (ON) were called away over the weekend.  I am writing new puts for ongoing income.  I sold ON180420P00025000 for 90 cents a share.  The trade will be in force for 33 days and yields an expected 39.82% annualized while enjoying 4.78% downside protection.  The next trade looks even better though!

My puts in Match Group (MTCH) expired out of the money.  As with ON, I am writing more puts for ongoing income.  I sold MTCH180420P00046000 for 2.09 a share.  The trade will be in force for 33 days and yields an expected 50.25% annualized while enjoying 4.54% downside protection.

My calls in Suncoke (SXCP) expired out of the money.  This is a metallurgical coal play that I’d describe as having only fair performance.  The share price is depressed a small amount but options premiums and the underlying yield of 12.7% have kept me in the black for over a year.  I sold SXCP180420C00020000 for 10 cents a share.  The trade will be in force for 33 days and yields an expected 5.53% annualized.  I remain eligible to collect the strong underlying distribution.

Shares of Blackstone (BX) were assigned over the weekend.  I am writing calls against the position for additional income while I hope to collect the underlying distribution yield of 10.06%.  I sold BX180427C00035000 for 30 cents a share.  The trade will be in force for 40 days and yields an expected 7.82% annualized.  I am happy to hold shares or be called so I can write new puts.

Next is a new position.  A diagonal call in Lam Research (LRCX).  LRCX is the company at the very bottom of the semiconductor industry food chain.  They sell the plasma etching and metallic deposition machines that Intel, ADM, and others use to manufacture chips.  It is a cyclical but high margin business that is in an upswing.  During downturns, they have a strong business servicing and repairing installed machines.  I bought LRCX200117C00085000 for 129.80 a share.  That is inclusive of merely 10 cents in time value.  I am getting leverage very cheaply here.  I also sold for income LRCX180427C00250000 for 2.40 a share.  The trade will be in force for 40 days and yields an expected 16.87% while leaving room for 16.33% in upside price appreciation.

Finally, I entered into a call ratio spread on Tractor Supply (TSCO).  This is a position that has moved sharply against me.  The income available on break even strike calls is trivial.  I’d like to earn that same income while getting some leveraged upside to allow me to exit this trade at break even at the 75 strike instead of the 80 entry strike.  To that end, I bought one call at 70 and sold two calls against the position at 75.  This combines a covered call with a bull call spread.  Everything over 70, up to 75, earns two to one.  Call TSCO181019C00070000 was purchased at 3.39 and calls TSCO181019C00075000 were sold at 1.85 each.  That yields a 31 cent per share credit to provide a little boost while I wait for the position to try to repair itself.

Devour your prey raptors!

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Friday Fixed Income

Three fixed income selections.

music selection:  “You Make My Dreams Come True” — Hall & Oates

Each Friday, I provide three closed end funds invested in fixed income that I would consider putting money into today.  I allocate 40% of my main taxable portfolio to these and similar high yield instruments.  This covers my basic income needs for the year.  Importantly, I am free to trade with the remainder or NOT trade if nothing attractive is on offer.  Don’t pick up nickels in front of a steamroller!

Advent Convertible Securities & 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 – 11.52%
  • Yield – 9.79%
  • Effective leverage – 40.91%
  • Expense ratio – 3.49%
  • Learn more

Aberdeen Income 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 – 6.75%
  • Yield – 10.21%
  • Effective leverage – 30.07%
  • Expense ratio – 3.11%
  • Learn more

Eaton Vance Tax Advantaged Bond and Income (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 – 8.63%
  • Yield – 11.91%
  • Effective leverage – none
  • Expense ratio – 1.45%
  • Learn more

Devour your prey raptors!

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Assigned Shares of Target (TGT)

TGT was assigned to me on Friday.

music selection:  “Temptation” — Venom

weigh-in:  204.6 (2.2)

Target is showing sales growth.  This is largely driven by capex in omni-channel distribution.  They are positioning themselves to compete with Amazon and Wal-mart.  The market didn’t like the drag on the bottom line and punished shares.  As a result, I was assigned on Friday.

