Trying to post this :
OK, so some of us stayed away from the MLP run this Q and lost out, especially the rout with KMP. Anybody Long on this run?? So, I'm thinking how do we take advantage of the stratospheric heights of KMP and the debt ceiling fear, just a week or two ahead of KMP's EX date??
I have looked back through 2009 at the historic patterns post EX date on KMP and I like the repetitive pattern(70%) of the decline to the following month's OPEX in KMP. Granted, 70% is not 90+% and we can get burned on the following play I plan to employ...so remember last Q on the non-Run on the MLP's to temper any enthusiasm for the following trade. I am just telling you what I will be doing.
OK, so here is the current deal. The volatility on the KMP options is down to 12.47%(that is low). Hence the option prices are relatively cheaper than a short time ago. One more day please with the PPS staying up and the 87.50's for 1.00 are looking like the trade(for me). I offset this against going short the shares on the EX date open, assuming a 87.50 open, if tomorrow's close is about 89.00.
So, shorting the shares @ open on EX @ 87.50, with the best hedge, IMO, would be the Long Feb87.50Call @ 1.00. this would place your BE @ 86.50 on the short shares, with 1.00 risk above 87.50 by Feb OPEX.
Therefore, because the volatility is driving down the option pricing, there is no longer any difference in BE, max risk, or max profit between the short shares vs the Long puts. The difference therefore favors the Long Puts because of the increased margin demand with the short shares. Said another way, you can leverage a much larger position with the options vs the shares. Therein lies the danger also, for allowing oneself more greed in exposing oneself to too much risk/loss per trade, for the "all in" crowd.
My recommendation, to myself, is to trade no more than 1.67% of my trading capital on Long Puts on Monday's open. As you can read from my other post on this thread, tomorrow's open has been an historical high of the cycle within about half a buck. My next 1.67%% will be for tomorrow's close if the 87.50's are still competitive(about 1.00). My final 1.67% will be for Tuesday's open. I am hoping for an average of 1.00 or less for the Feb87.50'S.
A double will hopefully occur within 4 days(true for last 7 consecutive Q's). I will exit 80% of my position there(sell limit @ 2.00). This will cover my cost plus some donuts. The reason I am not betting for a greater decline is historical odds. Of the last consecutive 10 Q's the closing PPS has only been significantly greater(by .05 or more), only 4 times of the 10 Q's, after 4 trading days post EX. I do not like those odds. I will hold 10% more for a sell limit of 2.50 and the remaining 10% for 3.00.
This all starts in less than 12 hours from this posting on Monday's open. Join me??
As always, I wish all of you much success and happiness and good fortune as we start out this trading season on the MLP's.
Hey Doc -
I too believe that KMP will experience a pull back........... however, I would much prefer to sit back and wait to see it (and the magnitude, as well), rather than betting on the come.
Just my style. Too many 52 week high stocks out there right now!
BTW - Is there something smaller than "crumbs"? :-)
According to my math, your wager is quite small. You once stated that your trading capital is only 5% of your total capital.
IF that's still true, then you are only betting 0.0835% (1.67 x 5) of your total capital.
Also, you might want to take a peek @ WPZ - they just raised their quarterly distribution, and trend looks positive.
Wishing you continued success on all your KMP adventures.
No matter how many times I try, Yahoo will not allow me to show my trade...I guess it is just too good to share so I do not beg your forgiveness, I simply beg you to flip the bird to Yahoo..;-(
It is so good too, it involves buying the first ITM Put on the open of EX date and shorting an ITM Bear Call spread to help pay for it. The historical success is amazing. We'll see if that works...here goes...
I quit, because Yahoo will not allow my examples I so diligently employed for your consideration. Those industrious enough to ferret out the historical details are encouraged to that task.
I have been following this board in silence for some time now, using your generous advice to make some money here and there, so thank you very much for sharing.
As for this combo, what's the advantage of doing all this vs just shorting the stock ? I do realize that the spread caps possible loss, but it only becomes effective after PPS of $88, which looks a bit far fetched in this scenario. Am I missing something here ?
Hey Doc -
Like most everyone else, I have also been waiting patiently for a $90 pps.
Much like the summer of 2011, I jumped in again "with both feet" during the summer of 2012, but not quite at as low of pps as 2011.
Hey....... it worked out well once, why not try it again.
