I completed the trades I couldn’t get priced on Monday yesterday.

music selection:  “Can’t You See” — The Marshall Tucker Band

I sold covered calls on existing long positions in MIC, ON, and CCJ.  I got 5 cents for MIC (1.62% annualized); 45 cents for ON (29.86% annualized); and 11 cents for CCJ (5.58% annualized).  The goal of these trades is to exit and raise cash.  I want to be well positioned to take advantage of distressed bond opportunities when the credit cycle finally turns.  A tremendous opportunity that only comes around once a decade or so is just on the horizon.  Follow me here to see as it unfolds.

I got a little more aggressive with Annaly Capital Management (NLY) and bought the 9/10 strike bull call spread.  I think it is highly likely the 10 strike will be in the money by expiry as the Fed rate cut should boost prices.  I bought NLY190920C00009000 for 61 cents a share and sold simultaneously (using a combo order) NLY190920C00010000 for 4 cents a share.  The price of the spread is 57 cents a share and will be active for about 90 days.  Should the shares end above 10 at expiry, the maximum profit will be earned. I think this is highly likely and the math comes out to 75% over 90 days or 290% annualized.

I also got bearish with General Motors.  The most recent quarter saw the automotive part of the business burn through billions in cash.  The company is kept afloat by some very suspect subprime lending.  Delinquencies are rising and the company is taking on water.  I don’t expect the company is going to zero (again) but I do think shares are due for a serious haircut.  I’m being conservative by going into the money with a bear put spread.  So even if shares rise, so long as they don’t rise sharply, I profit.  I sold GM190920P00042000 for 2.33 a share.  I simultaneously bought (using a combo order) GM190920P00043000 for 3.01 a share.  The net cost of the spread is 68 cents a share and will be in force for about 90 days.  The profit is not threatened until shares rise 2.76% and is expected to earn 32% over 90 days or 124% annualized.

I’ll be back Friday with an update on what I’ve been doing in the distressed bond space.  Don’t miss it.

Devour your prey raptors!

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Tuesday trades with yields up to 290%

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3 thoughts on “Tuesday trades with yields up to 290%

  • July 26, 2019 at 3:44 pm
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    I like all these trades, and your general direction here. However, I wonder if the real opportunity won’t be in investment grade corporate bonds. One must be careful to buy the dip itself and not the zombie companies that will be permanently impaired.

    I’m trying to figure out if I could pick up a NLY protected put and collect dividends risk free for the next year and a half. *If* I could get executed on the $12 strike combo order for Jan ‘21 at the mid price of $12.12 I could collect 6 payments of about $0.25 each for a risk free yield around 8% not counting commissions or the remaining TV of the option after the last ex-div date. The option spread is very wide, but there’s no way to know unless I place the order! But commissions and opportunity costs discourage me from making such long shot bids.

    Reply
    • July 26, 2019 at 7:06 pm
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      There is an old trader’s approach of making “stink bids”. You put out a bid that only a fool would accept. In something like NLY you’ll never get filled but in thinly traded small caps, you end up with institutions that hold the underlying and because of some covenant requirement that gets violated are legally obligated to sell. You can buy microcaps at half book value or less. You’ll never deploy millions of dollars that way but you can earn some “unfair returns” if you have dry powder and patience.

      Reply
      • July 26, 2019 at 8:56 pm
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        In a market that could blow its top at any moment, I don’t think I’ll be placing any stink bids for long positions. However, putting in a stink bid for a protective put combo is an intriguing alternative to holding cash. The hope would be to catch a quick dip before the put option’s delta catches up, locking in a certain return from the dividend.

        I bought 37 VIX Dec. calls today for $180 each (the day low! Yippee!). Then I entered a GTC limit order to sell at $390. Based on a year of watching prices for these things, I estimate I’ll get that if VIX goes to the relatively routine levels of 16 or 17 in the next 3 months.

        Reply

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