Four positions expired over the weekend.

music selection:  “Jamming” — Bob Marley; speak up in the comments if you dig it!

weigh-in:  204.8 +1.8 – doh!

PMT, SM, and NAP expired out of the money over the weekend.  EOG shares were called away.  I say goodbye to EOG and SM for now as I seek to reduce exposure to a stubbornly weak oilfield.  Unrelated, I got a great deal on close to expiry pork loin at Kroger today.  The freezer is well stocked.

I sold NAP171117P00010000 for 1.10 a share.  It was necessary to move up to the 10 strike from 7.5 as NAP has had strong performance over the last month.  The strike is in the money by about 70 cents so the time value is really only about 40 cents out of the buck-ten.  The trade will be in force for 26 days and yields a terrific 154.42% annualized in the event it expires out of the money.  The time value portion alone is worth 56.15% annualized.  Either way this is  a good trade.  I’d be delighted to be assigned this solid company with long term contracts on its vessels and collect the underlying 16.9% yield while writing covered calls for strong bonus income.

I  also sold PMT171215C00017500 for 15 cents a share.  The trade will be in force for 54 days and yields 5.79% annualized.  That is bonus income as the underlying yields 11.14% on the distribution.  This is one of my favorite mortgage REITs.  I expect the sector as a whole to do well as the Fed tightens gradually.  The best REITs will be hedged against this and will see margin expansion on new assets.

The average return on these two trades is a ridiculous 80.11% annualized.  I collected 1,190 in instant income that is mine to keep no matter how the trades turn out.

In other news, my UVXY puts are close to ripe.  It looks like out of the money is going to beat in the money in the A/B test.  In additional other news, I am attending FinCon17 in Dallas Wednesday through Saturday.  Come join me for a beer.  Mr.1500 is allegedly buying.

Devour your prey raptors!

Monday Trades – PMT and NAP

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13 thoughts on “Monday Trades – PMT and NAP

  • October 23, 2017 at 9:02 pm

    How bad was the beating on SM and EOG?

    I’ve been watching PMT too. Seems to be a matter of earning one’s money back through dividends and calls before the next mortgage crisis hits. Yet it’s a low volatility stock. Very weird. I’m sure you were tempted to set up a 179 day no-cost collar at 12.50 and 17.50, protecting against declines of greater than 25% for free.

    • October 23, 2017 at 9:34 pm

      With EOG, my exit strike was my entry strike. For SM, I took about a 40% haircut on the underlying, offset by 900 dollars in collected premiums.

      I don’t expect the next downturn to be a repeat of 2008 with respect to real estate and MBS. That debt has been cleaned up and the new debt bubble(s) are in unsecured credit, student loans, and subprime auto loans. I guess that is a junk bond bubble too. The spread on so-called high yield versus Treasuries is abysmal. It has kept me from speculating again in discounted bonds for more than a year.

  • October 25, 2017 at 1:49 am

    I dig it, but I can’t be the only one!

  • October 26, 2017 at 2:27 am

    Thanks for providing ideas! I am very fond of Navios $NAP, $NNA (being Greek and a fan of the CEO, Ms Frangou), but I hesitate to invest into “obscure” stocks. I think I might coat-tail you on this one, though. After all, blue chips like $TXN are way too expensive for me these days.

    • October 26, 2017 at 12:19 pm

      Thanks for reading Maria. I’d recommend against doing anything you aren’t comfortable with. The money isn’t worth the loss of sleep

  • October 26, 2017 at 5:55 pm

    How have your UVXY positions done this week? On Friday my GTC sell order had an ask at 13 at the bid/ask spread was 12.925. So close. Then UVXY has gone up pretty much all this week, so my GTC never hit. Still waiting for that first sell….

    • October 26, 2017 at 7:18 pm

      I’m at FinCon17 this week and haven’t had much chance to follow my positions. Looks like I’m slightly down on thursday versus Tuesday.

      • October 26, 2017 at 9:02 pm

        I’ll fill you in. Those GRUB puts you sold for 2.45 are now down to 0.10. Nice pick!

        I decided to try a riskier approach and bought the UVXY $8 June ’18 puts at exactly the wrong time Monday. I’m down maybe 4% in 4 days. More importantly, I missed the chance to buy them at much lower prices. Oh well, **it happens, but I can still hold another 6 months so no worries.

        • October 27, 2017 at 3:54 pm


          why are you going for the June18 PUTS over the Jan19?

          • October 27, 2017 at 5:21 pm

            It’s an experiment in risk/greed, layered on top of an experiment in risk/greed! Shorter duration = much bigger moves for every $1 UVXY changes (compare the deltas). I will sell when there is 3 months duration remaining, unless a volatility event is occurring at that moment, in which case I have up to two more months to wait it out before time decay really accellerates. Historically, UVXY has resumed its downward trajectory within a couple weeks of an event, so I think the more volatile shorter duration is worth speculating with. I’m even for the week as of now, despite my bad timing.

          • October 27, 2017 at 7:21 pm

            This is an interesting experiment to me. Would you like to do a guest post with your findings once you have a few trades under your belt? I’m sure the readers would love to see what you have learned.

          • October 28, 2017 at 4:04 pm

            I’d like to see your results too. I’m doing the opposite right now, which is ITM puts rolling down and out 3 months when they get close to expiration. The market is very good at pricing OTM puts and they take forever to gain value even if UVXY drops a lot. IV drops when UVXY drops, so they gain cents for every dollar drop, until they are well ITM at which point they accelerate.

            Check some zero-cost backspreads over time as well. That will tell you where the market thinks UVXY is headed. You can get 1 strike 32 for 10 strike 8 June puts. The breakeven price is 5.6, after which strike 8 puts will overtake strike 32. You can play around with strikes and you’ll get an answer around 5.5. If current market conditions continue, the backspread price will slowly change to a debit, indicating the market thinks strike 8 puts are going to be more profitable than strike 32, but it will be a slow grind, making them mostly equivalent. The difference lies in the value preservation of ITM puts if VIX rises and never comes back.

  • October 30, 2017 at 4:33 pm

    I forgot to write it down, but I swear the delta has decreased since I bought my June puts (now -0.12, or about 5% gain/loss if UVXY drops/rises $1 tomorrow). This may just be a software artifact of the wide bid-ask. However, because the June options are cheaper than the Jan ’19s, my percentage changes are bigger – in theory.

    I probably need to bury my head in an options theory book before I can interpret results. On several days last week, some of my strikes/dates were up and others were down. These are so weird because the underlying, which semi-tracks volatility, has its own -leveraged-volatility reflected in the options differently at different strikes. Which volatility dominates over time?

    Interactive brokers offers a “probability lab” cell phone app that shows the options market’s expected distribution and recommends strategies based on your adjustments to that curve. For UVXY, it’s skewed to the low end. I didn’t find the app particularly useful at picking strategies, but it was interesting to see the market consensus opinion. This is the lazy person’s way to visualize what David was talking about.

    Also as David implied, we have no guarantees UVXY won’t go up and stay up. Otherwise, we’d be all in with synthetic shorts. A bit of prolonged political uncertainty might raise volatility and risk premia. Today’s indictments of Trump associates might be just the start.

    There will be some tradeoff between risk and returns. Strike price and duration are the risk factors. I would be surprised if someone found a non-linear relationship between these risk factors and potential/likely outcomes.

    Leaving oneself only 3 months to exit, as I am doing, is a lot more risky than a longer-duration position. It also inclines a person to gamble less money on this trade. For both of these reasons, I might have been better off with a big position in Jan’19 ITM puts.


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