Let’s Cash In
Times are good. After a rough September, the market soared 8% higher to a new all-time high. Earnings have been spectacular, and the bull market is back, although the market has pulled back in the last couple days.
This market is generally high priced. It’s up over 100% since the bear market low in March of 2020 and 8.5% just since the beginning of October. But the earnings euphoria might be running out of gas. And there are still big problems like a broken supply chain and inflation.
It’s a great environment to write covered calls. The return of the bull market has increased upside speculation and call premiums are high again. Several positions are near the high. It’s a perfect time to cash in on the recent success in a still-uncertain market.
Qualcomm (QCOM), KKR & Co. (KKR), and One liberty Properties (OLP) have been on fire. They have had big surges recently and sell near the all-time highs. KKR, like U.S. Bancorp (USB) and ONEOK (OKE), is now pulling back and consolidating after a big move. QCOM had a big move but I’m greedy and I want more. I don’t think this latest surge is done. But OLP is ripe for selling a call at the all-time high after a big move.
Who knows where the market will go over the next few months? It’s prudent at this juncture to convert the recent good fortune into a high income.
Trades this month
October 12th
Purchased Xcel Energy Inc. (XEL) – $63.00
October 15th
Brookfield Infrastructure Partners (BIP) – Called
BIP October 15th $55 calls at $2.00 – Expired
October 20th
Sold OKE November 26th $65 calls at $2.25 or better
October 27th
Sold KKR December 17th $75 calls at $3.50 or better
Purchased FS KKR Corp. (FSK) – $22.01
November 10th
Sell OLP February 18th $35 calls at $1.50 or better
Trade Alert
Sell OLP February 18th $35 calls at $1.50 or better
Expiration date: February 18th
Strike price: $35
Call price: $1.50
One Liberty Properties, Inc. (OLP)
This is normally a slow-moving stock that just had a big jump and is trading near the all-time high. We got this stock for income, so let’s have it. These calls are very attractively priced as OLP now has some rare upward momentum. The calls are not very actively traded. It could be that we can’t get them at the target price. But put in the order and we’ll see what happens.
Here are the three scenarios.
The stock closes above the $35 strike price at expiration
Call premium: $1.50
Dividends: $0.90 (10-7 and 1-7))
Appreciation: $4.47 ($35.00 strike price minus $30.53 purchase price)
Total: $6.87 (total return will be 22.5% in less than seven months)
The stock price closes below our $35 strike price.
Call premium: $1.50
Dividends: $0.90
Total: $2.40 (total income return of 7.9% in less than seven months)
- The stock price declines.
The decline will be offset by the $2.40 in income. Of course, the stock price may still be above the original $30.53 per share purchase price.
Stock Portfolio Recap
AGNC Investment Corp. (AGNC)
Yield 8.9%
Well, look at the bright side. The stock price is still above the price at which it was added to the portfolio. We already wrote two calls for 0.50 each to compliment the already high yield. And the price doesn’t seem to have much downside from here. The 10-year Treasury has stopped rising and indeed pulled back, for now. That’s okay. We’ll just hang out and collect the big fat monthly dividends for now. When interest rates move higher and the stock price goes up, we’ll sell more calls. BUY
Enterprise Product Partners (EPD) Yield: 7.9%
This is another disappointing laggard. It was hot stuff in October during the energy rally but has since lost almost all of the gains from that splendid month. ONEOK is in the same business, but that stock behaves much better. The lame price performance is complimented by the huge yield. Someday the price will head north again, and we’ll sell a call that gets the income from this endeavor into the double digits. BUY
FS KKR Corp. (FSK) Yield: 11.9%
This newest portfolio addition hasn’t done anything yet. That’s fine. Even if the stock price never goes anywhere, it still pays a double-digit income. I would have gladly signed up for no price movement and an 11.9% income any day of the week. But I think the stock price will trend higher in the months ahead. This is a great business environment for small companies and investors will flock to the income when the market inevitably cools off. BUY
KKR & Co., Inc. (KKR) Yield: 0.8%
