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.
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-$20-Credit per 100-shares.
2. New Residential Investment Corp. (NRZ)
Results: I can buy a protective put and recognize returns that exceed any forecast I had for this name.
3. Commercial Real Estate:
-High volume of puts bought on Realty Income ($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
- Financials: the entities (e.g., banks) can lend at higher rates. This will increase the bottom line.
- 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.
- Some BDC’s will pass along rate hikes. Knowing which ones that can pass on this rate hike is crucial.
- More info will be coming out in the next.
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