Yes, I know, a lot of us remember the scourging post we visited with this bane to our souls. Yet, like the dog returning to its vomit, I return...;-)
Might get bit again but here is the trade I am seriously contemplating. Its the spread I started out 2012 with that made a lot of us some money on EVEP. It is a goofy MLP in that it is easily manipulated with such thin volume.
The play is to run just two weeks to JanOPEX, with the 55/60 Bull Call for 3.50 or better. The PPS stays right where it is today or higher and the take is almost the max of 1.50(1.11), again, that is with the stock going no higher than today. BE is 58.50. Max loss 3.50 at 55 or lower at OPEX(18th). It is a goofy MLP, so it could trade lower, and it has in some recent quarters. Most Q's trade even with today's PPS or slightly higher, from this point to EX run's OPEX.
I think I will enter with just a few spreads 5-10. Its only two weeks work. 10 spreads equals the potential of $1500. Loss potential $3500.
Doc, with your knowledge , why these goofy mlps? Why not other sectors?
I know that you mentioned , trade what you know...
I know oil is a 79 to $ 105 rollercoaster.
Have you see the option premuims on vehicles such as SCO ? Soon to be the first no brainer trade of 2013.
How are you playing SCO then, since it is a no-brainer? Were you aware it has been as high as 295 pre-split, and its current PPS is at a 1:5 split adjusted price of 7.40? I think it will continue to sink further into the mire and probably split again to bolster the PPS, much like VXX.
What do you think??
Real easy answer...I like predictability. The most predictable vehicle, I have found, in the market is the rise and fall around high yielding security's EX dates.. I have combed and combed the market and that first brought me to AGNC three years ago, which has historically had the most predictable pattern of all high yielding securities( 10% yields). No other mReit compares.
There are a few MLP's which come close. like KMP. A few BDC's like FSC. I do not like sleepless nights with roller coaster stocks like SCO. It does not have dividends so it is a non starter for me. With predictability I am encouraged to make larger and more confident bets with options, leveraging my belief in historical precedence impacting future outcomes. It also allows for precise surgical incisions over brief time periods allowing most of my capital to be safe, in cash, and not exposed to the vagaries of the marketplace, 100% of the time. Huh?
Well, I only trade with 20% of my capital and only 5% of that capital on any one trade, so the most(80%) of my capital is always protected in cash equivalent vehicles.
So now you know...;-)
Stern!!! You don't like KMP? The PPS moves from $78 to $90 on a regular basis back and forth. I hold in a IRA, if held long in a taxable account the big dividend is a non taxable "return of capital" in the US. By the way does your girlfriend have a mother?
This stock should be listed under the definition schizophrenic.
Of, relating to, or characterized by the coexistence of disparate or antagonistic elements.
It trades down going into ex-div then trades up after ex-div. How many of us lost money in Feb 2012?
It went from a high of 73 around March 10, 2012 to a low of 44 on June 25th, 2012. What other MLP stock price dropped 40% during the same time period, with the balance sheet not changing?
Your play is interesting but I think if should be played with less time, like a week out from exop This stock can move $3.00 in a day easily.
I am in again on EVEP. The stock is trading in the 57 to 58 range and is acting counter to the other MLP's, as usual. It will probably trade down going into exDiv. But I am betting that the stock will trade higher after exDiv and hit 60 before Mar exOP. Bought 10 contracts of Mar 55 for $4.50. We will see if I've got this stock figured out.
I need a little primer on your bull spreads – I’ve never employed that strategy. In this scenario one would “buy open” the $55s and “sell to open” the $60s Is that correct?
That is correct Garbonzo. You also would like to close out the position before EX, by reversing and "selling to close" the 55 and "buying to close" the 60. Also best to have OPEX before EX, most times, because if the Short side(60's) are ITM at EX, they will be assigned to you as short shares and you will owe the dividend.
It still will usually work, since the PPS falls the amount of the dividend and you can buy to cover on the open, but it is definitely more complicated at that point, with more variables in play.