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Covered Call Archer Daniels Midland (ADM)

ADM expired out of the money over the weekend.

music selection:  “Nightmare” — Avenged Sevenfold

weigh-in:  209.6 +2.8 – way too much turkey dinner!

ADM has been badly underperforming for me.  I feel like I have stranded capital so I’m looking to exit the position gracefully.  I am selling a near the money covered call that will result in a short term capital loss if exercised.  I still believe in the long term prospects for this company as roughly a billion people will enter the global middle class in India and China over the next decade and they will surely use more grains.  But I have to look after today too.

I sold ADM180105C00040000 for 48 cents a share.  The expected return is 10.95% over 40 days.  I will take a short term loss of 5 dollars a share if exercised.  That will bring the cumulative loss on the trade including all premiums and distributions collected to 4.62%.  It is unfortunate but I hope to get this capital back to performing shortly.  I can also use the capital loss for tax purposes next year as I expect to have a much higher budgetary burden to provide for income tax provision.

There are no other trades today and I am following UVXY closely as I have until the 30th to exit the trade in my tIRA account.  I should be able to eek out a small profit.

Devour your prey raptors!

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New trades in GRUB and NAP

Three positions expired over the weekend.

music selection:  “Do You Love Me” — The Contours

weigh-in:  206.8 +2.0 – doh!

GRUB and SXCP expired out of the money on Saturday.  NAP ended with shares being assigned.  Performance of SXCP was as expected but GRUB ran away a little while NAP languished.  None of the three really offer knock it out of the park risk/reward setups any longer.  I’m sticking with the trades to see how they play out.  I was not able to get a fill at an attractive price for SXCP covered calls and may try again tomorrow at a longer dated expiry.

Navios (NAP) shares were assigned at 10.00 a share.  The price promptly fell all the way to 7.82 and actually threatens to stop out of the trade.  I sold NAP180216C00010000 for 10 cents a share.  The trade will be in force for 89 days and yields 4.10% annualized as a target.  This isn’t as bad as it looks as the underlying yields about 21% at today’s price.  After all option premiums collected are considered, my 25% trailing stop is set at 6.60.  Today’s closing price is 7.94 so I have 1.34 or 16.88% breathing room before I need an upturn to stay in the trade.

GrubHub (GRUB) moved up from about 50 to 64.50 during the holding period.  I was hesitant to write a new put at an elevated strike but the premium offered is still fairly fat.  I sold GRUB171229P00064500 for 2.40 a share.  The trade will be in force for a 40 days and has a target yield of 33.95% while enjoying 4.02% downside protection.  This is another stock like Ten Cent or Market Axess that benefits from Metcalf’s Law.  They have a network that gains value as it adds nodes.  It should be a wild ride.

Finally SunCoke (SXCP) did not fill at 10 cents after patiently waiting.  Another trader got filled at 10 cents today but I couldn’t get the same benefit.  One possibility is to go down a strike and risk getting called away at a short term capital loss to earn some more income.  The next available strike is at 17.50 and the underlying is at 17.25.  Shares were last above 17.50 in August so that could be a risky move.  I’d need very attractive pricing to make the trade worthwhile.  It could however, be a graceful way to exit a trade that is merely performing instead of out performing.

Devour your prey raptors!

 

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Assigned shares of Sirius XM (SIRI)

My SIRI put expired in the money over the weekend and was assigned.

music selection:  “Black Sheep” — Metric

weigh-in:  204.8 (0.2)

I was assigned 1,800 shares of Sirius XM (SIRI) over the weekend with a cost basis of 5.50 a share.  Sirius is a fine company with great scalability and strong cash flow but I’m more interested in the fat options premiums it supports.  I sold this morning, 18 contracts of SIRI171222C00005500 for 14 cents a share.

The trade will be in force for 40 days and has an expected annualized yield of 23.23%.  I collect 252 in instant income that is mine to keep win, lose, or draw.  Importantly, the expected yield trounces the long term return of the S&P easily.  I’d much rather invest this way than to buy and hold the index.  My returns are better and because of the upfront income, my risk is actually lower.

I got a little bit of bad news from my broker.  Interactive Brokers is no longer going to allow any type of partnership holdings in its tax advantaged accounts after the 30th.  I will have to exit my UVXY long put trade by then and find a way to redeploy the funds.  With some excess cash I have on hand in that account, I expect to have about 20,000 to deploy.

I am currently leaning towards adding more insurance exposure with that 20k.  When they are underwriting properly, insurance companies are powerful compounders of wealth.  The float serves as a margin loan with a negative interest rate.  Even very conservative insurance companies that put most of their float in bonds can do very well.  I like Arch Capital Group (ACGL) and HCI group (HCI) for their long history of profitable underwriting and strong growth in book value per share.  Both appear to be attractively priced.  I’ll keep you posted on what I do once I exit the UVXY position held in the tIRA account.

Devour your prey raptors!

