I opened a new position in Prospect Capital Corporation (PSEC) this morning.

music selection:  “Palace Of The King” — Kenny Wayne Shepherd

Prospect Capital is a closed end fund that operates as a Business Development Corporation (BDC).  I’ve discussed BDCs here at the raptor before.  These are usually high yield issues that like a REIT or MLP, receive a tax exemption if they distribute cash flows to shareholders as distributions according to IRS requirements.  BDCs engage in investing in private businesses through debt and equity.  Prospect is in a niche that serves private companies that are too large to get attractive bank financing but too small to float a bond.  Debt investments are usually floating rate so there is good upside from rising rates.

Prospect was the recent victim of a hit piece in the Wall Street Journal.  I’m sure that kind of article sells newspapers but it doesn’t serve the readers well.  Prospect is a well run company and now thanks to some negative press, it can be purchased super cheap.  The current asking price is only about 70% of Net Asset Value.  I got in at 6.99 and the even dollar annual distributions yield 14.31% against my cost basis.

This is a pure income play and not a long term holding so I wrote an at the money covered call for extra yield.  I sold PSEC160219C00007000 for 20 cents a contract.  The trade will be in force 43 days and yields 24.25 annualized.  I should pick up eight and a third extra cents per share from the January distribution bringing expected 43 day returns to 34.36% annualized.  I’ll continue writing these calls if I can hold onto shares and strongly consider re-entering the trade as either a buy/write or cash secured put if I’m called away.

In other news Dupont is very likely to be assigned to me over the weekend.  I’ll evaluate what to do there on Monday.

Devour your prey raptors!

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Buy/write Prospect Capital Corporation (PSEC)

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2 thoughts on “Buy/write Prospect Capital Corporation (PSEC)

  • January 8, 2016 at 9:12 pm
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    Hey Lizard King! Not relevant to what you’ve just written here, but you don’t have a contact page… I’m considering dipping a toe into Chipotle’s little mess and I think puts might be the way to go. I’d feel comfortable owning them somewhere in the $300-325, but NOT with 100 shares at risk. Is it possible to trade in 10 share blocks? What are your thoughts on CMG otherwise?

    Reply
    • January 8, 2016 at 11:46 pm
      Permalink

      Kevin,

      Thanks for point out the lack of a contact page. I’ll have to look into that.

      Ten share contracts exist for only a very few stocks. There used to be an AAPL before the split. I think you can trade 10 share contracts in GOOGL. I don’t see any “minis” at Interactive Brokers. The only issue I can find that still have minis are for indexes. You might be able to suss out more at the CBOE website: http://www.cboe.com/micro/mini-options.aspx

      I haven’t been following CMG. They have great margins but I’m skeptical of owning them at such a high multiple. I also think the entire market is suspect; guilty until proven innocent. I am trying to be more defensive than offensive right now.

      Reply

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