Two positions expired over the weekend.
music selection: “Get Back” — Paul McCartney
weigh-in: 209.0 +0.2
Covered calls in Macquarie (MIC) and Dolby (DLB) expired out of the money over the weekend. I wrote new calls this morning to earn additional income.
I sold MIC190719C00045000 for 20 cents a share this morning. The trade will be in force for 61 days and yields an expected 2.66% annualized. Importantly, I remain eligible to collect the underlying distribution on this stock of 9.62%. With improvement in share pricing, this could turn out to be a great investment.
Likewise, I sold DLB190621C00065000 for 50 cents a share. The trade will be in force for 33 days and yields an expected 8.51% annualized. The underlying distribution is a trivial 1.22%. If I can get back out of this one, I will be looking to reposition the capital more defensively.
A new position this month is in Baidu (BIDU), the “Google of China”. Google products are blocked by the government in China as Alphabet refuses to comply with national censorship requirements. This leaves a huge vacuum for search services and online advertising. That hole is filled by Baidu. The company is enormously profitable and has rapid growth. I am particularly interested in an open source software initiative known as “Apollo” in the autonomous driving space. This is a cooperative effort, led by Baidu, to collect driving information from millions of miles of driving from several top auto manufacturers. Baidu is likely going to win the autonomous vehicle race because it has access to the most data for machine learning.
I like the company but am taking a cautious bullish bet by buying an in the money Bull Call Spread with a delta of .771. That is to say, the Black-Scholes options pricing model indicates a 77% chance of earning the maximum profit on the spread. Using a combo order, I bought BIDU190621C00105000 for 11.04 a share. At the same time, I sold BIDU190621C00110000 for 15.14 a share. The net debit for the spread is 4.10 a share. If shares finish above 110 at expiry, the full value of the spread (5.00 a share) will be realized. This is 90 cents of profit on 4.10 in capital put at risk or almost 22% in 33 days time. That comes to an annualized return of 243%. That outcome has a statistical probability of 77% of occurring. Put another way, I have $10.08 of downside protection or 8.46%.
Devour your prey raptors!