Seeking Alpha

User 7415181's  Instablog

User 7415181
Send Message
I'm writing an instablog - I know of a few people who have read some, but the main reason for writing it is to clarify my thinking (and likely confuse you) before I invest in something every month or so. And also to act as a journal I can review every so often. I work as a mental health nurse.... More
My blog:
User 7 blah blah's instablog.
  • The Chase Is Better Than The Catch 2 comments
    Oct 7, 2013 5:30 PM | about stocks: OFG, BPOP, EOS, EOI, JLA, CII, BUI

    I have become bored with my usual relevant titles and have decided to make the title based on whatever random song is playing in my head. If you are not a Motorhead fan, then I can't help you.

    It is amazing. The Woman and I went to my sister's wedding on Saturday. Woman and I have not been getting along over the last few months. Both of us observed how dysfunctional the other couples are during the event and now we're getting along better than we have in years!

    Anywho. This is the time of the month where I have the money to buy into a couple of stocks/funds. I'm thinking about one preferred stock and one cef this time. This is Monday, so as always this is subject to change depending on valuation and price by this Friday.

    So. For preferreds:

    (NYSE:OFG) - the series A & B stocks both have yields @ or above 8%. Another Puerto Rican bank that's doing okay and has the bonus of having a positive pe and is paying a dividend. And the preferred is paying monthly.

    (bpop) - Same as above except the common doesn't pay a dividend. Both BPOPO and BPOPP are at levels I'd be happy with buying. I own a bit of BPOPP that I bought under par, and am willing to buy more if the price stays under the callable level.

    I have more than enough money in mreits(even if they aren't really a mreit) preferreds, so I'm not going to consider these in this writing.

    I would be interested in a floating rate preferred, but I don't see any under par that meet my minimum current 8% yield criteria. If there is a decent market sell-off, then maybe in November...

    Okay. On to CEFs. Since I tend to buy fixed income with preferreds, it doesn't make much sense to buy a similar class with a CEF, right? Right. So I'm going to try to look for ones that can do well in a rising rate environment whilst still paying out an 8% distribution. Here we go:

    JLA - option cef - next distribution should be in Dec. so may hold off.

    CII - same as above. Both of these currently are trading below their 52 week average discounts.

    There are other Blackrock and Nuveen option funds that are similar to these that fall within my buying parameters and tend to pay distributions about the same time. Let's see what else I can come up with...

    MCN - another option fund. Will probably have a distribution at the end of November, so a maybe. Looking at the NAV, it seems that this one has had lack-luster results compared to others and has a bit higher expense ratio.

    EOS - one I've owned before. I believe the option coverage is about 50% so some upside and some downside protection. Monthly pay. Around it's 52 week average discount.

    I should point out that a lot of these option funds I'm looking at have a return - of - capital component. That's okay with these type of funds as selling the calls counts as ROC and is also their main source of income. You have to look at the NAV over time to see if it's an accounting gimmick or actually return - of - principal. ROP is a very bad thing and should be avoided. Check the NAV on this one for a classic example of evil ROP:

    www.cefconnect.com/Details/Summary.aspx?Ticker=GDL

    vs. the NAV on EOS:

    www.cefconnect.com/Details/Summary.aspx?Ticker=EOS

    Both of these list the majority of the distributions as return - of - capital. But just by looking at the charts you can see which one has a sustainable distribution and which one will cut it (or go belly-up).

    Anywho...

    EOI - much like EOS. Have owned both. Market freak-outs might bring the price and discount down in range that might make it more attractive to me. Both fall within my current guidelines for buying, but are a good bit more expensive than last year.

    BUI - another Blackrock fund that focuses on utilities and infrastructure. End of November distribution. What is interesting is that the market price is going down while the NAV is starting to creep up after the recent interest rate roller-coaster. I think this one might be one I end up buying even though it's fairly new - check out what happened to the NAV since the last year's panic. And look at what happened to the price. And now look at where the price has cratered and the NAV is going up over the last month or so.

    I cannot say what I will buy into on Friday. I would like BUI and any of the Puerto Rican banks preferreds as my first picks. But I will update as circumstances change.

    Update for 10/11:

    Ended up with ofg-b and Bui.

    Themes: bui, eos, eoi, bpop, ofg, jla, cii Stocks: OFG, BPOP, EOS, EOI, JLA, CII, BUI
Back To User 7415181's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (2)
Track new comments
  • Land of Milk and Honey
    , contributor
    Comments (3503) | Send Message
     
    "option funds "

     

    Are these getting a piece of the call-spread as companies sell options? Or are they getting a piece of profits -from- the selling and buying of options done by the fund's managment? The first sounds great! The 2nd sounds risky. For a long time I've thought the spread is where the "easy" money is.

     

    If you want feedback on CEFs or to share thoughts on them -- SouthernGent who used to come by IT's blog, owns a bunch and has lots to say...

     

    You do a great job of describing the pros and cons of each one, and how to assess them. I'll be back when I'm at a point where I'm ready to get into specific funds to figure how to assess them.

     

    Several funds are more expensive? Though rates have gone up. So people are getting desperate for rates, and these are getting bought into? Is that what's happening? Then in a few years when there are real rates to be had on savings accounts & bonds, will these see a dip? Or more gain, because they can still outperform?
    24 Oct 2013, 08:16 AM Reply Like
  • User 7415181
    , contributor
    Comments (562) | Send Message
     
    Author’s reply » Thanks for commenting! Just got back from the park so haven't had time to answer your pm yet.

     

    The second guess is correct. Most of these types of funds sell calls against an index or against their own portfolio. So most of the distribution is going to be from the covered-call income.

     

    To make things more complicated, different funds sell different levels of calls. EOS sells about 50% coverage the last time I checked while JLA was around 80%. Theoretically, EOS should have some upside potential while JLA should have a good amount of downside protection.

     

    And some funds are leveraged and sell calls. And some sell calls on bond-holdings. And some sell calls and buy puts. There is even one I know of that holds muni-bonds and sells calls against that.

     

    "Several funds are more expensive? Though rates have gone up. So people are getting desperate for rates, and these are getting bought into?"

     

    One thing that is cool and horrible about cefs is that mostly they are owned by retail investors. EOS and other Eaton Vance option funds were selling at much lower levels last year. EV had cut the distribution on a lot of its funds, so pretty much anything Eaton Vance was sold off. EV announced some changes last year - quarterly pay funds changed into monthly and they started buying back shares. That made EV funds no longer as hated and the market prices have been rising.

     

    Blackrock funds have made some distribution cuts over the last year or so and are turning into the new fund family that's easy to hate.

     

    "Then in a few years when there are real rates to be had on savings accounts & bonds, will these see a dip? Or more gain, because they can still outperform?"

     

    I don't know. My limited understanding of selling calls leads me to believe that call-premium will be higher as interest rates rise, so hopefully these type of funds will do okay. Another thing I think about is that when interest rates go up, bonds tend to go down so an option fund with an underlying portfolio of stocks should hopefully be safer.

     

    Hopefully.
    24 Oct 2013, 10:16 AM Reply Like
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.