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In Case You're Wrong About Enterprise Products Partners

David Pinsen profile picture
David Pinsen


  • Seeking Alpha contributors have been generally bullish on EPD, including, most recently, Double Dividend Stocks, who called it "the safest high yield in midstream energy".
  • Double Dividend Stocks did note one potential risk: a decline in commodity prices.
  • In the event that, or a general market downturn, sinks the stock over the next several months, I present two ways longs can limit their risk.
  • I also present my site's current take on EPD.
  • Members of my private investing community, Bulletproof Investing, receive real-time trade alerts on this idea and many more. Learn more today >>

Enterprise Products outlines its business (image via company video).

Seeking Alpha Contributors Like Enterprise Products

Enterprise Products Partners (NYSE:EPD) has been the subject of bullish articles over the last few months by Seeking Alpha contributors Samuel Smith, Julian Lin, and Dividend Sensei; last week, after EPD's earnings miss, Double Dividend Stocks, operator of the Hidden Dividends Plus service in Seeking Alpha's Marketplace, called EPD "the safest high yield in midstream Enterprise". Double Dividend Stocks did highlight a possible risk for EPD though: a decline in commodity prices that could put pressure on the stock. In case of that, or a general market downturn occurring over the next several months, bellow are a couple of ways longs can limit their risk. Following that, I present my own site's take on EPD.

Adding Downside Protection To EPD

Let's assume, for the sake of these examples, that you own 1,000 shares of EPD and can tolerate a 20% drawdown over the next several months, but not one larger than that. Here are two ways you could protect yourself (the screen captures below are via the Portfolio Armor iPhone app).

Uncapped Upside, Positive Cost

As of Monday's close, these were the optimal, or least expensive, put options to hedge 1,000 shares of EPD against a >20% drop by mid-March.

Image via PA.

As you can see above, the cost of this protection was $350, or 1.2% of position value (calculated conservatively, using the ask price of the puts).

Capped Upside, Negative Cost

If you were willing to cap your possible upside at 9%, this was the optimal collar to give you the same level of protection as above over the same time frame.

Image via PA.

The put leg in this collar uses the same strike as in the first hedge, so the cost is the same: $350, or 1.2% of position value. But the

To be transparent and accountable, I post a performance update for my Bulletproof Investing service every week. Here is the latest one: Performance Update: Week 36.

This article was written by

David Pinsen profile picture
I developed the hedged portfolio method of investing at Portfolio Armor, and I run a Marketplace service at Seeking Alpha based on it called Bulletproof Investing.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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