Wednesday, April 11, 2012

Sold 1 RRD Senior 8.875% Bond Maturing 2021 at 100/Sold 150 of the Synthetic Floater GJN at $23.02-ROTH IRA

I can confirm that Novartis withheld 15% of its annual dividend to pay Swiss withholding taxes. The distribution on 100 shares was $248.21. The net was $210.63 which also included a $.35 fee.

I left HQ yesterday morning for my annual physical. The OG's blood pressure was 110 over 70 at the Doctor's office. The market was then positive. Since it is not possible to complete a physical anymore in less than two hours, mostly waiting for the doctor or the lab technician, I did not return to HQ until shortly before 1:00 and noticed that the DJIA was down 180, and the VIX had spiked to over 20. Apparently, selling had accelerated after the S & P 500 pierced to the downside its 50 day SMA at 1372, looking at a daily chart.

The trouble started in Europe, as the sovereign debt crisis reappeared after a few days of relative quiescence. Spain's 10 year bond moved closer to a 6% yield. ES 10Y Italy's stock market declined 4.98%, FTSE MIB Index. I did not take my blood pressure after reviewing the foregoing.

Before leaving HQ yesterday morning, I had placed a limit order slightly below the market price for a stock. Needless to say, there order was filled in the downdraft. I will discuss it tomorrow.

Prospect Capital (own) announced after the close yesterday an offering of senior convertible notes maturing in 2017. I would anticipate that this offering will place some downward pressure on the stock.

1. Sold 150 GJN at $23.02 Last Monday Roth IRA (see Disclaimer): GJN is an exchange traded Synthetic Floater in the Trust Certificate legal form of ownership. The underlying security owned by the trust is a J P Morgan Capital 5.85% Trust Preferred maturing in 2035. 

GJN pays the greater of 3% or 1% over the 3 month treasury bill rate on a $25 par value, with a cap of 8%. Prospectus Due to the Federal Reserve's Jihad against the Saving Class, the applicable coupon will likely be 3% for "an extended period of time". 

I will likely buy this security back when and if the price falls below $20. 

The 150 shares sold last Monday were bought in three fifty share lots. Added 50 of the Synthetic Floater GJN at $19.1-Roth IRA (January 2012) Bought 50 GJN at 19 In Roth IRA (August 2011);  Bought 50 GJN at 21.95 (May 2011).

I had a realized gain on these shares of $422.44 on these shares. 

2012 GJN 150 Shares +$422.44

I had one prior trade of this security, a 50 share lot sold for a $460.53 gain in 2010: 

2010 GJN 50 Shares +$460.53
That lot was bought at a very favorable price. BUY 50 GJN at $12 (March 2009);  Sold  50 GJN at 22.08 in the Regular IRA (December 2010)

This security is thinly traded, usually with a large bid/ask spread. When I entered the order, there was a 200 share bid at $23.02 and the ask was at $23.33. I entered a day limit order at the bid price which was immediately filled by Vanguard. 

Fidelity does not allow its customers to buy exchange traded synthetic floaters. Fidelity Brokerage Extends Denial of Trading Opportunities to Synthetic Floaters and Even an Exchange Traded Junior Bond DFP Due to the tax complexities associated with the swap agreement which creates the minimum coupon and the floating rate out of a fixed coupon security, I will only buy synthetic floaters in retirement accounts. I moved my ROTH IRA from Fidelity to Vanguard due to Fidelity's trading prohibitions on a number of securities that were my bread and butter in retirement accounts. Fidelity Prohibits New Purchases of Exchange Traded Principal Protected Senior Notes 

Synthetic Fixed-Income Securities Inc. Fltg. Rate STRATS Ser. 2005-2 for JPMorgan Chase Capital XVII  (GJN) rose 26 cents yesterday to close at $23.32. Volume was 700 shares.

2. Sold 1 RRD 8.875%% Senior Bond Maturing in 2021 (Junk Bond Ladder Strategy)(see Disclaimer): This bond was sold at 100. The confirmation adjusts that price to 99.2 to reflect the brokerage commission, which is different than stock confirmations. I will also receive accrued interest from the buyer of $43.64:

This bond was bought a few weeks ago at 92.69. Bought 1 R.R. Donnelley 8.875% Senior Bond Maturing 5/14/2021 at 92.69

My goal with the junk bond ladder strategy is to break-even on the bonds and to simply collect the interest without suffering a net loss on the bonds. Since I am suffering a higher than expected default rate among the selections in this basket strategy, I have resorted to trading some for profits, particularly those purchased at discounts to par value that pop to par value or more long before their maturity date.

This company is paying in my opinion a too generous common stock dividend given its earnings, debt load and maturity schedule. The Board just declared a regular quarterly dividend of 26 cents per share. RR Donnelley Board of Directors Declares Quarterly Dividend 

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