On Monday, I entered a buy-write on Alerian MLP (AMLP).
music selection: “Jet Airplane” — Steve Miller Band
I don’t ordinarily write options on ETFs but there is a special situation here. AMLP owns a basket of midstream companies. These companies have very little exposure to commodity pricing (they are more like toll road operators). But they have traded down in sympathy with oil prices. The ETF price bottomed with the recent sub 30 oil prices and has since stabilized. I was able to buy at 10.85 for a 11.02% distribution yield.
I also went a little out of the money and wrote covered calls. The volatility in the sector has led to unusually large premiums for an ETF, making the play worthwhile for now. I sold AMLP160415C00012000 for 20 cents. The trade will be in force for 40 days and yields 16.82% annualized. In the unlikely event shares close above 12 at expiry, annualized return will be an astounding 113.54%.
I took the unusual step of making a trade in my tIRA. That account is mostly populated with insurance companies. With the possibility of weakness in the market this year, I want to be defensive and hold only dividend paying insurance companies. So, I sold Alleghany (Y) and put the funds towards another buy-write on Alerian.
In other news, AAPL, QCOM, and MSFT all expire today. I expect AAPL to be called away. MSFT may be assigned, it will be close. QCOM will expire safely out of the money. I will roll those positions next week.
Devour your prey raptors!