DGI Adventure 09-24-16 Activity Summary and Expiry Discussion

I’ve decided to keep to my recent pattern of rolling up all trading activity into a single post for the week. I didn’t get any answers to whether that was preferable or not on the last post, so I’m doing it again.

There is not quite as much to talk about this week, so hopefully this post is a little more easily digestible?

Trading Activity – Limit Orders Placed

I added 300 more shares of MIN to my CEF portfolio on Monday. I already did a post about that, so I won’t rehash it here, but it was certainly part of the activity to be summarized.

Trading Activity – Sold Cash Secured Put

09/16/16 – GRC Oct21 $25.00 strike

I mentioned during last week’s summary that my previous put against GRC shares was getting ready to expire. I could probably have waited until Monday after the put officially expired, but at some point on Friday, it was obvious to me that it wasn’t going to end up in the money, and the same strike was available for quite a juicy premium, with a lot less duration this time. So I doubled down for a couple hours on Friday afternoon, and kept the position rolling.

Trading Activity – Sold Covered Call

09/21/16 – SCHB $52.00 strike

Another expiring position discussed last week was my cash secured put against 100 shares of SCHB with a $52 strike. As could have been expected, that expired in the money and shares were assigned over the weekend. I’m not super excited about that cost basis, and I wasn’t totally sure how Mr. Market would respond after the FOMC meeting. So Wednesday morning, before Janet Yellen emerged from her burrow to see her shadow and declare three more months of low interest rates, I sold a covered call against my newly acquired SCHB shares.

The contract has a $52.00 strike, and expires October 21st, which means it will be in force for 30 days. The premium collected, net of commissions, was $63.91, which works out to a 14.95% annualized return.

Since the original put was assigned at a $52.00 strike, I’ve given up any kind of capital appreciation in return for premium income. I’m okay with that, as I think $52 is probably a pretty elevated entry point. I think I’d rather take the premium and free up the cash.

It turns out I probably could have waited until after the meeting notes were released, and gotten a similar payout for one strike price higher, since everything rallied pretty hard that afternoon. Oh well. Thou can’t time the market, so thou shalt not try to.

Options Expiry Discussion

I have two cash secured puts that expired yesterday, both were out of the money, so I’ll have some cash freeing up over the weekend.

Position # 1 – GILD $79.00 strike – this put was sold on August 23rd and would have been assigned if it had expired a week earlier. But then the whole industry jumped earlier this week.

Allergan (AGN) bought some company because of their Non-Alcoholic-Steatohepatitis  (NASH) pipeline. They paid like $600M (depending on how you do the math) for the company, and some analyst made a comment that they’d thought the market has been undervaluing Gilead’s NASH pipeline for a long time. AGN probably isn’t going to buy GILD, but GILD shares were up like 5% over the course of a couple days.

Go figure.

I don’t know about how much the pipeline is worth compared to other liver disease pipelines, but I still maintain that 7x earnings is a retarded valuation, and even with the recent pop, I will be looking to extend this position ore something similar to it next week.  

Position #2 – ABBV $62.50 strike – this put was sold on August 24th. How did I get myself into cash secured puts on two pharma stocks expiring around the same time. Should I try to spread that kind of activity out or something? Hmmm…

ABBV enjoyed the same general biotech/pharma “pop” that drug (pun intended) the GILD share price out of assignment territory. But unlike GILD, ABBV never really dipped below the strike price. Shares closed yesterday at nearly $65/share, which might be a little rich for my blood. It is right at the fair value I came up with when I first initiated a position in June. I’d prefer a bigger margin of safety before taking another long position.

So that’s the week that was. Those were pretty big put positions that expired, so I will have over $14,000 in cash coming free to work with next week. Of course the FOMC low rate kool-aid seems to be driving everything higher, so we’ll have to see if any opportunities even present themselves.

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