I closed three positions early during the week.
music selection: “What If I Was Nothing” — All That Remains
weigh-in: 205.0 +2.0
My calendar spread in Ecolab (ECL) had begin to move against me with the price going progressively out of the money. I was able to close on 31JUL2019 for a gain of 7 dollars out of 893 at risk over 30 days. A bear put spread in Tenet Healthcare (TCH) really went sour. The company announced a spin off agreement and share buybacks sending the shares upward. I exited on the 31st with a loss of 1,512 on 2,184 at risk. The trade was open a mere 9 days but I felt it was best to preserve capital to trade another day. Finally, a calendar spread in Estee Lauder was doing well in most respects but implied volatility had begun to fall. I decided to close early and take profit off the table. I collected 323 on 1,252 capital at risk over 24 days. A tasty trade!
I have three new trades this week. As is the intermediate plan going forward, the trades are offsetting and market neutral with one bull call spread, one bear put spread, and one calendar spread. I stand to make money regardless of if the market climbs, falls, or trades sideways.
My bull call spread is in Microsoft (MSFT). Azure is a big winner and the company is seeing growing sales, profits, and market share. I am buying an in the money bull call spread ensuring that even with a modest decline in shares, I earn the maximum profit. To that end, I bought MSFT190920C00120000 for 14.614 per share and simultaneously sold (using a combo order) MSFT190920C00125000 for 10.474 per share. The trade will be in force for about 47 days and cost 4.14 per spread. The maximum price at expiry is 5.00, meaning earnings would be 86 cents per share or about 21%, which is 161% annualized.
I also bought a bear put spread in Cheesecake Factory (CAKE). This is a retail restaurant chain that hitched its wagon to suburban shopping malls in the 80s. The much publicized death of the American shopping mall is hitting the company hard. Traffic is down, pushing down sales and margins. The company’s debt is becoming problematic and there is no way to turn things around with investing a large amount of capital to relocate storefronts. I think this company is a safe short idea and I am taking advantage with an in the money bear put spread. I sold CAKE190920P00045000 for 3.706 a share and simultaneously (using a combo order) bought CAKE190920P00050000 for 8.226 a share. The spread went for a net debit of 4.52 a share and is worth a maximum of 5.00 at expiry. That would be a 82% annualized return over 47 days.
Finally, I bought a calendar spread in Bristol Meyers Squibb (BMY). This is a well managed large cap pharmaceutical company with a low beta. Shares rarely make large moves from week to week making this an ideal candidate for a calendar put. I sold BMY190920P00045000 for 1.4886 a share while simultaneously buying BMY191220P00045000 for 2.7886 a share. The net debit is 1.30 a share. At expiry of the short dated put, the longer dated put will have 91 days left. Based on current share price, implied volatility, and prevailing interest rate, the long dated put will be worth 1.76 at that time. Over 47 days, that yields an estimated annualized return of 275%. I will be watching closely and closing early if the situation demands it.
Devour your prey raptors!