Puerto Rico’s newly issued $3.5 billion worth of 21-year duration bonds were sold only to ‘big boys’ who could pony up $100,000 minimum. Those hedge funds, Wall Street firms and primary dealers (banks) scooped up the whole batch at about 93-cents on the dollar.
A day or two later they off-loaded their stakes to the gullible public at prices as high as par (100-cents on the dollar of face value).
The suckers never learn. Barron’s reported today that the paper is now trading for less than its issue price.
We took advantage of Oracle’s (ORCL) early sell-off and high volatility this morning. ORCL reported fiscal Q34 earnings after the close yesterday.
We sold three contracts of the Jan. 2016, $35 puts @ $3.85 per share. Our commitment is to be willing to purchase 300 shares of ORCL, if exercised later, at a net cost of $31.85 per share ($35 strike price minus the $3.85 put premium).
Our $31.85 ‘if put’ price is near 18-month lows that were touched during November of 2012 and again in June of 2013. Both those occasions proved to be excellent entry points for this blue-chip stock.
We have two older short puts commitments (LNN & VMI) coming up on their expiration dates this Friday. Both appear to be on track to expire worthless. That is the best-case scenario for us as sellers. We are likely to pocket 100% of the premiums collected without having to buy any of the underlying shares. Check back after the close on Mar. 21st to see if these worked out as as expected.
You can follow our ORCL trade and all our previous option positions by clicking on this link
Zero Interest Rate Policy (ZIRP) has been a curse for risk-averse savers and investors. Bank CDs, T-bills, money market accounts and corporate bonds have almost never paid less than they do today.
That led many investors to chase after yield in alternative investments, at prices that they shouldn’t have paid. Holders of the natural gas transmission company Boardwalk Pipeline Partners (BWP), a master limited partnership (MLP) were recent casualties in this struggle for income.
Units (similar to shares) of BWP had spent most of the last seven years trading between $24 – $30. Its valuation was largely based on its cash distributions, which averaged 7.1% over the entire period 2006 – 2013. Investors didn’t pay much attention to anything but BWP’s yield.
Last month, management cut the quarterly payout from 53.25-cents to 10-cents. BWP cratered, plunging from above $25 to around $12. BWP closed last week at $12.55 after hitting a new all-time low of $11.99 early Friday.
Disgusted holders who suffered big losses have been dumping BWP while other investors, who like the 3.2% current yield, see rebound potential. These new investors have been buying in for the rebound potential, the current (lower yield), or both.
Option savvy income seekers can use the drop in BWP to try for better returns than before the dividend was slashed.
Better returns are likely achievable using a buy-write strategy--i.e., buying shares of BWP while writing (selling) covered calls. One idea is to sell calls that expire at the close of trading on September 19, 2014, about six months from today.
Selling calls on BWP limits upside potential but brings in substantial upfront payment in the form of option premium. The income often rivals anything available in today’s ZIRP environment while also reducing the risk of holding the underlying shares.
Here is an example based on prices that were available just before the close on Friday.
That best-case scenario will play out if Boardwalk goes up, remains unchanged or even if BWP drops down to $12.50 (but no lower). An almost 33% rate of return sounds pretty good in a zero interest rate world.
There’s no guarantee that BWP can’t decline but the money from the covered calls would mitigate up to a 13% drop if the shares fall.
The buy-write’s break-even price is lower than any actual open market transaction in…
Anyone who dumped their Puerto Rican muni bonds after reading Barron's ultra-negative cover story (last August) got horrible bids when they went to sell. Ditto for those that held on until Standard & Poors finally down graded (clown-graded?) PR bonds to junk status.
The immediate drop in prices for those bonds allowed dealers, who likely knew in advance that last week's $3.5 billion new offering was coming, to take PR tax-free bonds from scared investors at distressed prices.
Puerto Rican bonds are still down from late 2012 but anyone who 'sold on the news' from Barron's or the ratings services locked in the worst prices in decades. Many of those bonds are up more than 10% in principal from their recent low points. That is a massive move in the usually stodgy bond arena.
PS: I want credit for coining that 'clown-graded' term.
The DJIA was lower all five days while the SPY eked out a minuscule gain on Wednesday in the midst of a bad week overall.
Market Shadows Virtual Value Portfolio dipped along with the broad market but we took advantage of the sell-off to add to existing positions in PVD and BWP. Both were higher at the end of the week than they were when we bought more.
We added one all-new position by shorting some puts on Knowles Corp. (KN) in Market Shadows' Virtual Put Writing (Selling) Account. Knowles was a recent spin-off from Dover Corp (DOV). KN's stock also headed higher shortly after our trade and despite the market’s overall negative action.
We couldn’t resist owning another chunk of Boardwalk Pipeline Partners (BWP) in Market Shadows Virtual Value Portfolioafter it dropped to a new low of $11.99 today. The 52-week range on BWP has been $11.99 (set today) to $33.00.
Market Shadows Virtual Value Portfolio couldn’t resist owning another chunk of Boardwalk Pipeline Partners (BWP) after seeing it go down to a new low of $11.99 today. The 52-week range on BWP has been $11.99 (set today) to $33.00. BWP’s current yield is 3.32% at our latest entry price.
We were able to buy another 300 shares at $12.06 per unit, using $3,618 from our cash reserves. For the moment we are essentially fully invested. We will need to sell something before being able to purchase our next great idea.
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I love bargain prices. We got another chance to pick up shares of Chilean-based pension fund manager PVD this morning and didn’t waste it.
