Oil investment analysis

The oil sector is the biggest holding in my play money portfolio. Luckily, it is only in my play portfolio and not in my real portfolio. I have 2 major positions: KMI and RDS.A. How are these doing?

KMI

kmiWhen KMI decided to reduce its dividend, I considered this a great opportunity to enter the market. The stock looked to start a recovery after the earnings call that confirmed the dividend and investing cut. The buy decision was made within my playmoney portfolio.In this portfolio, I try to get superior returns.

What is my KMI cost basis?

I have a cost basis of 16,31 and my average buy date is Dec 14 2015 (I did 2 buys within one week). With this data, I can now calculate my temporary return.

What are my returns? (Feb 11 view)

At the time of writing, I have a net dividend and net option premium income of 0,9 USD per share I own. This gives me a return of 2,76pct after just 2 months. If I dare to extrapolate this result, then I end up with an annual return of approx. 16,5 pct. All right..

Should I really be proud?

At the Feb 11 stock price of 14,6, I am actually down 342 USD on my investment. Compare that with a 90 USD income and you have a different story! I am actually loosing on this stock. I am down 252 USD or down 7,72pct. That is a different story.

Fast Forward to Feb 21st

Since Feb 12, the stock rallied to 17,37 USD. It briefly flirted with 18. Cool stuff… Most likely due to oil producers talking about output capping and W. Buffet buying KMI. I am now up 6,48pct on the stock, I still have the 2,76pct premium and 0,39pct in net dividend. Or, in total a 9,6pct profit.

I do have covered calls on the stock. I already took action with covered call and rolled it up and out from 17,5 to 19.

What a  volatility

RDS.A

This is the stock I bought initially to get into option writing. I chose this one as it is also a great dividend payer. I figured: if it goes against me, I still have the dividends. And I am thankful to heave the dividends.

wp-1455200774395.jpg
An old Shell truck I found in my old toys box.

To keep the summary easy (Feb 11), I am down 19,2 in pure stock price alone. Scary number. It has been bigger a few weeks ago. My income out of the stock is 2,89 pct. So the total result is lousy 16,31 pct. Due to the heavy stock price loss, I am now not able to write covered calls and generate income. I have also too many in-the-money puts that are open. I will not be adding to these for now. It is a matter of being patient from now on…

Fast Forward To Feb 21st

I am only down 11,37pct on the stock. And I have some dividend coming in March. Progress…

Why post this?

The main reason to post this is as a reminder to myself that investing is never without any risk. The rewards can be great, but also the paper losses. Investing is for the long term and with money I should not need.

It is important to consider your risk profile while investing and adjusting your allocation in line with paper loss you can support.

This post is written on Feb 11 and updated on Feb 21. I am curious how all of this will work out for me.

 

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15 thoughts on “Oil investment analysis

  1. Ciao ATL, I do not have a play portfolio, though I wish I had one… 🙂 My Energy sector situation sees no investments in the last 6 months, so little by little its weight has been reduced in my PF. Lots of doubts about Oil, it seems a big political play, but its bringing everything on its knees as with every minor/major oil shock we get a massive market downturn…
    If oil recovers in the 60s (double the prices that we see now!!) surely there are very good gains to be had, but it’s a risky play that one and right now I cannot get myself to take the risk in the sector…

    ciao ciao

    Stal

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  2. Thanks for providing the summary, AT. Good to hear that these volatile stocks are in your play account. Good to see that you are generating some extra cash by option writing and learning from your trades.

    Best
    R2R

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    1. As I want my core portfolio to be a close to the plan as possible, the play portfolio is my way out. It also allows me to learn on options. It feels like a win-win! 🙂 let’s wait and see in a few months from now.

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  3. Great timing on KMI buying at the same time as Mr. Buffett, and as soon as the report that Mr. Buffett was buying the stock soared. I went in a little bit too early last year at $40s then average down to $26, which isn’t bad. The recovery will take awhile, right now I’m cool with the dividends.

    Best of luck and keep on sharing!

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    1. My timing was right with hindsight. to be honest: I was buying because everybody else was selling. I did not expect the further drop to be that big… But Mr. Buffet came to the rescue. That is nice

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  4. Good fun to have a play investment account. That’s something I have been thinking of setting up. I think both are great buys based on your analysis.

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    1. I can recommend the play account. It keeps you busy and you leave the main account in set and forget mode…
      The oil has been recovering recently, KMI is even more profitable and on RDSA I managed to write a first covered call.

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  5. That’s some crazy volatility in pricing from your summary. As you stated, no investment comes without risk. It’s part of the game. Of course, we try to minimize this risk by diversifying and holding only quality companies that offer safe and reliable dividends. Sometimes even that is not enough. I know it’s your “play money” portfolio but it’s nice to see that you are still sticking with energy names despite a very difficult 2015 in the sector.

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