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Income Advisor
Conservative investing. Double-digit income.

January 12, 2022

So far, 2022 is playing out as expected. But of course, this is only the eighth trading day of the year.

The Red-Hot Energy and Financial Sectors
So far, 2022 is playing out as expected. But of course, this is only the eighth trading day of the year.

After the sensational returns of the last 22 months, stocks simply can’t maintain that pace, especially since indexes are high and problems are gaining momentum. But it isn’t gloom and doom. We are still in the early phases of a recovery and bull market that should last years longer.

The market has been sort of sideways and choppy so far, as expected. The S&P 500 is actually a little bit lower so far. And 8 of the 11 sectors of the index are negative for the year. But two sectors have been amazing. In just about a week and half, financial stocks are up 6% and energy stock are up a whopping 14%.

Inflation and Fed tightening are the main issues right now, along with the virus that should fade in the weeks and months ahead. Rising oil prices and rising interest rates have been driving stock prices in the financial and energy sectors higher. And inflation is getting worse and interest rates are likely to trend higher as well.

It’s a better time to sell calls than to buy stocks. Prices are high and the market is wobbly. But several portfolio positions, particularly in the energy and financial sectors, have surged recently and are near recent highs. It’s a great time to turn that good fortune into high income.

In this week’s update, I highlight two new covered call trades in U.S. Bancorp (USB) and Valero Energy (VLO).

Trades past month
December 17th
KKR December 17th $75 calls at $3.50 – Expired

December 22nd
Purchased Visa Inc. (V) - $217.96

January 4th
Sell OKE February 18th $60 calls at $2.75 or better

January 12th
Sell USB February 25th $61 calls at $2.50 or better
Sell VLO February 25th $83 calls at $4.20 or better

Trade Alert
Sell USB February 25th $61 calls at $2.50 or better
Expiration date: February 25th
Strike price: $61
Call price: $2.50

U.S. Bancorp (USB)
I like the prospects for USB for 2022, and I’m not anxious to have the stock called away. Interest rates are likely to trend higher and the economy is likely to remain stronger than normal. While the year looks good, the next six weeks are far less certain. The stock has had a nice move recently and is back up near the 52-week high. It’s a good time to get a high-priced call at a price that would net a strong total return. The calls are currently priced a little below the target price, so it may take a little patience to get our price.

It is important to note that this position has been in the portfolio since March and two calls have already been written for a total of $5.10. If you have been a subscriber for that long and sold those calls, you can add 9.5% to the returns below.

Here are the three scenarios.

  1. The stock closes above the $61 strike price but near it at expiration

Call premium: $2.50
Dividends: $1.76 (4-15, 7-15, 10-15, 1-15)
Appreciation: $7.53 ($61.00 strike price minus $53.47 purchase price)
Total: $11.79 (total return will be 22% in eleven months)

  1. The stock price closes below but near our $61 strike price.

Call premium: $2.50
Dividends: $1.76
Total: $4.26 (total income of 8% in eleven months)

  1. The stock price declines.

The decline will be offset by the $4.26 in income. Of course, the stock price may still be above the original $53.47 per share purchase price.

Trade Alert
Sell VLO February 25th $83 calls at $4.20 or better
Expiration date: February 25th
Strike price: $83
Call price: $4.20

Valero Energy (VLO)
I like the prospects for VLO for the year as well. Prices for refined product are likely to remain high and demand should remain strong. At the same time, VLO is still priced below pre-pandemic levels. The next six weeks are less clear and VLO is back to right around the 52-week high. After the recent surge, the call prices are high. It’s a good time to get a strong income and guarantee a good total return if shares are called.

Here are the three scenarios.

  1. The stock closes above the $83 strike price but near it at expiration

Call premium: $4.20
Dividend: $0.98 (12-9)
Appreciation: $9.55 ($83.00 strike price minus $73.45 purchase price)
Total: $14.73 (total return will be 20% in three months)

  1. The stock price closes below but near our $83 strike price.

Call premium: $4.20
Dividends: $0.98
Total: $5.18 (total income of 7% in three months)

  1. The stock price declines.The decline will be offset by the $5.18 in income. Of course, the stock price may still be above the original $73.45 per share purchase price.

