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Strategies & Market Trends : Value Investing

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From: E_K_S	8/25/2010 1:43:24 PM
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Cheniere Energy Partners LP. (CQP) Sold March 2011 $12.50 Put options. ( finance.yahoo.com ) Looking for a "low risk" entry strategy for this MLP. The business is now operating with two fixed 20 year 3rd party terminal contracts (w/ CVX & TOT). The stock generates enough cash flow to pay 9.5% cash distributions to unit holders. The down side is that the company registered (8/19/2010) to sell 10.89M common units for holders which when issued would result in a share dilution of 7%. Therefore, I consider an entry point of $12.50/share to be a price that would allow a 26% cut in their quarterly cash distributions (allowing for at least a 7% stock dilution and 19% for "other" unexpected Black Swan events) and still deliver a 10% yield cash distribution payout. By writing the March 2011 $12.50 naked Puts, I can collect the PUT premium of $0.80/contract. If the stock falls by 30% by March 22, 2011, I can expect to have the Stock Put to me at my fair value price target of $12.50/share. If Put to me, I should expect this to generate a 10% dividend yield unless the cash distributions are cut by more than 26% (or $0.45/year). That's my strategy. Started with 1/2 position. In three months I will re-evaluate the position and either (1) write more of the March 2011 $12.50 Puts or (2) look at a higher or lower strike price and/or (3) close the position. EKS

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