I’m keeping my position in Target and will write covered calls while I wait to collect the underlying dividend.  I sold TGT180427C00077000 for 49 cents a share.  The trade will be in force for 50 days and yields an expected 4.65% annualized.

Devour your prey raptors!

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Friday Fixed Income

For your consideration.

music selection:  “Super Freak” — Rick James

Each Friday, I highlight three closed end funds that are invested in debt and debt like instruments that I consider attractively valued and yield rich.  This week, the yields go up to almost 12%.  I recommend a healthy allocation to this sector of the market.  Bonds and bond like investments reduce volatility of your portfolio.  They also provide strong cash flow.  Today’s three choices would provide an after tax (for most taxpayers) yield equivalent to the long term return of the S&P 500.  You’d never have to sell a share.  Investors who hold these investments in a tax advantaged account would do even better.

I allocate 40% of my portfolio to “income”.  It can be worthwhile to go as high as 72% if you are super conservative.  But no higher as the increasing correlation of assets begins to increase volatility at that point.  Long time readers know that most of the rest of the 60% is deployed in a manner that is intended to generate short term income as well.  That is my ‘sleep at night’ secret sauce.

Brookfield Real Assets Income (RA) 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 a managed distribution on a monthly basis.

  • Discount to NAV – 9.52%
  • Yield – 10.83%
  • Effective leverage – 21.08%
  • Expense ratio – 0.13%
  • Learn more

Delaware Investments Dividend and Income Fund, Inc. (DDF) is a closed end fund that seeks current income and capital appreciation through investment in equity and non convertible debt securities.  It pays a managed distribution on a monthly basis.

  • Discount to NAV – 9.15%
  • Yield – 11.24%
  • Effective leverage – 30.26%
  • Expense ratio – 1.98%
  • Learn more

Eaton Vance Tax Advantaged Bond and Income (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 – 7.94%
  • Yield – 11.78%
  • Effective leverage – none
  • Expense ratio – 1.45%
  • Learn more

Devour your prey raptors!

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Express Scripts to be Acquired

I’m exiting my ESRX short.

music selection:  “Signed, Sealed, Delivered” — Stevie Wonder

My short position in Express Scripts (ESRX) was doing quite well.  This morning, Cigna announced it was buying the company.  Shares jumped 11%.  I bought to close my 100 shares this morning at 81.44.  Including all put premiums received, I book a 3.03% loss in the trade.  That is 18.72% annualized or 229 dollars in more concrete terms.  I am leaving the now unlikely to be exercised put open until expiry on 29MAR2018.  There really just anything else to be down here except capitulate.

Devour your prey raptors!

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New Diagonal Calls and Covered Put

Three new trades today.

music selection:  “Need You Tonight” — INXS

weigh-in:  206.8 +1.6

I’m losing faith in my Ford (F) short thesis.  I have been expecting their huge amount of subprime lending to rollover and cause big earnings misses.  With an economy that is hitting on cylinders, it could be some time before the subprime lending bubble bursts.  I’m trading some upside away for current income by writing a covered put on my short position.  To that end, I sold F180420P00010000 for 23 cents a share.  The trade will be in force for 47 days and yields and expected 17.86% annualized.

I’m adding a few diagonal calls to the mix today.  A diagonal call is a calendar spread that consists of a long dated call that is deep in the money.  This long call is used to anchor a position to sell short dated out of the money calls on.  This allows income to be generated on a moneyed call while waiting for leveraged upside appreciation.

My Grubhub (GRUB) covered call is running away from me a little.  I don’t think it will make sense to write new puts after my shares are called away.  But I do think there is a great deal of long term upside in the position.  To that end, I bought GRUB200117C00032500 for 71.60 a share.  This includes about 2.63 in time value.  Going deep into the money reduced the amount of time value I had to pay to gain my leverage.  I also sold GRUB180420C00115000 for 1.10 a share.  That trade will be in force for 47 days and yields an expected 11.93% annually.  41.83% of my outgoing time value has already been recovered and I have 13% in potential upside price movement before I might need to put more cash into the trade.

