Shares of EPD were called away over the weekend.

music selection: “Dirty Laundry” — Don Henley

weigh-in:  201.6 +0.8

International Paper (IP) fell on hard times in recent years. It was highly exposed to producing bulk paper for newsprint and copy/printer paper. Both sectors saw decreasing demand and falling margins. The company has reinvented itself with a focus on engineered wood and engineered fiber (paper) products. It has improved margins and is now a growth company again thanks to an increased need for shipping boxes driven by online commerce. The company is also in a nice uptrend with multiple consecutive quarters edging out estimated earnings by a few pennies.

I’m writing an in the money covered call (combo order) to maximize safety while earning some income. This is going to be my preferred method of playing the options market so long as the yield curve is inverted. To that effect, I bought 100 shares of IP at 47.14. Simultaneously, I sold IP190510C00047000 for 1.62 a share. The trade will be in force for 40 days and yields an expected 31.36% on an annualized basis. In the likely event, shares are called away at expiry, I will book a 14 cents a share in short term capital losses. This would reduce my annualized yield to 28.65 (still very good!) If shares are retained, the underlying pays 2.00 and growing in dividends per year; good for 4.24% a year. Likewise, I would continue to keep writing covered calls against the position for additional income.

This is a half position as I’m actively derisking my portfolio. The position will be held with a 25% trailing stop loss inclusive of options premiums and distributions, calculated based on daily closing prices.