Three new trades today.

music selection:  “Need You Tonight” — INXS

weigh-in:  206.8 +1.6

I’m losing faith in my Ford (F) short thesis.  I have been expecting their huge amount of subprime lending to rollover and cause big earnings misses.  With an economy that is hitting on cylinders, it could be some time before the subprime lending bubble bursts.  I’m trading some upside away for current income by writing a covered put on my short position.  To that end, I sold F180420P00010000 for 23 cents a share.  The trade will be in force for 47 days and yields and expected 17.86% annualized.

I’m adding a few diagonal calls to the mix today.  A diagonal call is a calendar spread that consists of a long dated call that is deep in the money.  This long call is used to anchor a position to sell short dated out of the money calls on.  This allows income to be generated on a moneyed call while waiting for leveraged upside appreciation.

My Grubhub (GRUB) covered call is running away from me a little.  I don’t think it will make sense to write new puts after my shares are called away.  But I do think there is a great deal of long term upside in the position.  To that end, I bought GRUB200117C00032500 for 71.60 a share.  This includes about 2.63 in time value.  Going deep into the money reduced the amount of time value I had to pay to gain my leverage.  I also sold GRUB180420C00115000 for 1.10 a share.  That trade will be in force for 47 days and yields an expected 11.93% annually.  41.83% of my outgoing time value has already been recovered and I have 13% in potential upside price movement before I might need to put more cash into the trade.

I am also starting a new diagonal position in Skyworks (SWKS).  This is a maker of mostly analog chip sets that handle the analog functions of cellphones and allow data to be converted back forth to digital for use by smart phone processors.  It is a highly profitable chip maker with no debt and a cheap valuation that I expect to price improvement in.  I bought SWKS200117C00050000 for 63.70 per share.  This includes about 2.50 in time value.  I also sold SWKS180420C00125000 for 60 cents a share.  The trade will be in force for 47 days and yields an expected 7.31% annualized while I wait for price appreciation.  My outgoing time value on this combo is reduced by 24% by selling the diagonal call.

Devour your prey raptors!

New Diagonal Calls and Covered Put

Never miss another opportunity to devour prey!

4 thoughts on “New Diagonal Calls and Covered Put

  • March 7, 2018 at 11:02 pm
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    Can you remind me when you shorted F and whether it was a real short or some sort of options-based bet? The reason that I’m curious is because F has generally been going down for the last few years, but slowly. The dividend on F is now more than 5%. I’m curious if your trade has been profitable so far or if the cost of shorting F has been greater than the return from correctly predicting the stock would move down.

    Reply
    • March 8, 2018 at 12:38 am
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      I shorted F on 12MAY2017. After making payments in lieu of dividends on my short shares and collecting put premium income, I am down 30.93 in the trade or 0.62% in the hole. I’d call that a wash as the distance from breakeven is just statistical noise. Measuring what I’ve earned on the 5,000.04 in cash in that time is a lot trickier. Let’s just say I get a small extra benefit from hedging.

      Reply
  • March 8, 2018 at 2:35 pm
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    I’m becoming intrigued by the idea of portfolio beta weighting and the concept that a few short bets could neutralize much of my long exposure. On optionalpha.com they demonstrate how to use TDAmeritrade’s think or swim application to do this. Does Interactive Brokers have an easy way to check the impact of trades on portfolio beta?

    Reply

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