Three positions expired over the weekend.

music selection:  “Authority Song” — John Mellencamp

weigh-in:  208.8 +2.0

A covered call in CCJ expired out of the money over the weekend.  I am opening new calls to earn additional income.  Covered calls in LUV and WY resulted in assignment over the weekend. I say goodbye to LUV and am writing a fresh put against WY for income.  I am also entering a Bull Call Spread in Masco (MAS) with an annualized return potential a little over 99%.

I sold CCJ190719C00012000 for 16 cents a share.  This trade will be in force for 75 days and yields an expected 6.49% against my cost basis of 12.00.  I remain eligible to collect the underlying distribution but it is trivial.  Cameco is a uranium ore supplier that should benefit from what looks like a bottom in commodity pricing for uranium now that multiple mines have closed or cut production globally.

Weyerhauser (WY) is one of the country’s largest operator of timber lands.  It is an efficiently managed company that is starting to see increased demand for timber products driven by increased homebuilding.  I sold WY190614P00026500 for 92 cents a share.  The trade will be in force for 40 days and yields an expected  31.68% return on an annualized basis while enjoying 3.40% downside protection in the event of a share price decline.

Finally, I have become bullish on Masco (MAS) a supplier of home furnishing goods such as faucets.  The company is profitable, with strong cash flows, and is quite a lot cheaper by essentially traditional metric than the S&P or other companies in the sector.  Increased homebuilding activity is a strong tailwind for this company.  I think there is a great opportunity to go long her but I am being defensive as the bull market is getting pretty long in the tooth. Therefore, I bought an in the money Bull Call Spread on MAS.

I bought MAS190719C00036000 for 4.39 a share.  Using a combo order, I also sold MAS190719C00037000 for 3.56 a share.  The spread has a net debit of 83 cents per share.  So long as shares finish above 37 at expiry, the spread will be worth 1.00 per share.  That yields 17 cents of profit or 20.48% and a little over 99% annualized.  This result will be achieved is shares, rise, stay stable or even if they fall so long as the decline is less than 7.71%.  That is a great deal of downside protection for a stock I’m already bullish on.

I will close the trade early if the spread closes the day below 42 cents or if I can get 95 cents prior to expiry.  I want to avoid early assignment short even though I am fully hedged as it can be kind of a hassle.  I also want to take profits off the table when there are only a few cents of profit remaining against the risk.  I think this trade will work out really well and I will be looking to make more trades like this as the bull market drags on to unprecedented lengths.

Devour your prey raptors!

Monday Trades with up to 99% return

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2 thoughts on “Monday Trades with up to 99% return

  • May 10, 2019 at 3:11 am
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    On MAS, the market immediately moved sharply against you and yet the spread sold today for 90 cents due to volatility. I would be tempted to take my profits because either volatility will drop or the stock will continue dropping.

    This situation shows what a wonderful tool the ITM bull call spread is, when bought during periods of low vol. Stocks go up – you win. Volatility peaks – you still escape with your shirt!

    Reply

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