The Money Tree

Safely Generating Income in Retirement

Posts Tagged ‘HGT’

Update – HGT

Posted by mounddweller on January 20, 2012

Fellow Traders,

I want to update you on my covered call trade in Hugoton Royalty Trust (HGT).  Yesterday, I closed out this trade at a substantial loss.  However, my dismal result was entirely preventable.  I made a couple of mistakes usually attributed to ‘newbies’, not guys like myself who have been trading and investing for 30 years.  You’d think after this long I would be immune to such bone-headed moves.

You may recall that I successfully traded HGT on 2 previous occasions.  This third time was looking to be equally successful before I made my mistakes.    Back in March 2011 I bought 500 shares of HGT and sold AUG calls.  These calls expired OTM and I sold another round of NOV calls.  These too expired OTM.  Shortly after the NOV expiration HGT began to trade a little lower.  I continued to keep an eye on it so I could sell another round of calls 4-6 months out.

Mistake #1 was not keeping up on what was going on in the natural gas market.  Natural gas prices have fallen sharply in recent weeks.  They now trade at generational lows.  Mistake #2, since my position in HGT was a trade and not a long-term holding, I should have exited the postition when HGT approached my break-even price.  Mistake #3 came a week or so ago when I compounded my problems by buying more shares thinking the stock couldn’t fall much further.  How many times have you heard “never try to catch a falling knife”?

After finally coming to my senses yesterday I sold my 1,000 shares of HGT for a sizable loss.  A loss of almost $3,700!  It is mistakes like that that wipe out the returns on many great trades.

Word to the wise…do NOT let small losses turn into big ones.  Admit your mistake in the trade and get out.

Am I going to swear off HGT and never trade it again?  No way!  I made some mistakes but the strategy is still sound.  Once HGT does find a bottom I will be back in it again collecting its monthly dividends and selling covered calls.

Regards,

Troy

 

 

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Portfolio Update – GTY / HGT

Posted by mounddweller on July 16, 2011

Fellow Traders,

I want to update you on a couple of my open trades.  Both of these trades employ a different strategy than either my Deep OTM NP or regular NP/CC trades.  This strategy involves buying high yield stocks and selling CCs against the shares in addition to collecting the monthly or quarterly dividends.

First let’s look at Getty Realty Corp. (GTY).  Getty is a real estate investment trust which owns gas stations on the east coast which they lease to independent operators.  Getty first caught my attention back in March of this year when they had a significant drop in price.  I felt the situation causing the price drop would resolve itself and the stock would subsequently rebound.  I opened the trade by selling NPs.  Since that time I have collected two quarters of dividends and sold two rounds of CCs.  My complete transaction history is below.

In the 4 months I have been holding GTY I have collected $1,680 in premiums and dividends.   With $11,250 in capital at risk that’s a 14.93% return in only 4 months!  Annualized that’s approximately a 45% ROIC.  Not bad for a REIT, huh?  Note this return doesn’t include my substantial unrealized capital gains.

Next up is Hugoton Royalty Trust.  As many of my long-term readers know I have been trading HGT for about 15 months.  I’m on my third round of trading HGT.  In both of the 2 prior rounds my shares were called away when my CCs finished ITM.  Below is the transaction history for my third round of trading in HGT.

In 4 1/2 months in holding HGT I have collected $636.56 in premiums and dividends.  That’s a 5.92% ROIC.  This will only get better as I should receive one more dividend in August prior to the expiration of my covered calls.  My goal in this trade is to achieve a total return of 12-15% annually.

Regards,

Troy

 

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MAR Wrap-up and New APR Trades

Posted by mounddweller on March 20, 2011

Fellow Traders,

Like many of you I’ve spent a good portion of this weekend reviewing how I did in March and looking for potential April trades.  Here’s a brief recap of my March activity.  First, my closed trades:

(1) Back on February 4th I sold 4 MRK MAR $31 puts at $0.35.  After commissions I netted $128.03.  These puts expired OTM.

(2) On February 28th I sold 3 RVBD MAR $35 puts at $0.45.  After commissions I netted $123.77.  This was one of my Deep OTM NP Strategy selections.  The puts expired OTM.

Now, onto my trades which remained open.