This smoking-hot superstar is coming back to reality. Sure, business is booming and will continue to do so for a while. But the recent price movement was ridiculous. The price shot up nearly 40% in a month. This isn’t a tech stock, and that kind of move is highly unusual. We wrote high-priced calls amidst the euphoria and, although the stock price is almost 3 dollars above the strike price, the stock is on a downward trajectory and there is still more than a month to go before expiration. HOLD
One Liberty Properties, Inc. (OLP) Yield 5.3%
This normally slow-moving stock got a huge boost last week. After a mixed earnings report where earnings and revenue were flat over last year’s quarter, the stock soared over 5% in one day following the announcement. Earnings were only flat because of recent divestures that will be remedied with new acquisitions in the future, and the market liked what it saw. This industrial property REIT is a sleeper pick that has grown earnings by an average of more than 20% over the last three years. BUY
ONEOK, Inc. (OKE) Yield 5.8%
This midstream energy company stock was a real hot shot from the middle of September to late October. It soared about 25% in that time frame. We wrote a high-priced call amidst the magnificence. The stock has since leveled off and is now below the strike price with a little more than two weeks to go before options expiration. I still like the stock over the longer term and wouldn’t mind if it flounders for a while and we get to keep the stock. HOLD
Qualcomm Corp. (QCOM) Yield 2.0%
Goodness gracious. After lying dormant like an inactive volcano for most of the year, the chipmaker has erupted. The company once again reported blow-out earnings that destroyed expectations. Not only did it exceed consensus for past business, but it significantly upgraded the outlook for next year. The report earned Qualcomm a slew of analyst upgrades and the stock continued to rise in the days after the report. QCOM rose 23% in just one week. Although it’s down today, I believe the stock is still cheap and should be heading higher. BUY
U.S. Bancorp (USB) Yield 3.0%
The regional bank stock had a nice move between the middle of September and mid-October. But it has since been bouncing around near the high point of the recent range. Earnings disappointed the market as the bank didn’t realize higher net interest income in the quarter because rates didn’t move higher until the very end. It may go sideways for a while, but I like the bank’s prospects over the intermediate term. HOLD
Xcel Energy Inc. (XEL) Yield 2.8%
This alternative energy utility is still floundering near the low point of the recent crummy range. Investors seems to be ignoring the growth in alternative energy while conventional energy is hot. But alternative energy still owns the future, and nothing has changed for XEL since it was a darling of investors before the pandemic. In the near term, XEL should at least gravitate to the higher point of its range. Longer term, it should regain its rightful place as a sought-after conservative play on alternative energy. BUY
Existing Call Trades
Sell USB November 19th $60 calls at $2.30 or better
It looks like we priced these calls exactly right. USB continues to bounce above and below the 60 per share strike price with just a little over a week to go before these calls expire. We’ll see what happens in the next 10 days. But we’ll get a great income and/or a strong total return in a short amount of time regardless of what happens.
Sell OKE November 26th $65 calls at $2.25 or better
The stock has leveled off since the huge rally in September and October. Energy is consolidating and OKE has been weak recently. OKE is now a couple of dollars below the strike price. I’m happy to cash out of the stock if the price rises in the next couple of weeks and I’m fine holding it and selling more calls down the road if it doesn’t.
Sell KKR December 17th $75 calls at $3.50 or better
I thought this thing had completely run away, but maybe not. After a remarkable 40% rally in a month, it looks like KKR is consolidating. It’s back to within a little more than two dollars above the strike price with more than a month to go.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Price on 11/9/21 | Buy at or Under Price | Yield | Total Return |
| AGNC Investment Corp. | AGNC | 1/13/2021 | 15.52 | 16.07 | 17.00 | 8.93% | 11.29% |
| Enterprise Product Partners | EPD | 3/17/2021 | 23.21 | 22.75 | 25.00 | 7.91% | 4.21% |
| U.S. Bancorp | USB | 3/24/21 | 53.47 | 60.07 | 57.00 | 3.03% | 14.90% |
| Qualcomm Inc. | QCOM | 5/5/21 | 134.65 | 166.74 | 140.00 | 1.63% | 25.04% |
