As Annaly (NLY – $14.50) got clobbered today, I did a little trade to make sure I'm buying Annaly near book value. Structured as a REIT and passing through 90% of earning for shareholders, Annaly Mortgage is a great way to earn dividends/mortgage interest.
Perhaps it was a delayed reaction to rising rates and this story about lower rates being good for Annaly that panicked some holders today. I checked my portfolio and noticed NLY down big and trading at $14.15. By the time I checked the news and the leveraged mortgage REIT's financials, I realized that there was nothing specifically wrong, hit the <BUY> button and paid $14.30. Not liking to pay a lot over the tangible book value of $11.78, I decided to sell some Jan 2009 15 strike calls at $1.30 to lower my cost to $12.00. So am I giving away upside? Perhaps, but I already own Annaly and I want to try to own it near-ish book value. And I do think Annaly is a mortgage REIT with a mark-to-market portfolio that is worth paying over book value. I like Mike Farrell and the open way he runs this mortgage fund disguised as a REIT.
Because the dividends from a mortgage REIT do not qualify for lower taxes, the place to own this high dividend fund (5% yield this year look for 9-10% next year) is in one's IRA. I have it in my IRA, but today's trade was for my taxable account.
Disclosures and confessions: I bought NLY previously, and I bought again today at an average price of $14.30, and sold Jan 2009 15 strike calls at $1.30.
I do not have a mortgage. Once you have about a year's worth of living expenses saved up over savings for a rainy day, pay down your mortgage with half your excess cash and give yourself some financial flexibility if you are lucky enough to have the extra funds.
Site Disclaimer
Don't Try this at home disclaimer: I am an expert and options may be for me but they are probably not for you. You can lose way more than your entire investment playing in options. If you play too much in options you can even lose your home, mortgage and all. Now who would that be good for?