Articles Comments

My FI Journey » Investment portfolio » Recent Assignment – Annaly Capital Management (NLY)

Recent Assignment – Annaly Capital Management (NLY)

As part of my commitment to keep my readers up to date on my portfolio, I write up short posts describing my transactions.  Recently, I was assigned 100 shares of Annaly Capital Management (NLY) when my put option expired.

At the end of November, I sold a cash secured put with a $16 strike price against NLY.  This strike price was well over the price of the stock, which was a bit above $14.60 at the time.  My intention was to use the put as a limit order that would ensure that I bought the stock at $14.60 or less.

How the transaction worked

After I sold the the Jan 19th, 2013 NLY put with a $16.00 strike price, $1,600 ($16 x 100 shares) of my cash was locked down.  This cash would remain locked down until I either  bought back the option or the option expired.  In return for selling the option, I got $164 deposited into my account.  That’s a 10.25% return (82% annualized) on my investment.

On January 19th the option expired in the money.  For puts, in the money means that the stock price is below the strike price.  Since the option expired in the money, the effect was that I bought 100 shares of NLY for $1,600.  My cost basis for the stock is $14.36 per share ($1,600 – $164).

Annaly Capital Management

NLY is a mortgage REIT company that owns, manages, and finances real estate related securities.  NLY is not a dividend growth company, but does have very high dividend payouts, making it a nice addition to my high yield portfolio.  Last quarter’s dividend was $0.45 ($1.80 annualized).  If this dividend is sustained, then NLY will be producing approximately 12.5% for me this year.  That’s not bad.

I am concerned about how the latest round of quantitative easing will affect NLY’s business model, but that is part of the risk involved in chasing high yields.  We’ll have to see how this plays out in the future.

Disclosure: I am long NLY.

Readers:  What do you think about NLY and this option play?

Written by

Filed under: Investment portfolio · Tags: , ,

8 Responses to "Recent Assignment – Annaly Capital Management (NLY)"

  1. AverageJoe says:

    I like three things about this trade:

    - You controlled your risk with the put option.
    - The premium was a nice number.
    - Real estate in general is on the rebound, and this company should at least rise with the tide.

    Thanks for sharing the move.

    1. Joe,

      Thanks for stopping by. We’ll see how well my decision to buy NLY works out. I consider anything in the high yield portfolio risky, but sometimes I’m surprised. PSEC has been working out great so far. Hopefully, NLY will work out well too. So long as the yield stays above 8.5% or so, I’ll be happy since it will be doing it’s job.

      1. Martin says:

        I had NLY in my watch list for years and a friend of mine holds it in your portfolio for years as well and no problem. I think this is one of the few stocks OK to hold.

  2. Martin says:

    I like and intent buying shares via selling puts. However I cannot yet doing it on some stocks (not enough cash for the whole lots), but some lower priced stocks are a great candidates. I think NLY is a good REIT and worth holding it. Currently I do the same with FGP.

    1. Martin,

      I can’t buy whole lots of stocks regularly either. NLY just happened to be cheap. But In the next few years as my contributions move away from my emergency fund and towards my investment account, full lots will become an option for many more stocks.

  3. I am normally very wary about really high yield investments. My general rule of thumb is that if something looks too good to be true then it probably it.

    1. Glen,

      Thanks for stopping by. I’m wary as well, hence why I limit them to 10% or less of my portfolio. The truth is that I’ve had two that are working out well (PSEC and STON) and two that didn’t (TEF and NRGY). We’ll see how NLY and SPH do this year.

  4. [...] keeps going up, so they never activate.  The only investment event worth noting this month was the assignment of 100 shares of NLY when my put expired.  Hopefully, I’ll be able purchase some more stocks in the next month to keep on growing [...]

Leave a Reply

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>