Greetings. In one of your messages you mentioned something about NLY. It has been very strong lately. Do you still own it? This isn't a real time disclosure but I decided to place a huge bet on it Tuesday in an effort to increase the size of the down payment for the house. It is kind of a bizzare trade, but seems pretty safe. Here's what I did. I bought a ton of NLY shares at about $17.50 and - get this - I sold the April 2010 $16 calls for $1.65. I know it sounds crazy because I got only a 15 cent premium over the $16 strike price. But here is my reasoning. NLY goes ex dividend in about three weeks. There is a very good chance that my entire position will get assigned the day before ex div. Since I sold 332 contracts of the calls, this means I will make close to $5,000 in profit in three weeks if the shares do get assigned. If they don't get assigned, then I will still be holding the 33,200 shares and will collect a dividend of at least 60 cents per share in about 7 weeks, i.e. close to $20k, while the shares remain frozen at the $16 strike until we see what occurs up to or at the following dividend cycle in January. With NLY closing at $17.91 yesterday, $5k in 3 weeks or $20k in 7 weeks or something in between seems almost a lock. The only risk is a major meltdown in NLY stock below the $16 strike. I estimate that risk to be less than 5% in the next few months. The REIT sector is very strong right now, and NLY is a very well managed company.
Hi James, I have a question for you but first I'll answer yours. I did have some nly but bailed on it when I went to all cash recently. I have since had seller's remorse and bought some of it back along with some other stuff.
My question is about those calls you sold. I thought they could only get assigned at the expiration date, but you seem to be expecting that they will get called in only three weeks. What am I missing here?
1. 3 weeks - $5k .8% upside 2. 7 weeks - $25K 4.3% upside 3. Shares tank below $16 if not assigned - 5% probability if no unexpected -ve event arises
My only concern is commercial RE loans default is increasing and next leg of resetting of ARMs.
Then again I don't know the quality NYL of portfolio of asset backed securities. Even if they are solid, there is always investor confidence risk which can bring down the entire sector down if something unexpected happens.