(1) First Exelon (EXC).  I started this trade almost one year ago, back on April 16th.  My most recent activity includes selling 2 APR $43 calls at $0.90 and then buying them back late last week at $0.30.  Also, earlier this month I sold 3 APR $40 puts at $0.50.  Between selling calls and puts, and the dividends received I have reduced my cost basis from $42.50 to $37.46.

(2) Next up is Hugoton Royalty Trust (HGT).  This is my third trade in HGT.  The first two were very successful.  I initiated this third trade back on March 1st, buying 500 shares of HGT at $21.50.  On March 17th I sold 5 AUG $22.50 calls at $0.80.    The strategy with HGT is to buy the shares, sell calls 4-6 month out, and then collect monthly dividends.

(3) CSCO is my next open position.  Back on February 10th I opened this trade by selling 5 MAR $18 puts at $0.21.  On Friday I rolled these puts out to JUN for a $0.70 net credit.

(4) NOK is up next.  I did a buy/write on them back on March 11th at a net debit of $8.17.  I sold the APR $9 calls. 

(5) My remaining open position is in Getty (GTY).  On March 14th I sold 5 MAR $22.50 puts at $0.55.  These puts expired ITM and thus I will have 500 shares of GTY put to me at $22.50 on Monday morning.  My plan is to sell the JUN $25 calls at $0.75 and collect the $0.48 dividend which will be paid in mid-April.

Now onto my my list of potential trades for April.

Let’s briefly look at each of these.

(1) First up is Gamestop (GME).  You’ll notice I have them listed twice.  That’s because I can’t decide which trade I like better.  I like the ROIC with the $19 put and I have traded GME at this strike price with good results before.  However, I like the $18 strike because there is better support at this price.

 (2) Next is CSCO.  As I mentioned above I am already short 5 contracts at the $18 strike.  This trade expands my position by selling more puts at a much lower strike.

(3) Aflac (AFL) is my next pick.  It has fallen sharply because of the tremendous disaster in Japan where it does a lot of business.  It closed at $50.47 on Friday well off its 52-wk high of $59.54.

(4) JNJ is up next.  I ‘borrowed’ this pick from by investing buddy Teddi over at www.fullyinformed.com.  JNJ is approaching bargain territory so this is a good trade despite the sparcity of DSP.

(5) AT&T (T) is fast approaching their ex-dividend date and is trading at a nice price.  Thus, I’m happy to enter a buy/write trade here and reinitiate a position in T.

(6) Last up is GTY which I discussed up above.  As I said before I intend to sell CCs against the shares I’m acquiring tomorrow.  With a dividend yield in excess of 8% I won’t mind holding this one for awhile.

Best of luck to all my readers out there.  Let me know your thoughts on my trades and I would enjoy hearing what trades you’re considering.

Regards,

Troy

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HGT – A conservative, repeatable, CC trade

Posted by mounddweller on February 21, 2011

All,

I wanted to share with you a trade that has worked out quite well for me.  It is unlike any other trade that I’ve previously shared with you.  As my headline states, in my mind it is a conservative, repeatable way to generate monthly cash flow.  I have executed this trade twice in the past 10 months.

The trade involves a natural gas royalty trust, Hugoton Royalty Trust (HGT).   Hugoton Royalty Trust operates as an express trust in the United States. It holds a 80% net profits interests in certain natural gas producing working interest properties of XTO Energy Inc. XTO Energy Inc. engages in the production and sale of oil and gas, and holds working interests in the Hugoton area, which covers Texas, Oklahoma, and Kansas; the Anadarko Basin of western Oklahoma; and the Green River Basin located in southwestern Wyoming. Hugoton Royalty Trust was founded in 1998 and is based in Dallas, Texas.  HGT makes monthly distributions to its share holders based on the net profits referenced above.

The basic elements of my trade are as follows:

(1) Buy the stock

(2) Sell the nearest price call 4-6 months out

(3) Collect the dividends

(4) Have HGT called away at expiration

(5) Repeat

Below are the details from my two previous rounds of making this trade.  For a conservative play, I think the returns are excellent.

For my third round in this trade I intend to do a buy/write on 500 shares, selling the AUG $22.50 calls which closed Friday at $0.55 bid.

Regards,

Troy

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