Thursday, September 10, 2015

BX Analysis

Update 12/16/2015: I exited the long leg of BX, wrapping up the position in its entirety for a small loss. Covered calls, with shares in the long leg, tie up a lot of funds, which I need for the onset of the new year. It was worth the loss to regain access to those funds.

BX shares declined by 13.9% over 99 days, or a -51% annual rate. The options in the short leg and dividends produced a -4.0% loss on debit for a -15% annual rate.

Update 12/11/2015: I've exited the short leg of my BX covered calls and shall sell the long leg as soon as I can get a reasonable price. This is part of a phase-out of all stock positions in my portfolio, a change that will free funds for more trades, increasing diversification.

Update 11/24/2015: The short leg of my BX covered call reached 57% of its maximum potential profit and I rolled forward, exiting the $32 strike expiring Dec. 18 and etering the $31 strike expiring Jan. 16.

Update 11/10/2015: I rolled forward my short calls on BX, exiting the $34 strike expiring Dec. 18, receiving more than half of the maximum potential profit, and entering the $32 strike expiring at the same time.

In a separate transaction, I exited stock in a spin-off from BX that had been placed in my account on Oct. 1.

The new company, PJT  Partners Inc. (PJT), headquartered in New York City, was formerly Blackstone's financial advice operation.

The spinoff converted a portion of my BX share value into shares of PJT. The options in the short leg of my position at the time were contracts on a combination of the two companies' shares.

With these transactions my long holdings revert to only BX shares and the short holdings to calls solely on BX shares.

The PJT stock position produced a 460.8% yield on debit over 40 days, for a +4,205% annual rate.

I shall defer calculating BX results until the entire position is compelte.

Update 11/5/2015: I've rolled forward the NOV series $35 calls expiring Nov. 21 to the DEC series $34 calls expiring Dec. 19. I'll defer calculation of results until after the entire position is exited.

Update 9/22/2015: I've rolled forward the $35 call expiring Oct. 17 to a call of the same strike expiring Nov. 21.

I'm considering the private equity and investment banking company The Blackstone Group LP (BX), headquartered in New York City, as a potential vehicle for covered calls.

It is ranked neutral by Zacks Investment Research. Its main attractions are a highly liquid options grid and a dividend yielding north of 8% annually at today's prices.
[BX in Wikipedia]


I shall use the OCT series of options, which trades for the last time 36 days hence, on Oct 16.

The Company

Analyst enthusiasm is positive, coming down collectively at a 60% enthusiasm rating.

The company reports  return on equity of 23%, with debt running at 82% of equity.

Earnings have been profitable in all of the past 12 quarters. All but two quarters have produced upside surprises. The most recent of the downside surprises was the most recent quarter.

The earnings yield is 7.41%, compared to a 2.21% yield on 10-year U.S. Treasury notes. The dividend yield is 8.78% annualized at today’s prices.

The "fair" price implied by earnings growth estimates is $42.89 per share, compared to the market price of $33.72 per share. The market premium is 21.4% below the implied price.

The stock is selling at 14 times earnings and also at a premium to sales. It takes $5.50 in shares to control a dollar in sales.

Institutions own 51% of shares.

BX next publishes earnings on Oct. 14. The stock goes ex-dividend in October for a quarterly payout of $0.74 per share.

Bottom line: This is a high yielding speculative growth stock. The dividend and covered call income will work to mitigate the risks.


Click on chart to enlarge.
BX at 11:32 a.m. New York time, 90 days 2-hour bars
Implied volatility stands at 44.3%, which is 1.7 times the VIX, a measure of volatility of the S&P 500 index. BX’s volatility stands in the 76th percentile of its annual range.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%ChartEarns
Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move

The Trade

The shares that form the base of the covered call were bought for $33.83 on Sept. 10, 2015.

Here's the analysis for the short call.

Covered call, short the $35 calls,
sold for a credit and expiring Oct. 17.
Probability of expiring out-of-the-money


The premium is $1.13. The stock at the time of purchase was priced at $33.83.

The strike price provides a $1.17 cushion above the shares basis, compared to the average true range of $1.62.

Decision for My Account

I've opened a covered call position in BX as described above.

-- Tim Bovee, Portland, Oregon, Sept. 10, 2015


My volatility trading rules can be read here.


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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