I made two trades today with strong annualized returns.
music selection: “Outshined” — Soundgarden
I’ve been watching Sirius XM (SIRI) the satellite radio provider for some time. It is a growing business with strong margins and great capital efficiency. It costs very little to add a new user now that the satellite constellation is in place. My only concern is that revenue growth seems to be driven largely by new car sales. This one could become a secondary victim of a rollover in the subprime auto loan cycle. So I’ll be keeping trades short and exiting if the auto loan bubble pops.
I sold SIRI170519P00005000 for 16 cents a share. The trade will be in force for 38 days and yields 30.74% annualized. I enjoy 5.10% downside protection from a decline in stock price.
Seadrill Limited Partners (SDLP) has been really struggling of late. The market is concerned about the debt load and a slowdown in offshore drilling due to the depressed price of oil. I noted a few days ago that the company managed to sign a major new contract with BP Canada. This gives me confidence the company is solvent in the 45 to 50 dollar a barrel range that crude seems to be mired in. So I’m converting the covered call to a strangle.
My cost basis in the long shares is 4,862 and I’m roughly doubling my exposure. I sold 19 contracts at the 2.5 strike for new exposure of 4,750. That was on contract SDLP170616P00002500 which I sold for 20 cents a share. The trade will be in force for 66 days and yields 44.24% annualized. There is also impressive 24.34% downside protection. The recent low before the BP contract was 2.70 so I think it is highly likely the stock will stay out of the money and earn the full premium.
Devour your prey raptors!