| ONEOK, Inc. | OKE | 5/26/21 | 52.51 | 64.67 | 60.00 | 5.76% | 27.22% |
| One Liberty Properties, inc. | OLP | 7/28/21 | 30.37 | 33.99 | 33.00 | 5.30% | 13.55% |
| KKR & Co., Inc. | KKR | 8/25/21 | 64.52 | 79.65 | 70.00 | 0.73% | 23.45% |
| Xcel Energy Inc. | XEL | 10/12/21 | 63.00 | 63.84 | 67.00 | 2.88% | 0.95% |
| FS KKR Capital Corp. | FSK | 10/27/21 | 22.01 | 21.77 | 24.00 | 11.94% | -1.09% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Price on 11/9/21 | Sell To Price or Better | Total Return |
| USB Nov 19 $60 call | USB211119C00060000 | Sell | 9/24/21 | 2.30 | 0.99 | 2.30 | 4.30% |
| OKE Nov 26 $65 call | OKE211126C00065000 | Sell | 10/20/21 | 2.25 | 0.95 | 2.25 | 4.28% |
| KKR Dec 17 $75 call | KKR211217C00080000 | Sell | 10/26/21 | 3.50 | 4.78 | 3.50 | 5.42% |
| OLP Feb 18 $35 call | OLP220218C00035000 | Sell pending | 1.71 | 1.50 | |||
| SOLD STOCKS | |||||||
| Security | Ticker Symbol | Action | Entry Date | Entry Price | Sale Date | Sale Price | Total Return |
| Innovative Industrial Props. | IIPR | Called | 6/2/20 | 87.82 | 9/18/20 | 100.00 | 15.08% |
| Qualcomm | QCOM | Called | 6/24/20 | 89.14 | 9/18/20 | 95.00 | 7.30% |
| U.S. Bancorp | USB | Called | 7/22/20 | 36.26 | 9/18/20 | 38.00 | 3.42% |
| Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | 41.92 | 10/16/20 | 45.00 | 8.49% |
| Starbucks Corp. | SBUX | Called | 8/26/20 | 82.41 | 10/16/20 | 88.00 | 6.18% |
| Visa Corporation | V | Called | 9/22/20 | 200.56 | 11/20/20 | 200.00 | 0.00% |
| AbbVie Inc. | ABBV | Called | 6/2/20 | 91.04 | 12/31/20 | 100.00 | 12.43% |
| Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | 18.14 | 1/15/21 | 20.00 | 15.16% |
| Altria Group | MO | Called | 6/2/20 | 39.66 | 1/15/21 | 40.00 | 7.31% |
| U.S. Bancorp | USB | Called | 11/25/20 | 44.68 | 1/15/21 | 45.00 | 1.66% |
| B&G Foods Inc, | BGS | Called | 10/28/20 | 26.79 | 2/19/21 | 28.00 | 4.42% |
| Valero Energy Inc. | VLO | Called | 8/26/20 | 53.70 | 3/26/21 | 60.00 | 11.73% |
| Chevron Corp. | CVX | Called | 12/23/20 | 85.69 | 4/1/21 | 96.00 | 12.95% |
| KKR & Co. | KKR | Called | 3/24/21 | 47.98 | 6/18/21 | 55.00 | 14.92% |
| Digital Realty Trust | DLR | Called | 1/27/21 | 149.17 | 7/16/21 | 155.00 | 5.50% |
| NextEra Energy, Inc. | NEE | Called | 2/24/21 | 73.76 | 9/17/21 | 80.00 | 10.00% |
| Brookfield Infras. Ptnrs. | BIP | Called | 1/13/21 | 50.63 | 10/15/21 | 55.00 | 11.65% |
| EXPIRED OPTIONS | |||||||
| Security | In/out money | Sell Date | Sell Price | Exp. Date | $ Return | Total % Return | |
| IIPR Jul 17 $95 call | out-of money | 6/3/20 | 3.00 | 7/17/20 | 3.00 | 3.40% | |
| MO Jul 31 $42 call | out-of-money | 6/17/20 | 1.60 | 7/31/20 | 1.60 | 4.03% | |
| ABBV Sep 18 $100 call | out-of-money | 7/15/20 | 4.60 | 9/18/20 | 4.60 | 5.05% | |
| IIPR Sep 18 $100 call | in-the-money | 7/22/20 | 5.00 | 9/18/20 | 5.00 | 5.69% | |
| QCOM Sep 18 $95 call | in-the-money | 6/24/20 | 4.30 | 9/18/20 | 4.30 | 4.82% | |
| USB Sep 18 $37.50 call | in-the-money | 7/22/20 | 2.00 | 9/18/20 | 2.00 | 5.52% | |
| BIP Oct 16 $45 call | in-the-money | 9/2/20 | 1.95 | 10/16/20 | 1.95 | 4.65% | |
| SBUX Oct 16 $87.50 call | in-the-money | 10/16/20 | 3.30 | 10/16/20 | 3.30 | 4.00% | |
| V Nov 20 $200 call | in-the-money | 9/22/20 | 10.00 | 11/20/20 | 10.00 | 4.99% | |
| ABBV Dec 31 $100 call | in-the-money | 11/18/20 | 3.30 | 12/31/20 | 3.30 | 3.62% | |
| EPD Jan 15 $20 call | in-the-money | 11/23/20 | 0.80 | 1/15/21 | 0.80 | 4.41% | |
| MO Jan 15 $40 call | in-the-money | 11/25/20 | 1.90 | 1/15/21 | 1.90 | 4.79% | |
| USB Jan 15 $45 call | in-the-money | 11/25/20 | 2.00 | 1/15/21 | 2.00 | 4.48% | |
| BGS Feb 19 $27.50 call | in-the-money | 12/11/20 | 2.40 | 2/19/21 | 2.40 | 8.96% | |
| VLO Mar 26 $60 call | in-the-money | 2/10/21 | 6.50 | 3/26/21 | 6.50 | 12.10% | |
| CVX Apr 1 $95.50 call | in-the-money | 2/19/21 | 4.30 | 4/1/21 | 4.30 | 5.02% | |
| AGNC Jun 18 $17 call | out-of-money | 4/13/21 | 0.50 | 6/18/21 | 0.50 | 3.21% | |
| KKR Jun 18 $55 call | in-the-money | 4/28/21 | 3.00 | 6/18/21 | 3.00 | 6.25% | |
| USB Jun 16 $57.50 call | out-of-money | 4/28/21 | 2.80 | 6/18/21 | 2.80 | 5.24% | |
| DLR Jul 16 $155 call | in-the-money | 6/16/21 | 8.00 | 7/16/21 | 8.00 | 5.36% | |
| AGNC Aug 20 $17 call | out-of-money | 6/23/21 | $0.50 | 8/20/21 | $0.50 | 3.00% | |
| OKE Aug 20 $57.50 call | out-of-money | 6/23/21 | $3.50 | 8/20/21 | $3.50 | 6.67% | |
| NEE Sep 17 $80 call | in-the-money | 8/11/21 | $3.50 | 9/17/21 | $3.50 | 4.75% | |
| BIP Oct 15 $55 call | in-the-money | 09/01/2021 | $2.00 | 10/15/21 | $2.00 | 3.95% | |