As a follow up to my post – Tips on How to Borrow Money using Prosper, I wanted to provide a status report on the investments I made using the funds from my $1,000 Prosper loan.
The following list details my status as of the end of May (2008) -
- Purchased 23 shares of FRO (Frontline Ltd.) at $42.18 / share (commission included) – 03/10/2008
- Traded in and out of several Covered Call Options contracts for positive cash flow of $18.85 for these 23 shares. Please see my notes below on Trading FRO Options for additional details.
- FRO announced that it will be paying a $2.75 dividend in June (2008). This will result in positive cash flow of $63.25 in dividends for the 23 shares.
- As a result of selling Covered Call contracts against my FRO position and the recent run up of the stock, I will be forced to sell the 23 shares of FRO for $50 (unless the stock drops below the $50 strike price) on the 3rd Friday in August.
- My estimated net return on my investment would be $260.17 if I end up selling the 23 shares for $50 in August.
- $18.85 from Covered Call Options trading
- $63.25 from dividends
- $178.07 from net proceeds of selling the 23 shares
Trading FRO Options
I also purchased 77 additional shares of FRO during the months of February and March (2008) to bring my total number of shares to 100 (23 shares from Prosper Loan + 77 additional shares). The goal was to accumulate 100 total shares so I could sell 1 Covered Call Option contract to bring in additional positive cash flow from holding shares of FRO. For additional information on my Covered Call Option strategy, please see my post – Combining high dividend yields with covered call options. The following list details my Covered Call Options activity for my 100 total shares of FRO.
- 04/01/2008 – Sold 1 April $50 Covered Call contract for positive cash flow of $36.99 (commission included)
- 04/17/2008 – Purchased back 1 April $50 Covered Call contract and sold 1 May $50 Covered Call contract for positive cash flow of $32.49 (commission included)
- 05/07/2008 – Purchased back 1 May $50 Covered Call contract and sold 1 August $50 Covered Call contract for positive cash flow of $12.49.
TOTAL NET CASH FLOW – $81.97
Final Thoughts
I will be keeping a close eye on the FRO share price to determine if I want to try and exit out of the stock earlier than the 3rd week in August or continue to extend my holdings past August. This will depend on several factors that I will provide details on as they arise. For the time being, I plan on holding my shares to receive the June dividend and then will begin to plan my next move.
{ 4 comments… read them below or add one }
Interesting. FRO would stay out of my radar at that price, but it certainly looks like you have a sound plan.
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I am going to be following your posts on what you did with your loan. I am curious to see how you benefit from this since I am only approaching Prosper from a lender perspective for now.
In a sense, what you are doing is leveraging your loan to increase your income. (Very crude sense but still…)
I read a terrific quote in WSJ today, I forget who but “If it ain’t moving, sell it today because it may be worth less tomorrow.” Your comment on FRO made me think of that quote.
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Ralph – Would FRO stay out of your radar because it jumped from ~$42 up to ~60+ recently, or because it carries a higher share price and you look for stocks with a lower price?
Mark – Yes, you got it exactly. I am using the loan to bring in more than what is going out. It is an attempt to increase my positive cash flow. There are a ton of listings out on Prosper for people trying to do this same thing but invest the money back into other Prosper loans (as you are aware I am sure). I just couldn’t take it that far as I think the risks are just as high as the rewards.
Interesting quote btw.
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@ Passive: Exactly. I tend to deal with the micro-caps only. It’s just a preference I have for my “play account” at Zecco.
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