I did a Buy/Write trade on SunCoke Energy Partners, L.P. (SXCP) this morning.
music selection: “Keep On Loving You” — REO Speedwagon
Shares appeared to offer a great value and I didn’t want to miss my opportunity to own by writing a lowball put that might never get assigned. SunCoke is a Master Limited Partnership (MLP) that must distribution most of it’s cash flow to shareholders to retain tax advantages. MLPs are a favorite tool for the high yield portion of the raptor portfolio due to the fat payouts. SXCP is no exception. Against my basis of 11.93 a share the trailing twelve month payout of 2.33 yields 19.53%. SXCP has paid 10 distributions in its lifetime. After the initiation, *every single quarter* has seen a distribution increase.
After purchasing the shares, I wrote a near the money covered call. This is an income play rather than a growth play so I am not going roughly 10% out of the money like you normally see me do with dividend growth companies. I’m looking to get paid now instead of in the future. I was able to sell SXCP151016C00012500 for 23 cents. Over the 15 days the trade will be open, the annualized yield is an astounding 46.91%. If shares rise about 12.50 and are called away, annualized yield will be a redonkulous 163.17%. A raptor can get by on that kind of return. Most likely, I will keep the shares and write a new 12.50 strike call on the November expiry for similar return. That time period should also see eligibility for a quarterly dividend of approximately 58.25 cents a share.
SunCoke provides metallurgical coal for steel blast furnaces. There is some risk global economic slowdown could limit the demand for steel. China’s activity going forward is important to this company. The odds of demand falling to zero are low however. Steel is fundamental to thousands of industries and there is always some being used. On the flip side, continuing economy recovery from the 2008 incident could lead to big gains over time. I feel very positive about my odds to outperform the S&P 500 with a buy/write strategy in SXCP.
Devour your prey raptors!