11.08.16

Good morning,

I am writing this on Tuesday night. WSJ just sent an email stating stock futures are falling because Donald Trump is ahead in the election.

 

2-s-c

I review the REITs below. The key, for me, is to sell covered calls if given a chance to offset protective put expense.

1) Most mREITs.

$CYS being our largest position of example) allow $15 – $30
for a protective put. A collar can allow the short call to insure almost 100% of the capital at risk via the protective put.

$CYS cost $6.40 Jan 1, 2016.
Current price is $8.51; 11.08.2016.
76-cents received in dividends.
11.82%: current yield

CYS170317P00008000: http://finance.yahoo.com/quote/CYS170317P00008000?p=CYS170317P00008000; $30-$35 expense for an $8 protective put through 3rd Friday of January 2017.

Expiry January 2017, strike $9: you will likely be able to sell $9 covered calls for $15-$20-Credit per 100-shares.

2. New Residential Investment Corp. (NRZ)

Yield: 13.26%
Results: I can buy a protective put and recognize returns that exceed any forecast I had for this name.

3. Commercial Real Estate:

-High volume of puts bought on Realty Income ($O).
-Many prominent writers and investors have suffered significant downside losses. A 6% or 7% yield will suffer if rates go up 25 – 50-basis points next month.

-There are writers and investors who have never invested money during a time when interest rates go up for an extended period of time.

What to Buy if Rates Continue to Increase

  1. Financials: the entities (e.g., banks) can lend at higher rates. This will increase the bottom line.
  2. Insurance: $AIG-WT will be one name and other names ($MET as an example) via stocks. I have stocks, warrants to purchase in order to take advantage of the rising rate and the end of Quantitative Easing. Remember we have a 66% (this is from our May 7th Dividend Lab Retirement Newsletter) chance of a 25-50 basis point hike in December 2016. The rates went up to 81% from 66% over the weekend. 
  3. Some BDC’s will pass along rate hikes. Knowing which ones that can pass on this rate hike is crucial.
  4. More info will be coming out in the next.

Todd

3rate

November 8th, 2016

4

Todd

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