by Market Shadows - March 23rd, 2014 5:58 pm
Read Paul’s take on one of the biggest financial decisions you’ll ever make.
Click on the link below for the full article.
by Market Shadows - March 21st, 2014 4:55 pm
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.
by Market Shadows - March 19th, 2014 7:41 am
Market Shadows Virtual Put Selling Portfolio happily added a new position.
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
Research firm Trefis also liked ORCL after seeing their latest news release.
Disclosure: I sold short ORCL Jan. 2016, $35 puts in my personal account today
by Market Shadows - March 16th, 2014 8:15 pm
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.
by Market Shadows - March 15th, 2014 4:40 pm
Thursday's Wall Street Journal offered vivid confimation of what I wrote about here last weekend.
By Paul Price
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.
by Market Shadows - March 14th, 2014 8:55 pm
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.
Here's what we did:
by Market Shadows - March 14th, 2014 10:05 am
Today’s new intra-day low was too good to pass up.
By Paul Price
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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by Market Shadows - March 12th, 2014 10:54 am
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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by Market Shadows - March 11th, 2014 7:34 am
Market Shadows Virtual Put Writing Portfolio added a new position.
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 …