Stock Portfolio Recap
AGNC Investment Corp. (AGNC)
Yield 9.4%
The performance of this mortgage REIT has been disappointing. It seems to have settled in a range between 15 and 16 per share for now. I’d hoped for more considering that the 10-year Treasury rate has soared to a new post-pandemic high. The steepening yield curve should juice profits as AGNC earns higher spreads. The stock has not reacted as positively as yield-curve-sensitive position USB. But the yield is strong and safe, and this portfolio already sold two calls on this position over the past year. The rating is reduced to a HOLD until it starts reacting more positively to the steepening yield curve. HOLD

Enterprise Product Partners (EPD)
Yield 7.8%
I love it. This high-yielding laggard is finally busting a move. EPD is up about 16% since late November. It takes a big rally in energy to get this thing moving, and we have that right now. Hopefully the magnificence continues and EPD moves back to the 52-week high and beyond. It still sells at a dirt-cheap valuation, the sky-high distribution is very safe, and business is good. This move is more than justified. BUY

FS KKR Corp. (FSK)
Yield 11.1%
This BDC has also come alive. It’s up about 14% in less than a month. That’s a great move for this high-yielder. And it has broken the recent downtrend and appears poised to make a run back up to the recent highs. Earnings were solid as FSK continues to benefit from the current environment. Strong economic growth is good for small companies. When it gets a little higher there should be a good call writing opportunity. BUY

KKR & Co., Inc. (KKR)
Yield 0.8%
The stock has been trending lower since hitting the high in early November. It hasn’t gotten much traction recently despite the rally in financial stocks this year. Business is still strong, and the company should have a good year in 2022. But this stock needs to break the downtrend. I will keep a close eye on it in the weeks ahead. When it does, there should be yet another good call writing opportunity. HOLD

One Liberty Properties, Inc. (OLP)
Yield 5.3%
This industrial REIT has performed better than expected. It broke out into a higher range after a strong earnings report. OLP is holding very strong in that higher range and made a new high last week. The stock is still about a dollar below the strike price for the calls written even after the strong performance. We’ll see what happens in the next five weeks. HOLD

ONEOK, Inc. (OKE)
Yield 6.0%
This has been a terrific performer. It retuned a whopping 69% in 2021, blowing away the returns of the energy sector and the overall market. Like anything to do with energy, OKE has been up recently. It’s still several dollars below the 52-week high though. Prospects look good for this year as business is strong and the stock is still undervalued. We sold two calls on the position for a total of 5.75 in premiums. That’s about 11% of income in addition to the dividend. In the near term, the stock could go either way. HOLD

Qualcomm Corp. (QCOM)
Yield 1.5%
It’s hard to say what this stock will do in the near term. QCOM has certainly leveled off since the 40% spike in a month. We sold the calls with a strike price in this new higher range. The timing looks good in that sense. Of course, the stock has faced a lot of external headwinds and is hanging tough not far from the recent high. It hasn’t really pulled back so much as it has just stopped going higher. It is still reasonably priced, and I like the prospects for the stock in the new year. HOLD

U.S. Bancorp (USB)
Yield 3.0%
This regional bank stock has been hot lately as interest rates have spiked higher and the financial sector has rallied. USB is back to bad-breath distance of the 52-week high, where it has been twice before over the past year. It should break out to a higher level over the course of the year, but there is a lower chance it will do that in the next six weeks. It’s a good time to sell another call and juice the income. HOLD

Valero Energy Corp. (VLO)
Yield 4.7%
Energy is hot again, and VLO is hotter again. The stock is up 23% is less than a month and it is very close to the 52-week high. It could continue to a new level in the next six weeks, or it could pull back. Since the objective of this newsletter is high income, it’s a good time to take advantage of the recent surge and high price to fetch a fat call premium and secure a high total return. BUY

