I am playing the run up in oil and natural gas prices with a put on BSM.
music selection: “Synthetica” — Metric
BSM is the largest of the oil royalties companies. It yields 7% but a distribution increase is planned that will make the distribution about 7.7%. My reasoning for playing this goes like this: royalty companies have a distribution that lags the price of the underlying commodity. Oil and gas have been on a crazy run but it hasn’t started showing up on the BSM bottom line…yet. It is about due to hit the bottom line. I’d be glad to own so writing a ‘risky’ put is a no-brainer proposition.
Yesterday, I sold BSM160819P00015000 for 81 cents a share. The trade will be in force for 44 days and yields a tasty 44.80% annualized. In addition, I enjoy 8.83% downside protection against a decline in share price. This one would also be a good long term holding as management is on record with plans to increase distributions for the next three years.
In other news my written put on Eli Lilly (LLY) looks to expire safely out of the money today. The price has run up out of range and I will not be writing a new put on Monday.
Devour your prey raptors!