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Stopped Out AmTrust Financial (AFSI)

Honoring a stop loss.

music selection:  “Them Bones” — Alice In Chains

Back on 24APR2017, I bought AmTrust Financial Services (AFSI) for 17.50 a share via options assignment.  I had high hopes for this property and casualty insurer because it has a history of strong underwriting discipline.  I was impressed with its long history of growing book value for share at a rate that outpaces the S&P 500.

Shortly after opening the trade, the company was hit with an accounting scandal.  They were accused of pulling forward revenue from future quarters with improper accruals.  The accusation was limited to a non core part of the business (a call center for processing auto claims) and management quickly vowed to resolve the problem by selling the rogue unit.

I was satisfied the situation was contained and expected book value creation to resume.  The company has had a great deal of difficulty in selling the target unit and just lowered guidance for its final price for a third time.  Also, results in the primary business is faltering.  This has combined to drive the share price down even further.  Last night, AFSI closed below my 25% trailing stop loss.

I am disappointed to have to let this one go but I learned my lesson the hard way about honoring trailing stops.  Warren Buffet’s first rule of investing is “never lose money”.  Attentive raptors will recognize his second rule is “never forget rule number one.”  I intend to live to devour prey another day.

I sold this morning for 10.53 a share.  The trade was in force 200 days and books a painful 4,182 short term capital loss.  The annualized yield is -72.69% if you want to rub it in.

Devour your prey raptors!

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Sell Granite Point Mortgage Trust (GPMT)

Cleaning up after a corporate action.

music selection:  “Blame Me” — The Pretty Reckless

On 24FEB2014 I purchased 982 (split adjusted) shares of Two Harbors (TWO) for 20.36 a share.  Shares are down 24.61% since that time but I’m up nicely after considering the distributions I have received during the holding period.

On 1NOV2017, TWO issued a special dividend of shares of Granite Point Mortgage Trust (GPMT).  I received 186 shares with a cost basis of 17.83 a share.  Today, I sold those shares for 17.39 each.  I book a 82 dollar short term capital loss on the trade.  I am counting the proceeds as a 3.30 distribution of TWO for purposes of tracking total return and my trailing stop loss.

Granite Point may turn out to be a good investment in its own right but I didn’t like it as an opportunity cost at this time.

Devour your prey raptors!

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31.96% annualized return on Monday’s trades

Two positions expired over the weekend.

music selection:  “I Won’t Pay” — The Offspring

weigh-in:  205.0 +1.6 – it is really challenging to put two good weeks together i a row.

Blackstone and Oracle expired out of the money over the weekend.  I still hold shares of BX and will write a fresh covered call against the position.  Oracle moved higher and became less attractive for a new written put trade as premiums were weak this morning.  I’m taking a pass and replacing them with Micron (MU) as an income play.

I am going with a new firm today, MarketAxess (MKTX).  For those of you who don’t know about the trading of bonds, most of the market does things the same way they have done them for literally centuries.  Someone literally picks up the phone and makes a call for each and every bond transaction.  The big banks maintain an inventory of popular bonds and act as broker-dealers, earning a spread on each bond sold.  This is a very profitable business for the broker dealers but is obviously inefficient.  One company (MKTX) has begun automating the process as a neutral broker.  They are gaining market share and should do well in coming years as new European regulations require bond brokers to document “best execution”.  Not only is the old way inefficient, it lends itself poorly to the new paperwork required.  MarketAxess will excel in the new regulatory enviorment.

MKTX is also wildly profitable and is a beneficiary of Metcalfe’s Law.  As they gain market share, their network becomes intrinsically more valuable.  Competitors will have a hard time overcoming their first mover’s advantage.  Today, I wrote a put MKTX171215P00180000 f0r 6.70 a share.  The trade will be in force for 40 days and yields 33.94% annualized while enjoying 3.03% downside protection against a decline in share price.  This is a larger than normal trade size for me but I’m willing to stretch a little for such a great business with fat underlying premiums to trade.

Blackstone (BX) is still a holding after the weekend’s covered calls expired worthless.  I sold BX171222C00034500 for 45 cents a share.  The trade will be in force for 47 days and yields 10.13% annualized.  I remain eligible for the underlying distribution of 6.57%.

Finally, I replace Oracle (ORCL) with Micron (MU).  Micron is a computer memory manufacturer with strong margins and cash flow.  It is also enormously cheap at under 10 times P/E.  I feel there is a strong margin of safety here in the event I end up holding for the long term.  I sold MU171222P00043500 for 2.90 a share.  The trade will be in force for 47 days and yields 51.77% annualized while enjoying 6.97% downside protection.  I’m very happy with this outcome.

The simple average of the three trades today is 31.96% annualized.  That should easily beat the S&P 500 or any other broad index this year.  I’m glad to be an active trader rather than indexer when I can earn superior returns while lowering my risks with options.

Devour your prey raptors!

