Four positions expired over the weekend.
music selection: “I Like To Rock” — April Wine
weigh-in: 196.4 (0.6)
LRCX, and TGT expired out of the money over the weekend. I was assigned shares of BX at 35.50 and shares of KORS were called away at 68.50. Diagonal calls in LRCX and SWKS both passed their 35% stop loss over the weekend. As a result, I sold my LRCX 85 strike 17JAN2020 long call for 75.30 booking a short term capital loss of 5,002. This closes the position. I also sold two SWKS 50 strike 17JAN2020 long calls for 38.95 booking a short term capital loss of 4,724. TGT and KORS are both out of range and I will not be rolling those positions forward.
With the Blackstone Group LP (BX) assigned at 35.50, I am going to write covered calls against my long position for additional income. I sold BX181019C00036000 for 95 cents a share. The trade will be in force for 40 days and yields an expected 24.08% on an annualized basis. If shares are called away at 36, I will collect an additional 50 cents a share in short term capital gains, bringing the annualized return to 36.75%.
I am opening a new position in Hi-Crush Partners LP (HCLP). Hi-Crush is the best in class frack sand supplier. There are two things afoot making this company an interesting play right now. The first is a move to acquire “in-basin” sand mines near the Permian Basin. Traditionally, frack sand has been shipped from the Midwest. The best sand thus has a price that is about 2/3rds shipping costs. The in-basin sand near Midland, TX has a slightly lower crush strength and a less desirable geometry but is much cheaper to procure. E&P firms are beginning to use the local sand and make up for the lower quality by using twice to three times as much sand per job. Hi-Crush has also upgraded its delivery capability to include “last mile” capability and are now going direct to the end customer instead of using an oil field service company as a distributor. At the same time, the company would like to convert from an MLP to a C corporation. To do this, they are using a “reset provision” in their contract whereby they can buy their general partner out of its Incentive Distribution Rights for four consecutive quarters of distributions over 71.5 cents per unit. Management has set the distribution at 75 cents a unit resulting in a 25% annualized yield. I am selling an in the money call HCLP181019P00012500 for 1.20 a unit. This trade will be in force for 40 days and yields an astounding expected 87.60% annualized. The plan is to get assigned and write out of the money calls to generate additional income while collecting the 25% distribution. After converting to a C corp, the distribution can be expected to fall but the company will have a bright future ahead of it. I hope to write covered calls for a long time.
Devour your prey raptors!