Lock in High Income After the Rally
The rally sputtered. But it hasn’t reversed. That’s because there are reasons for both optimism and caution.
There is a growing perception that the problems responsible for this bear market have peaked. Inflation has been receding and the Fed might be less aggressive going forward. The market tends to anticipate six to nine months into the future, and it sees lower inflation and the Fed done hiking rates.
There is also some optimism of a soft landing in 2023 or at least a very mild recession. It’s also true that bear markets always give way to bull markets at some point. It’s reasonable to expect that the market will sniff out the next bull market and recover sometime next year. Stock prices could be a lot higher a year from now.
But we may not be out of the woods yet. Inflation has come down. But it’s still way too high. No one really knows how fast it will continue to fall or how sticky it might be. The recession is also a huge wildcard. It takes a long time for the effect of the Fed rate hikes to filter through the economy. It’s anybody’s guess how much damage they set into motion already. We still don’t know the depth and severity of a likely 2023 recession.
While longer-term investors can look ahead to a much better time at some point, things still might get worse before they get better. It’s a good time to remain defensive with an eye toward the recovery down the road.
This newsletter has recently targeted three covered calls after the market has rallied about 15% from the October low. The rally made call premiums high again, as more investors are willing to speculate on higher prices going forward. Plus, it is a great opportunity to lock in a high income when the market could be close to a near-term top.
Trades Past Month
November 9th
Purchased Brookfield Infrastructure Corp. (BIPC) - $42.43
November 15th
Sell OKE January 20th $65 calls at $3.70 or better - Pending
November 23rd
Sell O January 20th $65 calls at $2.35 or better – Pending
November 25th
SOLD OKE January 20th $65 calls at $3.70
SOLD XEL January 20th $65 calls at $5.00
Portfolio Recap
Brookfield Infrastructure Corporation (BIPC)
Yield: 3.12%
This infrastructure company stock has been trending higher since the second week of October. And for good reasons. It got way oversold in the fall selloff. Brookfield also reported terrific earnings early this month. It soundly beat expectations with funds from operations (FFOs) growth of 24% for the quarter. Brookfield’s crucial assets will continue to deliver steady earnings through a recession, it has inflation adjustments built into its contracts, the dividend is solid, and the stock is cheap now. BUY
Global Ship Lease, Inc. (GSL)
Yield: 8.6%
Global had been trending nicely higher since late September but has regressed in the last couple of weeks as worries persist about the global economy and China in particular. But GSL does have some technical support at this level and the stock may well have already bottomed out. The intermediate and long term look solid for the company as shipping has a very favorable supply/demand dynamic and the industry is likely in a cyclical bull market. HOLD
Intel Corp. (INTC)
Yield: 5.0%
It has been ugly for INTC. The stock got pummeled before the tech sector sold off this year, taking the fall to a whole new level. INTC now sells near book value and pays a 5% yield that should be safe. At some point, the technology sector will certainly recover. After that, Intel’s individual prospects should significantly improve as growth investments come to fruition. It’s been a painful slog. But it could prove to be worth the pain over time. BUY
Realty Income Corp. (O)
Yield: 4.6%
After an impressive rally from the October low, O has given some of it back over the last week. There isn’t any negative company-specific news behind the recent weakness. It’s somewhat typical of how this stock trades. O still has the right stuff for this market. It’s recession-resistant and a great source of income. But it may have gotten a little ahead of itself in the near term. It will still likely continue to trend higher, but perhaps in a choppier fashion than we’ve seen recently. BUY
Star Bulk Carriers Corp. (SBLK)
Yield: 32.2%
The third-quarter earnings were significantly lower than last year’s quarter as shipping volumes and rates have decreased in the slower economy. The stock is also facing headwinds from the China covid situation. But slowing business has already been factored into the price as the stock is down 40% from the high. It is well worth noting that Star Bulk declared a $1.20 quarterly dividend and trades ex-dividend on November 29th. The dividend changes almost every quarter according to profits. Although lower than last quarter’s $1.65 payout, the next dividend is still 6% of the current stock price. We’ll get the dividend and then reevaluate. HOLD
Qualcomm Corp. (QCOM)
Yield: 2.4%
After a long time floundering in the abyss, QCOM moved 20% higher in the last month. The cooler inflation numbers ignited a rally in tech. Even if the worst still isn’t over for the sector, QCOM is showing you how fast it can move higher when the tech sector environment improves, and it surely will. Remember, the market anticipates. Qualcomm just announced a profit slowdown for the quarters ahead. But the market has been pricing that in all year, even when current profits were still booming. Before long, the market may start sniffing out a recovery. HOLD
Visa Inc. (V)
Yield: 0.9%
V made a nice move off the low as the market improved and the company once again killed it on earnings. The payments processing giant continues to benefit from the end of covid restrictions despite the slower economy. But the earnings growth should slow next year as earnings comparisons get tougher. The is a cyclical stock that is dependent on the market and economy. It’s one of the first stocks to rally when things improve but things could get worse before they get better. At some point in the quarters ahead the market may sniff out the recovery and V will likely take off and make up for lost time. HOLD
The Williams Companies, Inc.
