I wrote puts on DCP Midstream Partners LP (DPM) this morning.

music selection: “Goodbye To You” — Patty Smyth

DPM is a midstream MLP that deals primarily in what the industry calls “drip”.  That is the ‘anes’ of ethane, butane, and propane.  These substances are very light fuels and chemical feedstocks that have the advantage of being liquids at room temperature.  They are easy to separate, store, and transport.  They also fetch a much better market price than natural gas (which DPM also processes).  I am adding this to my “high yield” bucket but it is also a dividend growth play with consistent raises of a penny a share.

I want to be certain of assignment on this one so I’m going into the money and choosing the 30 strike even though the underlying is at about 28 as of this writing.  Pricing information for this security is available on Yahoo! at DPM151016P00030000.  I was able to get filled at 2.90.  We can’t use 2.90 as the basis for the annualized yield however is about two dollars is intrinsic value (e.g. a “locked in” capital loss).  So the formula today is (2.90-2.00) / 30 / 29 days * 365 days = 37.76%.  This is an excellent annualized return!

I’ll be using a mental entry price of 30 dollars less the premium or 27.10.  Since DPM pays 3.12 in annual distributions, my yield on cost will be 11.51 – Wow!  Upon assignment I’ll write out of they money covered calls as is the usual MO for an additional 2-4% annualized yield.  I’m very excited about the income potential in DPM as I get paid handsomely to wait for distribution increases.

Devour your prey raptors!

Write Puts DCP Midstream Partners LP (DPM)

Never miss another opportunity to devour prey!

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5 thoughts on “Write Puts DCP Midstream Partners LP (DPM)

  • September 20, 2015 at 1:06 am
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    In at 25 and change, will need to write OTM at 25, for 0.60 hopefully on Monday. Yield will be ( 0.6×100/25)x 100= 2.4% for 26 days, annualized =(0.6/25)/26 days * 365 days = 33.69%, is the math right ?

    Got a long way to go on this option road….Do you EVER book less than annualized 12%, if so when?

    Thanks

    Vish

    Reply
    • September 20, 2015 at 3:38 pm
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      Vish,

      That is the right math. Hard to believe, right? On written puts I NEVER accept less than 12%. I look elsewhere for a better deal instead. I do accept less than 12% when I’m writing a covered call that is well OTM. The yield is coming from the underlying security and the covered call is just “bonus” yield. You can still lose money this way but the odds have been stacked in your favor!

      Reply
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