10.1 C
New York
Wednesday, April 24, 2024

Top Trades for Fri, 11 Jun 2021 13:03 – TWO

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Top Trades for Fri, 11 Jun 2021 13:03 – TWO
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Remember Two Harbors (TWO)?  They are a Mortgage REIT and rising rates are their friend.  Steady rates are also their friend, only declining rates bother these guys and that already happened, most of their early loans were paid off so now they make most of their money servicing.  $7.53 is $2Bn for them as well but pre-covid they were 100% higher.  They wrote off a tremendous amount of assets last year – so they won't be paying taxes for a very long time – a benefit to new shareholders.   I don't peg them for a lot of growth but they are paying 0.68 (8.9%) in dividends and we can take advantage of this in the Dividend Portfolio as follows:

  • Buy 2,000 shares of TWO for $7.53 ($15,060) 
  • Sell 20 TWO 2023 $7 puts for $1.50 ($3,000) 
  • Sell 20 TWO 2023 $7 calls for $1 ($2,000) 

That's net $10,060 for 2,000 shares ($5.03) and, if we are assigned 2,000 more at $7, our average would be $6.015 – 20% off the current price.  That's our WORST case!  Best case is we collect 0.17 (3.37%) in quarterly dividends while we wait to get called away at $7 for a $1.97 (39%) profit.