Yield: 5.0%
This midstream energy company stock has actually been one of the best-performing among its peers. It’s one of the very few that has moved back to not far from the 52-week high. Yet, the total return has been nil since WMB was added to the portfolio. That’s because the timing was lousy, right before the market selloff. But this stock should be fantastic going forward. The company posted strong earnings because of resilient natural gas demand, something that is likely to endure through the recession based on shortages overseas. BUY
Xcel Energy Inc.
Yield 2.8%
This clean energy utility was oversold in the September market plunge. It was added to the portfolio because it was timely after a huge selloff that should prove to be unjustified. Interest rates have been plunging and XEL has rallied strongly off the recent low. The near term is shaping up well and the longer-term prognosis is also excellent. It should also benefit from new legislation from Washington that will reduce costs of its considerable clean energy production. The stock should be solid in a recession, and we got in at a good price. BUY
Active Covered Call Trades
Sell O January 20th $65 calls at $2.35 or better – Pending
This call was targeted last week in the November issue. Unfortunately, O has moved more than 3 per share lower since and we were unable to get the calls at the targeted price. That’s the way these calls are. Prices are volatile and you may not get the targeted price. But it can pay off to stick to your guns. The OKE call didn’t reach the targeted price until ten days after it was highlighted. We’ll leave this for another week and see what happens.
Sell OKE January 20th $65 calls at $3.70 or better
As I mentioned above, OKE floundered for a bit before moving high where we were able to get the targeted price. I do like this stock going forward. But it makes sense to target stocks for calls after a rally and get the high premium and possible high total return. I don’t trust the market here and even if OKE gets called we still have WMB.
Sell XEL January 20th $65 calls at $5.00 or better
This stock has been strong, and we were able to get the targeted call price last Friday. The calls are well in the money with a 65 strike price and a current 69.39 share price. But that’s necessary to get a high income in markets like this.
CIA STOCK PORTFOLIO | |||||||
Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $119.54 | NA | 2.43% | -8.65% |
Visa Inc. | V | 12/22/21 | $217.96 | $211.26 | NA | 0.84% | -2.33% |
Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $17.08 | NA | 8.64% | -27.44% |
ONEOK, Inc. | OKE | 5/25/22 | $65.14 | $63.72 | $67.00 | 5.72% | 0.92% |
Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $20.57 | NA | 32.18% | -30.42% |
Intel Corporation | INTC | 7/27/22 | $40.18 | $28.73 | NA | 4.98% | -26.83% |
The Williams Companies | WMB | 8/24/22 | $35.58 | $33.48 | $38.00 | 5.01% | -4.65% |
Realty Income Corporaton | O | 9/28/22 | $60.37 | $61.74 | $63.00 | 4.59% | 3.11% |
Xcel Energy Inc. | XEL | 10/26/22 | $62.57 | $69.39 | $65.00 | 2.80% | 10.90% |
Brookfield Infrastructure corp. | BIPC | 11/9/22 | $42.43 | $45.69 | $46.00 | 3.20% | 7.68% |
EXISTING CALL TRADES |
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Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
OKE Jan 20 $65 call | OKE230120C00065000 | Sell | 11/25/22 | $3.70 | $2.62 | $3.70 | 5.68% |
O Jan 20 $65 call | O0230120C00065000 | Sell pending | $0.66 | $2.35 | 3.89% | ||
