Strategies & Market Trends : Option Strategies

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To: robert b furman who wrote (1890)10/6/2017 11:06:32 AM
From: robert b furman5 Recommendations

Recommended By
John P
the Zwei

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Today I've sold 10 puts of HCP (Health Care properties) at a strike price of 25.00 for $1.15.

If put to me I will buy HCP for a net price of 23.85.

HCP pays a quarterly dividend of 37 cents x's 4 = 1.48. $1.48 / 23.85 = a 6.2 % yield.

HCP last year spun off its Skilled nursing Facilities - which have had poor performance as many of these facilities are ex[eriencing reduced stay lengths and cuts in medicare payments.

HCP was the first Reit that was included in the S&P 500. They were a dividend Aristocrat until the spin off - which resulted in a dividend cut.

The venture into skilled facilities was a poor decision and they had to spin it off much like happened to Ventas (VTR ).

The demographics of aging boomers sound good but the government payments being reduced sound even worse.

The other facilities that HCP have are first class and often centered around biotech offices in California and also the easy coast universities Like Cambridge.

I've owned HCP before but was scared off by the skilled nursing facilites having revenue problems.

I love the HCP properties and would not mind buyin HCP at 23.85.

This is just a first position and if price declines more I'll scale in and look at the January 2019 25's as well.

I particularly like the life sciences parks:

Medical offices (Hermann Memorial is close to my home in Houston and first class!

Lastly their Hospitals:

The skilled CARE FACILITIES have been the pain and they have been spun off and earnings are being reduced down for the spin off (SHOP).

Most of SHOPs projects are triple net leases - but if theyt can not make their monthly rents - the revenue hurts the spin off company.

Ventas did this about a year before HCP and had a similar adjustment that dropped the price of the spin off by 22 - 25 %.

HCP has dropped from the 35 range to now the 25 range.

I've waited over a year for this drop to occur, it satisfies my 6% yield objective and it could even get better.

If not put to me the $1.15 for a 6 month period equals a 9.6436% yield on my cash that collateralizes the sale of the put - no bank is offering me that!

Hope this helps others!

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