The Virus Won’t Go Away
Everything was going so well. And then things turned sour on a dime. The party pooper virus is up to its old tricks again.
The market had one of the worst days of the year on the Friday after Thanksgiving as news spread that a new strain of the coronavirus (called Omicron) has emerged in Africa. Fears of more lockdowns sent the market, and cyclical stocks in particular, reeling.
The market recovered strongly yesterday on reassuring words from the President. But then Moderna and Pfizer indicated that the vaccines might not be effective against this new strain, and the selling is resuming.
It’s still too early to tell if this will be a huge problem, nothing at all, or anything in between. The virus resurgence throws a wrench into everything. Not only is it causing a selloff in a market that looked promising over the rest of the year, but it has also changed the dynamics. Cyclical stocks that had looked the most promising amidst a strong economy and rising inflation are getting hit the hardest.
It’s too early to panic and change strategies. We’ll wait and see how events unfold in the days and weeks ahead. In the meantime, we continue to lock in high incomes with covered calls. A call on ONEOKE (OKE) expired last Friday and another one on KKR & Co. (KKR) will expire in a little over two weeks.
The call highlighted on Qualcomm (QCOM) last week has not hit the target price yet. The stock price fell the day the issue came out and again on Friday. But the stock can come back quickly, and we will leave the targeted call price for now.
Trades past month
November 17th
Purchased Valero Energy (VLO) - $73.25
November 19th
USB November 19th $60 calls at $2.30 - Expired
Sold OLP February 18th $35 calls at $1.50 or better
November 24th
Sell QCOM January 21st $185 calls at $9.65 or better - Pending
November 26th
OKE November 26th$65 calls at $2.25 -Expired
Stock Portfolio Recap
AGNC Investment Corp. (AGNC)
Yield 9.1%
This mortgage REIT had been holding strong around the 16 per share level on the downside. But the recent Omicron virus scare and corresponding drop in the ten-year Treasury yield has knocked AGNC a little below that level. It’s too early to panic and react as if this new strain will prompt another round of lockdowns. The environment outside of this recent virus stuff indicates interest rates should rise. We’ll hold on and see what happens for now. BUY
Enterprise Product Partners (EPD)
Yield 8.2%
The performance of this midstream energy partnership continues to be disappointing. It’s returned 20% this year, so it hasn’t been bad of late. But it doesn’t compare to the other midstream company in the portfolio, ONEOK (OKE), which has returned 72% this year. ONEOK is growing faster as it operates strictly in the natural gas realm. But EPD should still have more upside potential than downside risk from here. And the sky-high 8.2% yield is very safe. BUY
FS KKR Corp. (FSK)
Yield 11.7%
This BDC is still knocking around near the lower point of the recent range. Earnings were solid and the FSK continues to benefit from the current environment. Strong economic growth is good for small companies. Sure, the recent virus scare has pulled this stock down, along with everything else, but it still pays that huge income while we wait for solid fundamental to win out. BUY
KKR & Co., Inc. (KKR)
Yield 0.8%
The stock really cooled off after the torrid run in October. It’s down about 9% from the high. That was to be expected. That’s why we sold a call when the stock was hot. I still like this alternative investment asset manager over the longer term. But it probably got ahead of itself in the near term. We’ll see if closes above the 75 per share strike price when the options expire in a few weeks. HOLD
One Liberty Properties, Inc. (OLP)
Yield 5.4%
This diversified industrial REIT had a nice upside move after a positive earnings report early this month. The stock is normally a slow mover and we took advantage of the recent surge and sold calls when the stock was near the high. OLP has since pulled back slightly but has still broken out into a higher range. BUY
ONEOK, Inc. (OKE)
Yield 6.0%
This has been a terrific midstream energy stock that has vastly outperformed its peers. As I mentioned above, OKE has returned a stellar 72% this year. But it does get bounced around with the energy sector in the near term. And the latest bounce has been lower as Omicron fears are pushing cyclical stocks lower. We’ll see how this virus stuff plays out. But I still like OKE for the months and quarters ahead. HOLD
Qualcomm Corp. (QCOM)
Yield 1.6%
QCOM just looks like a stock that still wants to go higher. It has pulled back a little after the massive surge earlier this month. But the recent weakness has been externally driven. The tech sector sold off and then Omicron caused a selloff in the market. QCOM pulls back in sympathy but then rebounds strongly. It seems like the stock wants to continue higher if the external pressures abate. Business is still booming, and the stock is still cheap. But we’ll see what happens in the near term. BUY