XEL Jan 20 $65 call | XEL230120C00065000 | Sell | 11/25/22 | $5.00 | $5.27 | $5.00 | 7.99% |
as of close on 11/28/2022 | |||||||
SOLD STOCKS |
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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 | 3.42% |
Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | $41.92 | 10/16/20 | $45 | 8.49% |
Starbucks Corp. | SBUX | Called | 8/26/20 | $82.41 | 10/16/20 | $88 | 6.18% |
Visa Corporation | V | Called | 9/22/20 | $200.56 | 11/20/20 | $200 | 0.00% |
AbbVie Inc. | ABBV | Called | 6/2/20 | $91.04 | 12/31/20 | $100 | 12.43% |
Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | $18.14 | 1/15/21 | $20 | 15.16% |
Altria Group | MO | Called | 6/2/20 | $39.66 | 1/15/21 | $40 | 7.31% |
U.S. Bancorp | USB | Called | 11/25/20 | $44.68 | 1/15/21 | $45 | 1.66% |
B&G Foods Inc, | BGS | Called | 10/28/20 | $26.79 | 2/19/21 | $28 | 4.42% |
Valero Energy Inc. | VLO | Called | 8/26/20 | $53.70 | 3/26/21 | $60 | 11.73% |
Chevron Corp. | CVX | Called | 12/23/20 | $85.69 | 4/1/21 | $96 | 12.95% |
KKR & Co. | KKR | Called | 3/24/21 | $47.98 | 6/18/21 | $55 | 14.92% |
Digital Realty Trust | DLR | Called | 1/27/21 | $149.17 | 7/16/21 | $155 | 5.50% |
NextEra Energy, Inc. | NEE | Called | 2/24/21 | $73.76 | 9/17/21 | $80 | 10.00% |
Brookfield Infras. Ptnrs. | BIP | Called | 1/13/21 | $50.63 | 10/15/21 | $55 | 11.65% |
AGNC Investment Corp | AGNC | Sold | 1/13/21 | $15.52 | 1/19/22 | $15 | 5.92% |
ONEOK, Inc. | OKE | Called | 5/26/21 | $52.51 | 2/18/22 | $60 | 19.62% |
KKR & Co. | KKR | Sold | 8/25/21 | $64.52 | 2/23/22 | $58 | -9.73% |
Valero Energy Inc. | VLO | Called | 11/17/21 | $73.45 | 2/25/22 | $83 | 15.53% |
U.S Bancorp | USB | Sold | 3/24/21 | $53.47 | 4/13/22 | $51 | -1.59% |
Enterprise Product Ptnrs | EPD | Called | 3/17/21 | $23.21 | 4/14.2022 | $24 | 11.25% |
FS KKR Capital Corp. | FSK | Called | 10/27/21 | $22.01 | 4/14/22 | $23 | 13.58% |
Xcel Energy Inc. | XEL | Called | 10/12/21 | $63.00 | 5/20/22 | $70 | 12.66% |
Innovative Industrial Props. | IIPR | Sold | 3/23/22 | $196.31 | 7/20/22 | $93 | -51.23% |
One Liberty Properties | OLP | Sold | 7/28/21 | $30.37 | 8/24/22 | $25 | -12.94% |
EXPIRED OPTIONS |
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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 | 9./01/2021 | $2.00 | 10/15/21 | $2.00 | 3.95% | |
USB Nov 19 $60 call | out-of-money | 9/24.2021 | $2.30 | 11/19.2021 | $2.30 | 4.30% | |
OKE Nov 26 $65 call | out-of-money | 10/20/21 | $2.25 | 11/26/21 | $2.25 | 4.28% | |
KKR Dec 17 $75 call | out-of-money | 10/26/21 | $3.50 | 12/17/21 | $3.50 | 5.42% | |
QCOM Jan 21 $185 Call | out-of-money | 11/30/21 | $9.65 | 1/21/22 | $9.65 | 7.17% | |
OLP Feb 18 $35 Call | out-of-money | 11/19/21 | $1.50 | 2/18/22 | $1.50 | 4.94% | |
OKE Feb 18 $60 Call | in-the-money | 1/5/22 | $2.75 | 2/18/22 | $2.75 | 5.24% | |
USB Feb 25 $61 call | out-of-money | 1/13/22 | $2.50 | 2/25/22 | $2.50 | 4.68% | |
VLO Feb 25 $83 call | in-the-money | 1/18/22 | $4.20 | 2/25/22 | $4.20 | 6.13% | |
EPD Apr 14th $24 call | in-the-money | 3/2/22 | $1.25 | 4/14/22 | $1.25 | 5.69% | |
FSK Apr 14th $22.50 call | in-the-money | 3/10/22 | $0.90 | 4/14/22 | $0.90 | 4.09% | |
XEL May 20th $70 call | in-the-money | 3/30/22 | $3.00 | 5/20/22 | $3.00 | 4.76% | |
SBLK July 15th $134 call | out-of-money | 6/1/22 | $1.60 | 7/15/22 | $1.60 | 4.80% | |
OKE Oct 21st $65 call | out-of-money | 8/24/22 | $3.40 | 10/21/22 | $3.40 | 5.22% | |
QCOM Sep 16th $145 call | out-of-money | 7/20.2022 | $11.75 | 9/16/22 | 11.75 | 8.73% | |