Visa Inc. (V)
Yield 0.7%
The card company had been red hot. It had a temporary blip last week, but it looks like the stock is back in business again. A Japanese investment firm downgraded the rating. The rationale was that so many customers converted from using cash to a card during the pandemic that the analyst felt it would cannibalize future growth. That’s dumb. More cards are now being used. Plus, the international recovery and renewed travel will give the company a big boost in the new year. The stock is recovering quickly. BUY

Xcel Energy Inc. (XEL)
Yield 2.8%
This alternative energy utility is clearly moving higher. Although it is still below the recent high after pulling back, the uptrend since late September is still solid. This is a great alternative energy utility that has been popular with investors prior to the cyclical recovery after the vaccines, as conventional energy got hot. I’m looking for at least above 70 per share before selling a call (currently 68). BUY

Existing Call Trades
Sell OLP February 18th $35 calls at $1.50 or better
As I mentioned above, the stock has been strong. It is making a home in this higher range since breaking out after the last earning report. It recently even dabbled with a new high. But the strike price is right near the high and the timing still looks good.

Sell QCOM January 21st $185 calls at $9.65 or better
These calls expire in a week, and it could go either way. Right now, QCOM is selling at a couple of dollars above the strike price. But it has been averaging below that level of almost two months. It could break out further over the next week or revert back to the recent range. But we are set up for a strong income and possibly a fabulous total return if shares are called at expiration.

Sell OKE February 18th $60 calls at $2.75 or better
The energy rally keeps right on going, at least for now. OKE is currently selling at almost 3 per share above the strike price. But the energy sector has been bouncy. Stocks tend to surge for a while and then pull back. We’ll see where the stock price goes in the next five weeks. But even if it continues higher and shares are called, we will have sold a total of three calls on the position, secured a strong total return, and we still have EPD to take advantage of a further energy rally.

