Wilson Asset Management (WAM)

This is a follow up article to the initial post Wilson Asset Management (ASX: WAM, WAMO). 

In the initial article, I outlined that Listed Investment Companies (LIC) have long used options as a tool to periodically raise capital and detailed my strategy for obtaining plenty of exposure to the underlying stock with a small initial capital outlay. In the case of WAM, I noted a disconnect between the NTA and share price and strong dividend yield: at the exercise price of $1.60 the historic grossed-up dividend was 10.25%. 

The options have now expired. So how did it all work out? The post was written at the beginning of May when WAMO were 10c (I paid 8.4c) and the price moved up to 14c. The market then proceeded to get the wobbles and the price actually sank to a low of 1.8c before recovering to finish at 5.4c at expiry. Remember, options are a form of derivative and as noted in my disclosure in the initial article I noted I owned WAMO strictly as a leveraged way to buy shares in WAM. With hindsight my timing certainly could have been better. That will probably always be the case! 

Nevertheless the trade has worked out very well, albeit with plenty of luck thrown in. WAM now trade at $1.90. So all up a position initially comprising ~1% of my portfolio has led the way to an overall portfolio gain of ~2% allowing for some selling of WAM along the way. I keep underlining 'initial' because I still ended up paying $1.60 for the shares so therefore the capital was required to back up the trade. That is the beauty of keeping plenty of cash and cash equivalents handy. Obviously luck has been on my side: the market could have gone south. I took the view WAM was at least somewhat buffered from too much downside given the strong dividend and defensive positioning of its portfolio (lots of cash) and failing everything else, would have just let the options expire worthless.  

I give this idea about 6/10. The upside exposure versus dollar risk was acceptable. It won't win trade-of-the-year by a long shot, but a useful exercise regardless. I remember thinking toward the end of April that equity investors were generally getting too excited, so I genuinely think there was room for improvement in my timing on this trade (I bought WAMO near the peak of the excitement), or at least not buying the full position straightaway.  

Kristian 

Disclosure: own WAM