My weekly trades.

music selection:  “Lady” — Lionel Ritchie

weigh-in:  202.8 (2.2)

I’m a day late because a position I had great hopes for (a bull call spread in CBRE group) did not get an attractive fill.  I have a substitute BCS that I filled today.

First some closed positions.  My  bear put spread in CONN moved against me strongly when the retailer reported excellent same store sales.  The spread went out of the money and I close for a 1,521 dollar loss.  I still believe in the short CONN thesis as it appears to me those improving sales numbers are on the back of extending credit to people who shouldn’t have it.  I continue to hold a long dated put.  My calendar spread in BRK-B was performing poorly as shares moved away from my strike.  I closed early for a 194 gain.  Shares of WY were called away.  I will not be re-establishing a WY position as my goal with all remaining covered call trades is to exit to raise cash.  A calendar spread in BMY has moved against me and I closed early for a 294 loss.  I closed my JNJ calendar spread early for a 161 gain.  Finally, I closed an NVO calendar spread early for a 201 dollar gain.

On Monday, I opening a calendar spread in PepsiCo (PEP).  This is a slow moving megacap with low Beta and is perfect for a calendar spread.  I sold PEP191025P00135000 for 2.9567 per share while simultaneously (using a combo order) buying PEP200117P00135000 for 5.3167 per share.  My net debit is 2.36 per share and the trade will be in force about 47 days.  Assuming shares do not move from here, the long dated put should be worth about 4.40 at expiry of the short dated put.  That is a 86% gain in 47 days or 671% annualized.

I also bought a bear put spread on Monday in Tenet Healthcare (THC).  This is a hospital operator with crushing debt and declining sales.  I have bought BPS on it before.  I sold THC191025P00022000 for 2.2531 and, using a combo order, simultaneously bought THC191025P00023000 for 2.9531.  My net debit in the spread is 70 cents per share and the trade will be in force about 47 days.  If both strikes finish in the money, I’ll earn 30 cents per share in profit on 70 cents at risk.  That is a 42.85% return over 47 days or 333% annualized.

Finally, I substituted today a Bull Call Spread in Mastercard (MA) for the spread I could not get filled in CBRE.  I bought MA191115C00260000 for 23.175 per share while simultaneously (using a combo order) selling MA191115C00265000 for 19.595 per share.  My net debit in the spread is 3.58 per share and the trade will be in force about 67 days.  If both strikes finish in the money at expiry, the full 5.00 per share will be collected.  That is a 39.67 return in 67 days or 216% annualized.  This return is expected to be earned even if the underlying price moves against me by up to 3.95%.

All of these spreads have been entered in the money.  This gives me the maximum chance to earn the full potential of these spreads while securing some downside protection against prices moving against me.  Some traders like to swing for the fences with out of the money net debit spreads.  Don’t do it raptors!  I had a PhD professor of Finance in grad school who liked to say “Daddy always said” (I’ll note here ‘Daddy’ was also a PhD professor of Finance from West Texas) “Bulls and Bars both make money, but hawgs always get slaughtered.”  The lesson is don’t get greedy.

I’ll be back tomorrow with a lesson, by request, on what to do if the short leg of your net debit spreads (bull call, bear put, calendar) are assigned early.  Short version is don’t panic.  You are hedged!

Devour your prey raptors!

Net debit spreads with returns up to 671%

Never miss another opportunity to devour prey!

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