DGI Adventure – 02-17-2016 Paydays – Roll Out Covered Calls + Omega Healthcare Investors Inc (OHI)

I got paid yesterday. Woo hoo!

OHI paid out its $0.57/share dividend. I got $26.22 since I
only own 46 shares. I understand that hindsight is 20/20, but I really feel
like I should own more shares. I’ve complained once
about how impatient I was when I bought OHI and should have stuck to
my original asking price of $32/share. This will be the last time I complain. I
promise. But damn…seriously? The stock price has really come down from my
lofty cost basis of $36/share. Oh well.

The only reason I haven’t bought more OHI (or HCP for that
matter, which is also substantially down) is I’m having an REIT crisis of
faith. I still don’t know how I want to
REITs or MLPs. I don’t understand the financial engineering, and
it makes me nervous. A lot of MLPs have been obliterated recently and they’ve
started cutting their dividends. The argument could
be made
that more carnage is coming. I don’t really see the difference
between MLPs and REITs. They both financially engineer their payouts, the REITs
just aren’t facing cataclysmic downside in their market the way oil & gas
MLPs are. I will probably buy more OHI and HCP in the ROTH so as to accumulate
over 100 shares. That way I can at least start playing around with call options
on them. After all if you don’t completely understand an asset class, you might
as well start trading leveraged derivatives of it in your retirement account…right?

Speaking of covered call options, as I mentioned
earlier this week
, I was pretty wrong about selling gold mining companies
in early January. Well, I’m not alone in terms of bad gold timing. John
Paulson fucked it up
 pretty bad too, and that’s with other people’s money.
And then I read


And I said to myself, “Self…cut the pity party bull shit, get
over it, and roll those options forward you big crybaby!”

Jose Canseco just called a 20% increase in gold over
the next 3.5 months. Seriously?! If that’s not a screaming signal to short, I
don’t know what is. So I rolled the same strike contracts out to April 15th.
Tax day expiry…is that a good or a bad omen?

I bought back AUY160219C00002500 contracts
for $0.219 (after commission costs) and sold AUY160415C00002500
contracts for $0.3709 (after commission costs). The roll out netted me $91.10
in additional premiums.

Meanwhile, I had to pay $2.937 for the ABX160219C00009000 contract,
but sold ABX160415C00009000
for $3.023, which netted $8.60 more (again commission costs are already factored in).

There’s potentially a lot of different ways to calculate the
“return” on these trades. I’m going to divide the net premium received by the
strike and annualize it. I look at it this way:

For the ABX contracts I netted $8.60 in premiums or $0.086/share,
which is a 0.96% gain on a $9 strike. The trade is in effect 59 days or 0.162
years, so it is an annualized return of 5.9% (give or take). Not bad I guess
considering how wrong I am price-wise.

AUY’s haul of $91.10 comes out to $0.152 per share (6
contracts), which is 6.1% of the $2.50 strike. That comes out to a 37.5%
annualized return!  

AUY was trading for $2.64 at the time which isn’t that far
off its $2.50 strike. Meanwhile ABX is all screwed up and DEEP in the money. Lesson
learned: it’s better to be at the money than 25% underwater.

ABX will pay a dividend of $0.02/share in March (ex-div
2/25/16). I guess there is some assignment risk, although that seems like a
really small dividend to worry too much about. I think there should be enough
time value left next week to prevent early assignment over two cents, but what the
hell do I know? AUY will go ex-div sometime in late March. It has a higher
percentage yield than ABX, but it is still a relatively small dividend and I should have at least a month or
more before expiration. Long story short, I’m not worried about early

The real point of all this is that I earned some cold hard
cash. With the call options plus the OHI dividend I made $125.92 yesterday. I
feel better…

That is until the Oracle of Oakland proves me wrong. Can we please call Jose Canseco the Oracle of Oakland? I’m going to call him that. Sorry, but
it’s already been decided.

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