CIA STOCK PORTFOLIO
Open RecommendationsTicker SymbolEntry DateEntry PricePrice on
1/11/22
Buy at or
Under Price
YieldTotal Return
AGNC Investment Corp.AGNC1/13/202115.5215.5617.009.39%8.66%
Enterprise Product PartnersEPD3/17/202123.2123.9225.007.78%3.71%
U.S. BancorpUSB3/24/2153.4762.1257.003.02%10.44%
Qualcomm Inc.QCOM5/5/21134.65185.40140.001.51%40.18%
ONEOK, Inc.OKE5/26/2152.5162.4860.005.99%18.01%
One Liberty Properties, inc.OLP7/28/2130.3734.0033.005.29%19.64%
KKR & Co., Inc.KKR8/25/2164.5271.6870.000.81%14.16%
Xcel Energy Inc.XEL10/12/2163.0068.6067.002.67%8.59%
FS KKR Capital Corp.FSK10/27/2122.0122.4324.0011.06%-0.89%
Valero Energy Corp.VLO11/17/2173.4583.8585.004.84%6.43%
Visa Inc.V12/22/21217.96214.38225.000.71%1.59%
EXISTING CALL TRADES
Open RecommendationsTicker SymbolIntial
Action
Entry DateEntry
Price
Price on
1/11/22
Sell To Price
or Better
Total Return
OLP Feb 18 $35 callOLP220218C00035000Sell11/19/211.501.001.504.94%
QCOM Jan 21 185 callQCOM220121C00185000Sell11/30/219.654.209.657.17%
OKE Feb 18 $60 callOKE220218C00060000Sell1/5/222.753.402.755.24%
USB Feb 25 $61 callUSB220225C00061000Sell2.172.504.68%
VLO Feb 25 $83 callVLO220225C00083000Sell4.054.506.13%
SOLD STOCKS
SecurityTicker SymbolActionEntry DateEntry
Price
Sale DateSale PriceTotal Return
Innovative Industrial Props.IIPRCalled6/2/2087.829/18/20100.0015.08%
QualcommQCOMCalled6/24/2089.149/18/2095.007.30%
U.S. BancorpUSBCalled7/22/2036.269/18/2038.003.42%
Brookfield Infras. Ptnrs.BIPCalled6/24/2041.9210/16/2045.008.49%
Starbucks Corp.SBUXCalled8/26/2082.4110/16/2088.006.18%
Visa CorporationVCalled9/22/20200.5611/20/20200.000.00%
AbbVie Inc.ABBVCalled6/2/2091.0412/31/20100.0012.43%
Enterprise Prod. Prtnrs.EPDCalled6/24/2018.141/15/2120.0015.16%
Altria GroupMOCalled6/2/2039.661/15/2140.007.31%
U.S. BancorpUSBCalled11/25/2044.681/15/2145.001.66%
B&G Foods Inc,BGSCalled10/28/2026.792/19/2128.004.42%
Valero Energy Inc.VLOCalled8/26/2053.703/26/2160.0011.73%
Chevron Corp.CVXCalled12/23/2085.694/1/2196.0012.95%
KKR & Co.KKRCalled3/24/2147.986/18/2155.0014.92%
Digital Realty TrustDLRCalled1/27/21149.177/16/21155.005.50%
NextEra Energy, Inc.NEECalled2/24/2173.769/17/2180.0010.00%
Brookfield Infras. Ptnrs.BIPCalled1/13/2150.6310/15/2155.0011.65%
EXPIRED OPTIONS
SecurityIn/out moneySell DateSell PriceExp. Date$ ReturnTotal % Return
IIPR Jul 17 $95 callout-of money6/3/203.007/17/203.003.40%
MO Jul 31 $42 callout-of-money6/17/201.607/31/201.604.03%
ABBV Sep 18 $100 callout-of-money7/15/204.609/18/204.605.05%
IIPR Sep 18 $100 callin-the-money7/22/205.009/18/205.005.69%
QCOM Sep 18 $95 callin-the-money6/24/204.309/18/204.304.82%
USB Sep 18 $37.50 callin-the-money7/22/202.009/18/202.005.52%
BIP Oct 16 $45 callin-the-money9/2/201.9510/16/201.954.65%
SBUX Oct 16 $87.50 callin-the-money10/16/203.3010/16/203.304.00%
V Nov 20 $200 callin-the-money9/22/2010.0011/20/2010.004.99%
ABBV Dec 31 $100 callin-the-money11/18/203.3012/31/203.303.62%
EPD Jan 15 $20 callin-the-money11/23/200.801/15/210.804.41%
MO Jan 15 $40 callin-the-money11/25/201.901/15/211.904.79%
USB Jan 15 $45 callin-the-money11/25/202.001/15/212.004.48%
BGS Feb 19 $27.50 callin-the-money12/11/202.402/19/212.408.96%
VLO Mar 26 $60 callin-the-money2/10/216.503/26/216.5012.10%
CVX Apr 1 $95.50 callin-the-money2/19/214.304/1/214.305.02%
AGNC Jun 18 $17 callout-of-money4/13/210.506/18/210.503.21%
KKR Jun 18 $55 callin-the-money4/28/213.006/18/213.006.25%
USB Jun 16 $57.50 callout-of-money4/28/212.806/18/212.805.24%
DLR Jul 16 $155 callin-the-money6/16/218.007/16/218.005.36%
AGNC Aug 20 $17 callout-of-money6/23/21$0.508/20/21$0.503.00%
OKE Aug 20 $57.50 callout-of-money6/23/21$3.508/20/21$3.506.67%
NEE Sep 17 $80 callin-the-money8/11/21$3.509/17/21$3.504.75%
BIP Oct 15 $55 callin-the-money9./01/2021$2.0010/15/21$2.003.95%
USB Nov 19 $60 callout-of-money9/24.2021$2.3011/19.2021$2.304.30%
OKE Nov 26 $65 callout-of-money10/20/21$2.2511/26/21$2.254.28%
KKR Dec 17 $75 callout-of-money10/26/21$3.5012/17/21$3.505.42%