I am also starting a new diagonal position in Skyworks (SWKS).  This is a maker of mostly analog chip sets that handle the analog functions of cellphones and allow data to be converted back forth to digital for use by smart phone processors.  It is a highly profitable chip maker with no debt and a cheap valuation that I expect to price improvement in.  I bought SWKS200117C00050000 for 63.70 per share.  This includes about 2.50 in time value.  I also sold SWKS180420C00125000 for 60 cents a share.  The trade will be in force for 47 days and yields an expected 7.31% annualized while I wait for price appreciation.  My outgoing time value on this combo is reduced by 24% by selling the diagonal call.

Devour your prey raptors!

{ 4 comments }

Friday Fixed Income

Three more fixed income picks for your consideration.

music selection:  “Mickey” — Tony Basil

Every Friday, I present three opportunities in the debt space inside closed end funds. I isolate CEFs that are yield rich and attractively priced relative to their net asset value. These provide better safety for the long term investor than open end funds as there is no early redemption risk for the firm offering the fund. They can and do hold their debt securities to maturity, effectively allowing 100% of duration risk to expire over time. Open end funds are forced by liquidations to sell bonds at the worst possible time.

My personal target for this sector is about 40% of my main taxable portfolio.  This goes a long way to creating a portfolio where my distributions, dividends, and interest cover my annual budget by 120% or more.  I sleep well at night and am not compelled to trade to meet bills.  I have discretion to wait for fat pitches.

Advent Claymore Convertible Securities & 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 income only distribution on a monthly basis.

  • Discount to NAV – 10.58%
  • Yield – 9.81%
  • Effective leverage – 40.91%
  • Expense ratio – 3.49%
  • Learn more

Brookfield Real Assets Income (RA) 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 a managed distribution on a monthly basis.

  • Discount to NAV – 10.26%
  • Yield – 10.96%
  • Effective leverage – 21.08%
  • Expense ratio – 0.13%
  • Learn more

Eaton Vance Tax Advantaged Bond and Income (EXD) is a closed end fund that seeksto 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 – 10.31%
  • Yield – 12.09%
  • Effective leverage – none
  • Expense ratio – 1.45%
  • Learn more

Devour your prey raptors!

 

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Financial Transparency as of 28FEB2018

It was a difficult month.

music selection:  “Two Out Of Three (Ain’t Bad)” — Meatloaf

Wells Fargo (taxable): This is down 460 dollars, a 1.53% loss versus last month. The new mark is at 29,525.

Interactive Brokers (taxable): This is down 40,505 to 299,457 a loss of 11.91% versus last month. This is really quite ugly.  The problems in the portfolio are mostly widespread with no individual position nearing its stop loss.  One big pain point is the UVXY puts which are down 5 figures.  Proshares made the surprise decision to cut the leverage target from 2x to 1.5x, hammering the premia.

Interactive Brokers (tIRA): I show 5,483 in losses here this month to 160,379 which is good for a 3.31% monthly loss. Obviously, a portfolio of mostly P&C insurers has a lower Beta than one with a lot of short options positions.

Checking: I’m up here to 2,522, a decline of 19.26% on the month. A withdrawal of 3,450 was made to fund my first HSA account after changing my Obamacare provider to a compliant plan.

HSA: I deposited 3,450 in a Livelyme HSA with self managed investment options through TD Ameritrade.  The account closed the month at 3,663, my one bright spot for the month.

Total Assets: I managed to stay above the half a million mark but just barely.  February finishes at 503,594. That is good for an overall monthly loss of 8.25%. I hope to see some recovery as volatility recedes.

 

LIABILITIES:

House: Paid

Car: Paid

Taxes: I expect to have a “refund” of about 5,000 for 2017. I will apply that forward to 2018 and need to make quarterly payments of about 1,250 to meet the current year’s liability.

 

WITHDRAWAL RATE:

The budget is again set at 25,000.  Against a liquid networth of 503,594 that is a withdrawal rate of 4.96%.  Current annualized distributions, dividends, and interest come to 30,119 or 120.47% of budget. I also earned 4,233 in options income during February which puts me well ahead of pace to generate an additional 25,000 for safety factor.

 

SPENDING:

It was a good month.  Spending was only 1,159 dollars for the month of February.  This is even better than last month.  Next month will see an outgoing payment of 1,250 for income tax prepayments.

Devour your prey raptors!

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