Another Good Month for the Market
The market still looks strong. The S&P 500 is on pace for a 3% gain in the month of August, which would be the seventh straight monthly gain. The index is already up 20% for the year.
This market still has a lot going for it. The economy is booming, interest rates are low, and the Fed is likely to continue pumping adrenaline into the system. Earnings have been terrific. And money still has no place else to go but stocks to fetch a decent return.
Of course, there are still concerns about the delta variant and its negative effect on economic growth as we head into Labor Day. Markets can be funny when the summer is over. Sometimes summer concerns get blown into bigger issues when investors take a fresh look at things after the summer. We’ll see.
These are still good times for stocks and any September selloff will likely be short lived. There are several portfolio positions trading near the high point of the recent range. In this update, I highlight covered call opportunities in two of them.
The environment is still generally good for stocks, but you never know what you’ll get in a cranky post-Labor Day market. We hedged the bet and wrote calls on two stocks, in case the market does pullback, and let the other stocks with current call opportunities ride in case the market rallies.
Trades this month
August 11th
Sell NEE September 17th $80 calls at $3.50 or better
August 20th
AGNC August 20th $17 calls at $0.50 - Expired
OKE August 20th $57.50 calls at $1.65 – Expired
August 25th
Purchase KKR & Co., Inc. (KKR) $64.31
September 1st
Sell BIP October 15th $55 calls at $1.80 or better
Sell USB October 15th $57.50 calls at $1.70 or better
Trade Alert: Sell BIP Calls
Sell BIP October 15th $55 calls at $1.80 or better
Expiration date: October 15th
Strike price: $55
Call price: $1.80
Brookfield Infrastructure Partners (BIP)
While I like the prospects for BIP over the rest of the year, it’s at the high point of the recent range. It tends to consolidate after making a new high and it’s hard to know what to expect in the September market. This position needs to be more productive and generate a high income.
Here are the three scenarios:
The stock closes above the $55 strike price at expiration
Call premium: $1.80
Dividends: $1.53 (3-31, 6-30 and 9-30)
Appreciation: $4.37 ($55.00 strike price minus $50.63 purchase price)
Total: $7.70 (total return will be 15.2% in ten months)
The stock price closes below our $80 strike price.
Call premium: $1.80
Dividends: $1.53
Total: $3.33 (total income return of 6.6% in ten months)
- The stock price declines.
The decline will be offset by the $3.33 in income. Of course, the stock price is still likely to be above the original 50.63 per share purchase price.
Trade Alert: Sell USB Calls
Sell USB October 15th $57.50 calls at $1.70 or better
Expiration date: October 15th
Strike price: $57.50
Call price: $1.70
U.S. Bancorp (USB)
USB is trading near the high point of the recent range. I do expect this stock to break out before the end of the year. But it may not go anywhere before the middle of October.
Here are the three scenarios:
The stock closes above the $57.50 strike price at expiration
Call premium: $1.70
Dividends: $1.26 (4-15, 7-15, and 10-15)
Appreciation: $4.03 ($57.50 strike price minus $53.47 purchase price)
Total: $6.99 (total return will be 13.1% in less than seven months)
The stock price closes below our $57.50 strike price.
Call premium: $1.70
Dividends: $1.26
Total: $2.96 (total income return of 5.5% in less than seven months)
- The stock price declines.
The decline will be offset by the $2.96 in income. Of course, the stock price can fall but still be above the original 53.47 per share purchase price.