So............. I'm out again -completely.
All the best,
I Hope that all in well in your world. Looks like another opportunity for you to "clip" KMP's coupon. Any interesting investment ideas coming from your venture capitalist "club"? I'd love to hear what the group is recommending for income.
Good hearing from you!! I agree that KMP will now possibly sell off into next Monday(DBEX), as all of the mutual's that contain ETP and KMP will continue to place pressure on the PPS of both. It actually might work in the favor of my short trade on the 29th. I think a "buy to cover" would be prudent in stages of 1.50, 2.00, 2.50 and 3.00, below the short PPS, dividing the short shares by 4.
This will be my first attempt at shorting KMP post EX. Nothing ventured....
BTW...where are you spending your hours these days...Bahamas, FL, CA...?
I like the probability of this trade, especially since KMP is reaching its high. I'll be joining you on this and FSC with small bites.
Instead of shorting the KMP shares, why not buying puts? When you short shares of mlp's do you have to deal with the k8's the same way as when you are long the shares?
I originally laid out a Put strategy. The reason I switched to the shares was because of the higher BE with shares. You can get a Feb90Call for .29 right now. Shorting at 88.65 gives a 88.36 BE on the low end and a max loss of 1.64, at PPS 90.00 or greater by FebOPEX. If you can show me a better BE and a lower max loss I will take it.
I don't know nor care about the K1's. I just care about wringing the most money out of this trade....;-)
KMP in nosebleed territory here. Bollinger Bands showing upper band of $90. Closing in on it quickly at the moment and looks like we'll hit $90 Target pps way before Ex. I unfortunately missed the run up.
I wouldn't mind owning the stock for the divvy's at around $80.
Instead of waiting for a pullback and hoping it retraces next month to $80 to buy should I use a short put strategy? I wouldn't care if the stock got put to me at $80. I'm thinking if we hit $90 next week of selling $90 puts and collecting approx $10, does that make sense? Still new to shorting puts and wrapping my head around it. What happens if the stock falls down to $75?
Sorry Doc I just saw that the $90 Feb Put premium is roughly $3.50.
So the pps would have to drop to $86.50 before it would be worth there while to put it to me at $90 correct?
Just trying to figure out the best play here to buy these Mlps lower on retracement to hold for divvy income. Thanks!
I got filled on the Feb87.50Puts for .84 this AM. Looking for .80 before the close today and possibly less tomorrow morning. Placing sell orders in @ 1.68. A double is good enough on this miserable MLP. Did I tell you how much I hate this stock?...;-)
Thanks for the suggestion on the KMP FEB 87.50s. I decided to grab a few contracts at .84 to go with my KMP 90s. My combined BE for both strikes is 86.67.
For predictive purposes (FWIW), I've looked at how much KMP has dropped over the last 6 Qs from its pre-X-d. highs, to its lows prior to the subsequent OPEXs (FEB). The minimum that it dropped in the referenced window was 4.29; the average was 8.20; and the most that it dropped was 11.56. Using 89.75 as the current "pre-X-d. high", and using the historical range as a proxy, might suggest a "current" range of 85.46 to 78.19, with an average of 81.55.
Having said that, I'm not swinging for the fences on this one. I would be very happy with a pps in the 85 neighborhood (85.82 doubles the 87.50s). Good luck.
Got in on the KMP run starting on Jan 2nd with Feb 80's at 2.45. Sold those on the 4th for 4.55, then jumped in on the 85's for 1.13 on the 7th and out yesterday for 2.35. :) Nice to get some of that MLP money back from last Q!
I am interested in this trade of yours and will try to employ something as well.
It looks like they declare distributions at the time that earnings are reported.
Chart sure looks juicy. I am going to hold off until it gets close to 90, depending on news. It looks like about a four point drop after every exdiv after you filter out larger dominating market sentiment.
Heck of a run up from 78. It is now going on my watch list.
thanks again Doc.
What ever KMP does during the looming fiscal drama, it will move with certainty afterwards.
KMP is going up and up. Hopefully we hit 90+ by the 28th(DBEX). The 29th(EX) will be the day to employ the synthetic short with the Call stop as I described. I believe last Feb 24th was the all time high at 90.60. I hope it hits at least that before EX, and that fear grabs the market with a vengeance over the debt ceiling, as we hang 10 riding KMP down to 80...;-)