U.S. Bancorp (USB)
Yield 3.0%
The recent market action has not been good for USB. The new virus worries are hammering cyclical stocks and interest rates are falling. We’ll see what happens. But beyond the virus fears, and assuming there isn’t another round of restrictive lockdowns, the environment favors banks. The economy is strong, and rates are likely to rise amidst the persistent inflation. HOLD
Valero Energy Corp. (VLO)
Yield 5.7%
Ouch! This volatile, high-leverage play on energy has been one of the worst places to be as virus issues reignite. Lockdowns will hurt demand and prices for gasoline and diesel. It’s a reversal, but hopefully a very temporary one, of the story that had been unfolding. Energy demand was booming, and prices were rising with no end in sight. We will see what happens. But unless this new virus becomes a big problem, I expect the favorable dynamic to resume. BUY
Xcel Energy Inc. (XEL)
Yield 2.8%
This alternative energy utility continues to make a sustained, yet choppy, move above the recent low. It is likely the normal range pattern will deliver higher price in the months ahead. Beyond that, it should benefit as the economy normalizes after the pandemic recovery. And beyond that, XEL should benefit as alternative energy comes back into vogue. BUY
Existing Call Trades
OKE November 26th $65 calls at $2.25 - Expired
These calls were written when the stock price was near the high after a big surge. It has since pulled back about 10% from that high and the calls expired with the stock below the strike price. It works out well because the prospects for the stock are still good, despite the recent energy selloff. And we will likely sell another call and collect more dividends. Here’s the income return:
Call premium: $2.25
Dividends: $1.87
Total: $4.12 (total income return of 7.8% in six months)
Of course, it’s well worth noting that this is the second call that was sold on OKE since it was added to the portfolio back in May. Calls were written for $3.50 this summer that expired in August out-of-the-money. That makes the total income from this position $7.62 for a total income return of 14.5% so far in six months. And the stock is still 20% above the purchase price.
Sell KKR December 17th $75 calls at $3.50 or better
The stock appeared to be running away. But not so fast. It has come down a lot after a huge run. It’s now just about a dollar per share above the strike price and still trending lower with a little more than two weeks to go before expiration. We get the high income no matter what. And we will either get to keep the stock ahead of a positive environment or we will lock in a strong total return.
Sell OLP February 18th $35 calls at $1.50 or better
It took a little over a week after the initial recommendation to get these calls at the targeted price. But this tends to be a slow-moving stock and we were able to lock in a high call premium when the stock was at the high after a surge.
Sell QCOM January 21st $185 calls at $9.65 or better - Pending
The calls were targeted in last week’s monthly issue at $9.65. But QCOM pulled back that day and again in Friday’s selloff, and the call price fell to $6 and change. However, the stock has since rebounded, and the calls are now within pennies of the original target price. There is a good change that we can get the $9.65 either later today or in the next couple of days.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Price on 11/29/21 | Buy at or Under Price | Yield | Total Return |
| AGNC Investment Corp. | AGNC | 1/13/2021 | 15.52 | 15.83 | 17.00 | 9.10% | 10.46% |
| Enterprise Product Partners | EPD | 3/17/2021 | 23.21 | 21.68 | 25.00 | 8.19% | -0.69% |
| U.S. Bancorp | USB | 3/24/21 | 53.47 | 57.40 | 57.00 | 3.21% | 9.79% |
| Qualcomm Inc. | QCOM | 5/5/21 | 134.65 | 183.64 | 140.00 | 1.55% | 37.79% |
| ONEOK, Inc. | OKE | 5/26/21 | 52.51 | 62.46 | 60.00 | 5.99% | 22.87% |
| One Liberty Properties, inc. | OLP | 7/28/21 | 30.37 | 33.21 | 33.00 | 5.36% | 10.94% |
| KKR & Co., Inc. | KKR | 8/25/21 | 64.52 | 76.31 | 70.00 | 0.76% | 18.49% |
| Xcel Energy Inc. | XEL | 10/12/21 | 63.00 | 65.59 | 67.00 | 2.83% | 4.11% |
| FS KKR Capital Corp. | FSK | 10/27/21 | 22.01 | 21.36 | 24.00 | 11.69% | -2.95% |
| Valero Energy Corp. | VLO | 11/17/21 | 73.45 | 68.17 | 85.00 | 5.75% | -5.95% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Price on 11/29/21 | Sell To Price or Better | Total Return |
| KKR Dec 17 $75 call | KKR211217C00080000 | Sell | 10/26/21 | 3.50 | 2.67 | 3.50 | 5.42% |
| OLP Feb 18 $35 call | OLP220218C00035000 | Sell | 11/19/21 | 1.50 | 1.00 | 1.50 | 4.94% |
| QCOM Jan 21 185 call | QCOM220121C00185000 | Sell pendng | 8.95 | 9.65 | |||
| 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 | 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% | |