Monday Trades.

music selection:  “Distant Early Warning” — Rush

weigh-in:  200.6 (1.2)

Multiple positions expired over the weekend.  I’m just getting back into the swing of things after returning to Houston from Colorado last night.  I will roll these positions tomorrow and report on the results Wednesday.  CCJ, MIC, and ON all expired out of the money.  DLB expired in the money and shares were called away.  I will not re-enter a DLB position as I am raising cash between now and whenever the next market crash is to take advantage of distressed debt opportunities.

I set out this morning to make market neutral trades in the form of one bull call spread, one bear put spread, and one calendar spread.  The bull call spread was intended to by on the 8 and 9 strikes of Annaly Capital Management (NLY).  This REIT has returned about 11% a year to investors for decades and is ridiculously cheap now (less than book value!) after cutting its distribution.  The company will be supercharged by a Fed rate decrease, which the markets are pricing in at a 100% chance.  The options market apparently sees this as well as I couldn’t get the spread for 95 cents.  I will be evaluating tonight slightly more aggressive, at the money spread, with 9 and 10 strikes.

For my bear put spread, I went with Tenet Healthcare (THC).  This is a company I have LEAP long puts in and am up handsomely.  The company is mismanaged and overly indebted.  I was conservative by buying an in the money bear put spread.  With shares trading at 17.57, I bought the 20/21 spread puts, leaving me well in the money and providing substantial protection if the shares begin to move against me.  I sold THC190920P00020000 for 2.93 and simultaneously (with combo order) bought THC190920P00021000 for 3.71.  The spread price is a net debit of 78 cents.  The trade will be in force for 60 days and, if shares decline, stay flat, or at least rise less than 2.43 will be worth one dollar at expiry.  That is good for a return of 28.21% or 172% annualized.

For my calendar spread, I went with pharmaceutical and consumer goods stalwart Johnson and Johnson (JNJ).  For a calendar spread, I want a stock that is expected to trade more or less flat for the duration of the short leg.  A big, fat, slow moving mega cap like JNJ is perfect.  I sold JNJ190920P00130000 for 5.04 a share.  At the same time, using a combo order, I bought JNJ191018P00130000 for 6.04 a share.  The trade will be in force for about 60 days and was entered for a net debit of 1.00 per share.  Assuming the underlying price does not move, the long put will be worth 2.74 at expiry of the short put.  That is a 38% return over 60 days or 231% annualized.

Tomorrow, I will be rolling CCJ, MIC, and ON, as well as opening a new bearish spread in General Motors (GM).  Look for the write up on Wednesday.  Friday will feature a post on what I did with distressed bonds during my month away in Colorado.  Don’t miss it!

Devour your prey raptors!

Monday Trades with yields up to 231%

Never miss another opportunity to devour prey!

4 thoughts on “Monday Trades with yields up to 231%

  • July 23, 2019 at 4:02 pm

    Sounds like a good balanced approach.

    How are you managing the cash you are raising? My checking account is yielding 3% – for now.

    Also, I noticed the spread between November and December VIX calls at the 18 strike hit about $0.00 yesterday (mid price with a ten cent spread). Seems like the Dec. calls would be worth something in Nov. and that something would logically have to be more than the Nov. calls. Am I wrong in thinking a calendar spread is a good deal when it is free? Wouldn’t this be an impossible deal to lose on?

    • July 24, 2019 at 4:39 am

      I am currently in a cash deficit position. If I raise material cash, I will park in 90 day Treasuries.

    • July 24, 2019 at 4:42 am

      “and that something would logically have to be more than the Nov. calls. Am I wrong in thinking a calendar spread is a good deal when it is free?”

      You’d think, right? But VIX is largely driven by expectations. When I did my Economics undergrad we had long discussions about how negative interest rates were “impossible”. “Free money” should be impossible too. But the current world can be irrational for longer than you can remain solvent. Tread carefully.


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