Belated: Covered call with MBI

November 10th, 2009 · 1 Comment

And yet another catch up on trades completed but not yet blogged about.  A position using MBIA Inc (MBI) as the underlying is the last of my covered calls done within the GI portfolio for November expiration.  Sadly, it’s been too long since I initiated the position for me to remember exactly why I went ahead with this trade.  Which is really another way to say I may be doing too much experimentation and not enough of sticking to a plan.

I should have given this to myself two weeks ago in exchange for my thoughts at the time

I should have given this to myself two weeks ago in exchange for my thoughts at the time

All I can say at this point is that I either need to write about my trades sooner, or else I need to adhere better to a known set of strategies for picking positions each month.  My best guess at what I was thinking is that MBI may have been treading its bottom for long enough, and with growth starting to pick up in the overall economy, MBI might finally start to pick up again.  MBI currently seems to have one of the lowest P/S (price-to-sales) ratios of its peer group, which includes ABK, AGO, WRB, and MKL.  But what I appear to have missed at the time I made this trade was that MBI also has an absurdly high total debt-to-equity ratio of 392.  More than 3 times higher than any of its peers!

For November expiration, this looks to be the second time (of only three positions!) that I really tried to force something, and that’s not a good thing to look back on only two weeks later.  I know that I was constrained by the amount of money left over to establish this third position, so perhaps I just simply decided to take on a little extra risk with this smaller portion of my portfolio size?   But that’s really no excuse for forcing things, is it?

The best thing I can say about MBI at this point is that it has a high historic volatility (currently a 30-day of 87% according to TradeKing) which should lead to higher time premiums should I end up selling additional calls against it.   Anyway, without further ado, here are the details of the position I took and the possible outcomes.  As usual, I’m including my actual commissions incurred at TradeKing and thus some numbers go out to fractions of a cent.

Critical dates
2009.10.21: Initial position: BTO 100 MBI @ $5.2465
2009.10.21: Initial call option: STO 1 MBI KY (Nov09 $6) @ $0.290253

Summary, if not called
Days position held: 30
Capital investment: $1,573.95
Income received: $87.08
Percent return: 5.53%
Annualized yield: 92.54%

Summary if called at expiration
Days position held: 30
Capital investment: $1,573.95
Net profit: $308.18
Percent return: 19.58%
Annualized yield: 780.72%

As of the date of writing this post (Monday, Nov 9th but it won’t be posted until tomorrow) MBI is trading in the pre-market with a $4.51 mid-point between the bid and ask.  That’s currently under my cost basis of $4.96/share but I do still have two weeks until expiration.  There’s alot of time for further price movement, both good or bad.

More on this topic (What's this?)
MBIA Jumps More Than 7% (MBI)
MBI
Read more on MBIA at Wikinvest

Tags: Trades

1 response so far ↓

  1. 1 information on modeling career // 2011.07.25 at 10:17 pm

    Thank you for the post. It was an interesting read. Question to the webmaster: where did you get this design? Is there a place where someone with a low budget can get such a design? Thanks!

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