Calls and Puts for Income Message Board

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Strategies & Market Trends : Calls and Puts for Income

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work4ever

From: Jim P.	8/24/2013 12:06:43 PM
	2 Recommendations Read Replies (4) of 5891

8/23/13 trade Bought 40 calls strike $20 ARP expiration February 2014 for $2.09 per share for $8399 Sold short 20 puts strike $25 ARP expiration February 2014 for $5.33 per share for $10635 Credit of $2263. Stock price at time of trade about $20.90 Initial margin required on short puts $21,100 not including the net credit of $2263. Forward yield of ARP (E & P Master Limited Partnership) is 10.3% based on most recent distribution. Reason for the trade is expectation that distributions will increase significantly in the next 2 quarters while the yield lowers. Lynn Energy has depressed the MLP space especially the other E & P’s. ARP Atlas Resource Partners has been advertising a $2.35 to $2.50 distribution for 2013 since late 2012. At first on a conference call the indication was that the $2.30 estimate at the time would be in calendar 2013. Now it is not so clear. Distributions so far in 2013 are .48, .51, .54 for $1.53 calendar year. Distributions fiscal year .51, .54 for $1.05 so next 2 quarters need to be $1.30 or average .65 cents. Current company estimated 2014 distribution guidance is $2.60 cents or equal to the next 2 quarters low end guidance annualized. Company should put out new guidance early in 2014 so January or February options give me a little cushion for a miss on current distribution while new guidance may bail me out. 2nd Q conference call was still bullish while several trends in the company will lead to higher cash flows. Using the $2.60 annualized distribution for a floor and current yield of 10.3 % gives a future possible stock price of just over $25. Profit goal at just over $25 at expiration would be $20,000 net for calls and $2263 for the credit or $22263. Break even on trade at about $21.25 at expiration. Max loss if stock goes to zero $47737. jim

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