Final week in Colorado.
weigh-in: 201.8 (1.2)
music selection: “In The Middle Of The Night” — Within Temptation
I am in the process of exiting my covered call positions and raising cash. I want to be positioned to take advantaged of distressed debt opportunities when the credit cycle inevitably rolls over. To that end, I let BX expire in the money over the weekend and be called away. I had to close my short Iron Condor in DAL early because shares rallied quite strongly. I booked a 812 dollar loss on the spread.
One of my goals is to convert my covered call portfolio over to a calendar spread portfolio. This requires less capital deployed and let me hunt in much easier ground as now I don’t need to find stocks that go up in a short period of time. I’m now looking for companies that will trade more or less flat for 40 to 47 days. To that end, I’m focusing on companies with 50 billion or more in market cap, rising sales, and low Beta. There aren’t many companies in this category but the ones that are tend to be very stable and even recession resistant.
This week’s trade is a calendar spread in Disney (DIS). I sold 5 contracts of DIS190830P00145000 for 4.354 a share. At the same time (using a combo order), I bought 5 contracts of DIS191018P00145000 for 5.654 a share. The cost of the spread is 1.30 per share and will be in force between 40 and 47 days. The long puts should be worth about 4.20 a share at the time the short contract expire, meaning that if shares trade flat, I will more than triple my money on the spread. Most likely, I will close a few days before the short leg expiry to ensure I do not get assigned early and suffer additional commissions to clean up the trade.
My research has so far turned up 21 companies that I think are very strong candidates for buying calendar spreads and I expect to do quite well while I wait for the credit cycle to roll over.
Devour your prey raptors!