I’ve been on vacation and taking a break from posting. I’m still (largely) on vacation in Colorado but the sexy lady lizard I’m traveling with is working remotely the next two weeks. I plan to post on Mondays only until my return to Houston.
music selection: “PA PA YA” — Babymetal
weigh-in: 203 (5.4) – losing weight effortlessly in the high altitude.
First for some closed positions. Bull call spread – BIDU: purchased 20MAY2019 for 4.10 a share; sold 20JUN2019 for 4.91 a share. Calendar spread – JPM: purchased 28MAY2019 for 2.73 a share; sold 20JUN2019 for 3.68 a share. Bear put spread – DISCA: purchased 18MAR2019 for 1.55 a share; sold 20JUN2019 for 55 cents a share. Bull call spread – BX: purchased 22APR2019 for 59 cents a share; sold 1JUL2019 for 92.5 cents a share. Bull call spread – MAS: purchased 6MAY2019 for 83 cents a share; sold 3JUL2019 for 95 cents a share. Bull call spread component of Iron Condor – DAL: purchased 28MAY2019 for 1.8633 per share; sold 8JUL2019 for 2.38 a share. The sum of these trades add 1,146 in booked profits to the account.
Going forward, until the next major downturn, I’ll be focusing on Calendar Spreads to generate low risk income. The spreads will be put spreads on large cap names with 3 year sales growth and low Betas. The spreads are only at risk if there is a rapid rise in share price near expiry of the shorter dated option. That is why I chose the profile I did. Large cap slugs don’t likely move up several percent in a day outside of earnings announcements. Large one day declines can happen but I’m hedged against that.
The first trade on that theme that has yet to be reported is a calendar spread in Zoetis (ZTS) the veterinary pharmaceutical giant. On 10JUN2019 I bought the put spread with 26JUL2019 and 18OCT2019 expiries and 110 strikes for 3.0973 per share. The trade will be in force for 47 days and looks to be another BIG winner.
A similar trade is a calendar spread in Intel (INTC). I think the company needs no introduction as it has been traded here frequently as one of my favorite “Big Cheap Tech” stocks. On 17JUN2019 I purchased a calendar spread with the 2AUG2019 and 20SEP2019 expiries and 46 strikes. The cost of the spread was 73 cents a share. There is a very real possibility of a 50% return in 47 days.
Next is insurance giant Chubb (CB). This is one the best run insurance companies out there with consistent high quality underwriting. On 24JUN2019 is bought a calendar spread with the 19JUL 2019 and 16AUG2019 expiries and 150 strikes for 1.245 per share. This is another opportunity to earn a superior return in a mere 26 days.
On 1JUL2019 I entered another calendar put spread on EcoLab (ECL). ECL is a water treatment and water services giant with a stable base of customers and growing revenue. I purchased the 9AUG2019 and 18OCT2019 expiries spread with 195 strikes. I paid 2.90 a spread and expect the trade to be in force for about 40 days. The return is shaping up to be very strong.
The final unreported calendar put spread is on Estee Lauder (EL), a company that should need no introduction. Sales are strong and growing and the brand provides a might moat. I purchased the 16AUG2019/18OCT2019 expiries spread with 185 strike for 4.1733 a share. The trade will be in force for about 40 days and looks poised to offer strong returns.
I did do one bull call spread during this period. Alphabet has taken some heat recently on anti-trust and privacy. The core business remains solid and the shares are cheap compared to peers. I think the recent pullback is overblown and so I bought on 25JUN2019 the 1090/1095 spread with 19JUL2019 expiry. The trade is scheduled to be in force for 25 days. It was purchased for 2.72 a share and is worth an expect 5.00 at expiry. That is a fantastic return of near half again as much for about 4 weeks of risk.
The next transparency post at month end should show strong earnings for the month of July. July will be an outlier as it was a transition month from the old covered calls strategy and has a lot of expiries on the 19th. The calendar spreads will be more evenly spaced in their expiries. I hope to raise cash by gracefully exiting my remaining long positions that are being used to anchor covered calls and redeploy funds to distressed bonds when the credit cycle turns. The portfolio is slowly becoming what Taleb calls “anti-fragile.”
Devour your prey raptors!