Stock Portfolio Recap
AGNC Investment Corp. (AGNC) Yield 8.9%
The good news is that this mortgage REIT stopped going lower. It fell from a high of almost 19 per share in late June to under 16 early in August as the ten-year Treasury rate fell and yield curve stocks sold off. But it seems to have found a bottom and has room to appreciate as there is a good chance that the 10-year rate trends higher from here. BUY
Brookfield Infrastructure Partners (BIP) Yield 3.6%
BIP acts just like a good dividend stock should. It just ever-so-quietly forges slowly higher while paying a solid dividend. The stock is still very close to the all-time high made a couple of weeks ago. And prospects have improved fundamentally. The Inter Pipeline deal will close this quarter and likely boost earning to another level in the quarters ahead. But the stock has a tendency to make new highs and then consolidate for a while. That makes this a good time to sell calls and boost income. HOLD
Enterprise Product Partners (EPD) Yield 8.0%
The hurricane has cause temporary halting of oil and gas production and there also may be some damage to pipelines and storage facilities. Enterprise is currently in the process of assessing the damage. But the storm hasn’t affected the stock price, as EPD is still trending slightly higher over this week. The storm will likely cause somewhat of disruption but is unlikely to change the core story. Business should continue to be strong in the second half of the year and EPD sells at a dirt-cheap valuation with a high and safe dividend. BUY
KKR & Co., Inc. (KKR) Yield 1.0%
The new portfolio addition is one of the very best in the financial sector. The wealth management business is booming. And KKR is in the fastest growing area of the business, alternative investments. Stock performance has blown away the competition over the last several years and recent results and new assets under management indicate that the superior performance should continue. BUY
NextEra Energy Inc. (NEE) Yield 1.9%
Although NEE has been strong in recent months, the stock hasn’t been itself this year. It’s been bouncing around with the fortunes of cyclical stocks, moving in the opposite direction. But the alternative energy stocks have been left out over the past year as investors have focused on the revival of traditional energy in the recovery. That should change. There is enormous growth in clean energy and NextEra is a great way for conservative investors to play the trend. HOLD
One Liberty Properties, Inc. (OLP) Yield 5.8%
This diversified industrial REIT just keeps rolling along, trending higher at a snail’s pace. That’s what it does best. OLP should also benefit as yield starved investors seek high income from a solid defensive play like this. Hopefully, the stock will get a bump after Labor Day as typically cranky investors fret about all the recent headlines after they sober up from the summer. We’ll look for a move higher and a chance to ring the register with a covered call. In the meantime, we’ll collect the high yield. BUY
ONEOK, Inc. (OKE) Yield 7.1%
This more volatile midstream energy company has been in consolidation mode since early July. The main culprit is growth fears over the delta variant. But business should boom in the second half of the year nonetheless. OKE sells at a great valuation with a safe dividend and should have another surge before the end of the year. BUY
Qualcomm Corp. (QCOM) Yield 1.9%
The chipmaker stock has been bouncing around at a higher level since the stellar second-quarter earnings announcement. It’s not a bad time to write a call but I’m holding off. I think this stock could really have a nice move higher and I’m waiting to see if the post-Labor Day market has a newfound appreciation for technology stocks and the 5G story. I want more from this stock. BUY
U.S. Bancorp (USB) Yield 3.2%
The regional bank stock is at the high end of the range it’s been trading in since June. Business is great but USB is still being held back by the flatter yield curve. As I mentioned, I expect the ten-year rate to trend higher from here over the rest of the year. However, I’m not sure what to expect in the post Labor Day market and this is a decent point at which to sell a covered call on the stock and generate an income. HOLD
Existing call trades
Sell NEE September 17th $80 calls at $3.50 or better
The stock has moved higher over the past month as cyclical stocks have floundered. The calls are currently selling above the target price at $4.36. The stock price is at 84 with less than three weeks to go before options expiration. It looks like it will be called at this point, but you never know what sort of shenanigans to expect in September.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Price on 8/30/21 | Buy at or Under Price | Yield | Total Return |
| AGNC Investment Corp. | AGNC | 01/13/21 | 15.52 | 16.23 | 17.00 | 8.87% | 10.72% |
| Brookfield Infrastructure | BIP | 01/13/21 | 50.63 | 56.19 | 53.00 | 3.61% | 14.16% |
| NextEra Energy, inc. | NEE | 2/24/21 | 73.76 | 83.95 | 80.00 | 1.85% | 15.55% |
| Enterprise Product Partners | EPD | 3/17/21 | 23.21 | 22.26 | 25.00 | 8.02% | 0.02% |
| U.S. Bancorp | USB | 3/24/21 | 53.47 | 57.08 | 55.00 | 3.22% | 8.35% |
| Qualcomm Inc. | QCOM | 5/5/21 | 134.65 | 145.94 | 140.00 | 1.88% | 8.94% |
| ONEOK, Inc. | OKE | 5/26/21 | 52.51 | 53.04 | 60.00 | 7.05% | 2.83% |
| One Liberty Properties, inc. | OLP | 7/28/21 | 30.37 | 31.30 | 33.00 | 5.75% | 3.06% |
| KKR & Co., Inc. | KKR | 8/25/21 | 64.52 | 64.31 | 68.00 | 0.90% | -0.33% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Price on 8/30/21 | Sell To Price or Better | Total Return |
| NEE Sep 17 $80 call | NEE210820C00080000 | Sell | 8/11/21 | 3.50 | 4.36 | 3.50 | 4.75% |
| BIP Oct 15 $55 call | BIP211015C00055000 | Sell | 1.78 | 1.80 | 3.56% | ||
| USB Oct 15 $57.50 call | USB211015C00057500 | Sell | 1.65 | 1.70 | 3.18% | ||
| 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% |
| 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 | 4.75% | |