I have been selling the front month LINE puts, especially if option expiration dates are just after, figuring there is usually a little run up into the dividend.
I have just dipped my feet in in what I consider conservativel strikes to kind of get the feel of it. Sold the April 33's for about 50 cents. 1- don't think it will get that low. 2- if it did I think it would recover before the dividend
3- if I got assigned it wouldn't be the end of the world since real cost is 32.50 and the yield would be great at that price anyway.
Thanks for the idea of selling puts in these things, I may try a little of your strategy too. You have been very generous to share these ideas.
In addition I sell puts only on MLPs which I don't own unit in. Reason is that if I did get assigned I would end up overweight but could not sell the part of the position just assigned without leading me into partial sale tax complexity. So I tend to own E&Ps and G&Ps and sell puts on the lower-beta pipelines.
As for the spread, I found you can ignore the apparent wide spread. I roll forward each put position every quarter (and since the options positions are spread pretty evenly across months, I get to do this each month to add more monthly income to my portfolio on top of the quarterly distributions. If you just look at the posted bid/ask it often looks like you can't even roll for a net credit, however I found I always can at a price somewhere between the bid and the ask and I assume it is the market maker on the other end of the trade. Typically I start at a higher net credit than I expect to get and gradually walk it down till it fills somewhere between the bid and ask. There is clearly a computer algorithm on the other end of the trade because I have become pretty good at estimating how much I will get by rolling forward. Typically it is somewhat higher than the yield of the underlying MLP. Which makes sense because when I roll forward I am collecting additional time premium and for a high yield vehicle like an MLP, the time premium will necessarily include the distribution payment which would be made during that additional 3 months.
Like I said I was using this strategy during 2011's August and October dips and some of my puts went 30% in the money but I never got assigned and was never unable to roll forward for a profit. In a 2008 severity downturn there might have been problems - I wasn't selling options back then.
On a macro basis there are two things that drive
BBEP stock price, size of distribution and US interest rates. When I got out at in the 20s my thought was there was little on the horizon to cause the distribution to grow rapidly enough for the return I wanted.
Today a year later it seems that those that held only gave back more than their distribution in stock loss. I still see little to improve this situation and the added concern that interest rates could rapidly increase by year end causing more loss here. Greener pastures. It is why I rarely buy bonds you lose principle to get interest. There is no way that rates dont go back up regardless of how hard the govt manipulates them at this low level.
a cheap price and then sell covered calls against the position....I sold the $17.50 puts the day of the secondary offering for $1.35 per share and will take the shares at that price but will immeditely sell COVERED CALLS FOR PROBABLY THE SAME STRIKE PRICE....there is far more money to be made on the options than on the stock, especially as you point out, when it runs too high....
Trere will definitely NOT be interest rate increases until after the election, and then only if the republicans win, but even then it is highly doubtful.....All the fools on both side of the aisles want to be popular with their constituent and keep rates low to make it look like they are trying to fix the housing problems....(which cannnot be fixed that way, of course but tht is another subject)...
I have done very well on this stock, but NEVER get a new position unless the share price is under $19 and then only by selling puts...if the shares don't come to me, i make very nice returns by simply keeping the put premiums....
I think that management screwed up buy waiting till the exdiv date to anounce the stock offering. yesterday this stock was over 20.00 with a 8.x yeild today it trading (ex the .45 div) at 18.76. if they streched out the exdate, or announced earlier I think they would have more than captured a higher stock price and possibley 19.80 or so. so by "saving the .45 div" they gave up a buck or so in stock price.
Imho but I have an order in to buy more today. thanks management.
Luckily I sold 4k taxable shares I had yesterday to avoid the k-1 and short term divs, planning to buy back at 19.45 or so today. Luckily it didnt drop until mkt close. I just picked it all up at 18.75.
I now hold 8k shares, with 4k in a pension account.
But you didn't avoid the K-1.
The K-1 isn't depending on getting the distribution. You will get the K-1 anyway (assuming you held more than a few days and definitely assuming you owned units at month's end).
Its Xdiv today, so you would have to had bought yesterday to get the distribution. BBEP did this to avoid paying the extra. But the yield if bought now is about what you posted-- good enough for me to, and I just added.