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Financial Transparency as of 31OCT2017

Happy Halloween!

music selection:  “I Like It Heavy” — Halestorm

ASSETS:

Wells Fargo (taxable): This is down 281 dollars.  This account holds mostly closed end funds holding debt instruments.  It rarely moves much.  The month end total is 31,307.

Interactive Brokers (taxable): This moved only a tiny bit by 121 dollars or about 0.04% on the month.  There was actually more action than that but strong gains in UVXY puts was offset by losses in Celgene.  The new mark is 311,698.

Interactive Brokers (tIRA):  Not much going on in this account either as the balanced increased 3,630 to 160,413.  Gains were broadly distributed across multiple property and casualty insurance companies.

Checking:  This is down 950 dollars.  The new month end total is 12,618.  That is about six months of expenses if I had to forgo withdrawals from the main brokerage account.

Total Liquid Networth: The new high water mark is 516,036, up 2,520 versus last month.  Current annualized gain on entire portfolio is down this month to 18.43%, which is still an impressive amount considering there is a 25,000 a year drag in the form of my distributions for living expenses.

 

LIABILITIES:

No real changes here.

Home – Paid

Car – Paid

My income tax asset is roughly a wash with my income tax liability.  I will probably send Uncle Sugar another 500 dollars in January just to be sure.

 

WITHDRAWAL RATE:

I am budgeting 25,000 for annual spending.  Against a liquid networth of 516,036, my withdrawal rate is 4.84%.   Projected 12 month distributions, dividends, and interest come to 29,705 or 118.82% of budget.  I picked up an additional 3,533 in options income during the month.  Average monthly options premium income annualizes to 32,205 or 128.82% of budget.  My cash spending needs are currently met more than twice over and the withdrawal rate continues to fall.

 

SPENDING:

Spending for the month came to 3,371.  My expenses go up this time of year due to real estate taxes and home insurance.  I paid insurance this month and one of three real estate tax bills.  I’m still on track to be around 3,000 under budget for the year.

Devour your prey raptors!

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114% Annualized Return on UVXY Puts

The results of the A/B Test are in.

music selection:   “King Of Pain” — The Police

Back on 2OCT2017, I set up an A/B test on different strikes of UVXY.  I bought strikes 5 dollars out of the money and 5 dollars in the money to determine once and for all which strategy performs better.  The results are in and out of the money wins by a large margin.  This makes sense as the out of the money strike carries more risk of loss of investment.

I originally purchased UVXY190118P00015000 for 8.55 a share.  Today, I sold for 9.50.  The trade was in force for 30 days and yields 135.19% annualized.  Likewise, I purchased UVXY190118P00025000 for 16.80 a share.  Today’s sell price was 18.05.  That trade was also in force for 30 days and yields 93.65% annualized.  The simple average of the two returns is 114.42% (annualized.)  I am very happy with this outcome.  And I will buying my puts about 1/3 out of the money going forward.

I got back into the trade with 55 contracts of UVXY190118P00010000 at 5.55 a share.  That is a roughly 10% allocation of my main IB account and curiously, a lot of “lucky” fives.  I will target a holding period around 30 days but will sell sooner if the contracts move into the money.  I will be a very happy lizard if I can repeat today’s performance.

Devour your prey raptors!

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Stopped Out Short Position Santander Consumer (SC)

Lizard King stepped in brontosaurus poo yet again.

music selection:  “I’m America” — Cilver

On 10JUL2017, I opened a short position in Santander (SC) at 13.11 a share.  I had high hopes that their reckless subprime lending would result in poor financial performance.  Mr. Market disagrees with me.

I hit my 25% stop loss at yesterday’s close and I’m honoring that today.  I bought to close at 16.73.  For 380 shares, my short term capital loss comes to 1,375.

This is my second failure in the week.  Some blogs report only their gains and present a sunshine and roses view of the markets.  I feel like the readers have a right to know when things don’t go well so they develop a complete view of my approach to trading the markets.

Not all is doom and gloom however.  I will report monthly transparency tomorrow morning and look to be on pace for over 19% annualized.

Devour your prey raptors!

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Stopped Out Celgene (CELG) – Ouch!

No putting lipstick on this pig.

music selection:  “Sweet Caroline” — Neil Diamond (So Good! So Good! So Good!)

weigh-in:  203.4 (1.4)  – back on the wagon

I opened a diagonal call on Celgene (CELG) on 15AUG2017.  I had high hopes of earning a decent income while slowly building strong capital gains.  Since that time, CELG has had a promising new drug fizzle out in clinical trials and has reported a down quarter that included lowered forward guidance.  The share price has taken a beating.

My long call CELG190118C00055000 was purchased for 78.90 a share.  I discovered after returning from FinCon17 that I was stopped out and then some.  I sold this morning for 47.55.  I book a 3,135 short term capital loss.

In positive news, the UVXY puts are performing well and are nearing my exit target.  I should book around 2,700 in gains with an annualized return over 100%.

Devour your prey raptors!

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