Three trades in the last seven days.

music selection:  “Slaved” — Autovein

weigh-in:  219.0 +0.8

My covered calls in NLY were set to expire in the money on Friday.  So on Thursday, I rolled out 54 of 69 calls to a later strike and the same 6.5 strike.  I let 1,500 shares be called away to raise cash and reduce my concentration in NLY.  I got a net credit of 8 cents a share for the 11SEP2020 expiry.  With the trade in force for 40 days the expected annualized return is 12.15% against my cost basis of 6.00.  NLY currently trades at 7.55 so it is unlikely I will be able to continue rolling out far enough to collect the next quarterly distribution. I’m holding on in hopes any pullback occurs close to my expiry so I can roll “up and out”.  Should the price continue to rally between now and expiry, I will likely let the remaining shares be called away rather than settle for 12% annualized returns in a 30-40% market for selling options.

I deployed the cash raised from the NLY trade into deep in the money SLV calls.  I like the chart for silver and think the metal is due for a rally that reduces the gold to silver ratio, which is historically out of whack.  With SLV at 21.67, I bought the 11 strike 21JAN2022 expiry call for 11.20 a share.  I paid about 53 cents in time value and gained roughly 2:1 leverage to the price of SLV.  I bought 9 contracts.  As of Friday’s close, the position was up 765 dollars or 7.59%.

Finally, my short puts in ITB expired out of the money over the weekend.  I still like the fundamentals for home construction (shortage of inventory, Millenials entering key home buying age, low interest rates), and I think the ticker still has room to run.  With the ticker at 52.22 I sold the 51.5 strike 28AUG2020 expiry puts for 1.55 a share (two contracts).  The trade will be in force for about 26 days and enjoys 4.35% downside protection from a downward move in share price.  The expected annualized return should I not be assigned is 42.25%.

Devour your prey raptors!

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Monday trades with yields up to 42.25%

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2 thoughts on “Monday trades with yields up to 42.25%

  • August 3, 2020 at 4:35 pm
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    I’d be awfully tempted to hold NLY in order to generate income. The yield is double your WR. However I’d be terrified the whole time. The market does not seem to have factored in the upcoming wave of foreclosures.

    Also would like your thoughts about NAVI and BNS as opportunities to grab income and use options to lower the cost basis. It is concerning to see money fleeing these holders of debt, in advance of what will likely be a tsunami of defaults.

    With C19 not even remotely under control in the US, it may be prime time for shorting creditors like LC and COF rather than chasing soon-to-be-cut yields.

    Reply
    • August 4, 2020 at 3:11 pm
      Permalink

      The NLY yield is very tempting. But I’ll be trimming it over time as options premiums are just super fat right now. NLY is almost dead money in this environment.

      I don’t know NAVI or BNS.

      COF is sort of a dog. I think it is eventually due for a big fall. But I’m hesitant to short it or buy puts because the Fed has gone Full Retard. I think they will do literally anything to prop up banks.

      Reply

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