The Virtual Value Portfolio doubled our 42-share position at $78.94, a much lower quote than we paid for our original stake back on Dec. 2, 2013 when we liked PVD at $86.55 per share.
I added 100 shares to my personal holdings today as well.
The company is majority owned by US insurance giant MetLife (MET). I expect that MET will eventually want to buy out the minority holders to simplify their own corporate structure and eliminate expenses.
The $3,315 purchase price will come out of our cash reserve fund.
Market Shadows’ reader Leilei noted that MetLife’s ownership of PVD was above 90% as of Sep. 30, 2013 and is approaching 94% since. MET paid $92.214 per share or $13.20 (+16.7%) above our purchase price today. Any offer to sweep up the remaining shares would probably come at a premium to that.
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Knowles Corp. (KN) was carved out of Dover Corp. (DOV). KN started trading 'regular way' early last week.
The shares had been as high as $32.85 just days ago while trading on a 'when issued' basis. They were offered at just $28.42 early today.
We sold three contracts of the KN Sep. 20, 2014, $30 puts @ $3.30 per share.
Our maximum profit is limited to the $990 we collected upon sale of the put options. If KN closes at $30 or higher on the Sep. 20, 2014 expiration date we will make that full amount without ever having to buy the stock. Until then we must stand ready to purchase 300 shares of Knowles for a net cost of $26.70 ($30 strike price – $3.30 put premium).
That $26.70 per share break-even point is lower than any KN shares have actually changed hands for since the spin-off took place.
Source: Yahoo Finance
Follow this trade and all our other option positions, open and closed, by clicking here …
In the spring of 2012, The National Interest produced a special issue under the rubric of “The Crisis of the Old Order: The Crumbling Status Quo at Home and Abroad.” The thesis was that the old era of relative global stability, forged through the crucibles of the Great Depression and World War II, was coming unglued. In introducing the broad topic to readers, TNI editors wrote, “Only through a historical perspective can we fully understand the profound developments of our time and glean,...
The April Consumer Price Index for Urban Consumers (CPI-U) released this morning puts the March year-over-year inflation rate at 1.51%, which is well below the 3.88% average since the end of the Second World War and 37% below its 10-year moving average.
For a comparison of headline inflation with core inflation, which is based on the CPI excluding food and energy, see this monthly feature.
For better understanding of how CPI is measured and how it impacts your household, see my Inside Look at CPI components.
For an even closer look at how the components are behaving, see this X-Ray View of the data for the past five months.
The Bureau of Labor Statistics (BLS) has compiled CPI data since 1913, and numbers are conve...
The Government National Mortgage Association (Ginnie Mae) recently discovered that Bank of America (NYSE: BAC) is missing key documents relating to mortgages the bank services for it, reported Kate Berry for National Mortgage News.
Because Bank of America is missing so many key documents,
Last week’s market performance was nasty again, especially for the Small-cap Growth style/cap, down 4%. Large-caps faired the best, losing only 2.7%. That’s ugly and today’s market seemed likely to be uglier today with escalating tensions over the weekend in Ukraine.
But once again, positive economic trumped the beating of the war drums. Retail Sales jumped up 1.1% over a projected 0.8% and last month’s tepid 0.3%, which was revised up to 0.7%. While autos led, sales were up solidly overall. Business inventories were about as expected with a positive tone. Citigroup (C) handily beat estimates to add to the morning’s surprises. As a result, the market was positive through most of the day, led by the DJI, up 0.91%, and the S&P 500, up 0.82%. NASDAQ had a less...
[Facebook] The social network is only weeks away from obtaining regulatory approval in Ireland for a service that would allow its users to store money on Facebook and use it to pay and exchange money with others, according to several people involved in the process.
The authorisation from Ireland’s central bank to become an “e-money” institution would allow ...
Reminder: OpTrader is available to chat with Members, comments are found below each post.
This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
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Market Shadows Excelled – With a 1.36% Weekly Decline
In the land of the blind, the one-eyed man is King. Our Virtual Value Porfolio took on that role this week as we lost a modest 1.36% of our value while the DJIA, S&P 500 and Nasdaq Composite dropped from 2.35% - 3.10%.
We remain bullish despite the shaky end of week sentiment. Our original $100,000 now totals $145,058 including our 2.8% cash reserve.
3D Systems shares had been in positive territory earlier in the session, up as much as 4.2% to touch an intraday high of $50.85. The stock bounced off a low of $47.17 in the early going, a new six-month low for the share price and a more than 50% drop from DDD’s record high of $97.28 reached back on January 3rd. Shares managed to stay in the green for much of the session before succumbing to selling pressure this afternoon. Options expiring next week suggests at least one trader is positioning for further weakness in the near term.
The 17Apr’14 $47 puts traded more than 2,000 times this morning against previously existing open interest o...
I just wanted to be sure you saw this. There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.
If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.
Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Ladies and Gentlemen, hobos and tramps,
Cross-eyed mosquitoes, and Bow-legged ants,
I come before you, To stand behind you,
To tell you something, I know nothing about.
And so the circus begins in Union Square, San Francisco for this weeks JP Morgan Healthcare Conference. Will the momentum from 2013, which carried the S&P Spider Biotech ETF to all time highs, carry on in 2014? The Biotech ETF beat the S&P by better than 3 points.
As I noted in my previous post, Biotechs Galore - IPOs and More, biotechs were rushing to IPOs so that venture capitalists could unwind their holdings (funds are usually 5-7 years), as well as take advantage of the opportune moment...
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