Only one trade this week.

music selection:  “Love/Hate Heartbreak” — Halestorm

weigh-in:  203.4 +0.6

First things first, a position in TCH (Bear Put Spread) moved strongly against me.  The company is still a dog but the market loves some recent moves to spin off a division and raise cash.  I went from my spread being well in the money to it being well out of the money.  I sold my long put for what I could get (71 cents – paid 2.9531) and booked a 7,851 short term capital loss.  I have left the well out of the money short put ride.  Unless the price goes over 12% in the wrong direction (against the trend!) in 39 days, I will earn 7,886, thereby turning a near complete loss into a narrow gain.

I attempted a Bear Put Spread in Ford (F) today.  I was not able to get an attractive fill.  I also attempted a Bull Call Spread in Quest Diagnostics (DGX) and could not get a fill there either.  I report these “failures” to make an important point.  You want to have enough passive income from dividends, distributions, and interest in early retirement that you can afford to NOT trade.  Some times the market isn’t offering up anything attractive.  If you have to reach and make a bad trade to put food on the table, I promise that will end badly for you.  Sometimes, you best trade is NO trade.

As for HSBC, I sold HSBC191101P00039000 for 1.542 per share and simultaneously bought (using a combo order) HSBC191220P00039000 for 1.832 per share.  The net debit on the spread is 29 cents and the trade is expected to be in force around 49 days.  The CBOE options calculator estimates that if market conditions and the pricing of the underlying remain unchanged, the long put will be worth about 1.37 at the expiration of the short put.  That is a 372% return in 47 days or about 2,774% annualized.  I will likely close a few days before the expiration of the short put to reduce risk and maximize profits.

Devour your prey raptors!

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HSBC Calendar Spread With Expected Return of 2,774%

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6 thoughts on “HSBC Calendar Spread With Expected Return of 2,774%

  • September 17, 2019 at 8:43 am
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    Hello,

    I notice that your neutral calendar spreads are always opened with ATM or ITM options. In this way you increase your chances of gain.

    What do you think about OTM neutral calendar spreads? Are they dangerous? Can they suffer very much if the underlying moves far from strike?

    In the case of movement against strike, I suppose it is relatively easy rolling down the long option and convert the calendar spread in a bear/bull spread.

    Even with an OTM calendar spread made with calls, if the underlying falls, the (expected) volatibility increase could convert still the position in a winner, giving th possibility of closing with gain.

    What am I missing?

    Regards.

    Reply
    • September 17, 2019 at 2:06 pm
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      Time value is highest as a percentage of the underlying at the money. I’m picking the closest to the money strike available for that reason. With less time value on your short leg, you have less opportunity to take advantage of time decay. With a calendar, the ideal situation is you close with the underlying one penny in the money. You have it right that if the position moves against you, you might be able to convert to bear/bull spread. I haven’t seen a good opportunity to do that in my experience though.

      Thanks for reading!

      Reply
  • September 17, 2019 at 12:32 pm
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    I’ve backed away from options trading, but have been tempted to get back into it. I see you’ve been doing a lot of calendar spreads recently. Do you feel that those are more of your “bread and butter” or is it just that’s what opportunities the markets are offering up more?

    Reply
    • September 17, 2019 at 2:03 pm
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      I try each Monday to open a calendar, a bear put, and a bull call. I couldn’t get fills yesterday on the bear/bull. Calendar is what the market is giving up.

      Reply
  • September 17, 2019 at 3:08 pm
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    Since you started the bull/bear/calendar strategy, what has been the success percentage of each strategy?

    Also, it seems that if vol rises and stocks fall, both the bull spread and the calendar spread would take a hit, but if stocks rise and vol stays low the bear spread and calendar spread would be hit. Is it fair to say you’ll win once and lose twice if the market moves in any direction? And all 3 positions generally win if the market goes nowhere?

    Reply
    • September 17, 2019 at 9:00 pm
      Permalink

      I’d have to do a study to get the individual success rate. My guess is Bull Call has been highest followed by Bear Put and Calendar last. But the size of the wins has been largest on Calendar.

      Losing two out of three in the event of a big volatility event would certainly be true if all three spreads were on say SPY and at the money. I am selecting stocks with usually lower Beta than the market, especially on Calendars. And the Bull/Bears are in the money so I have some downside protection of several percent against a negative move. For the Calendars, I’m using mega caps over 50 Billion in size and very low Betas. It is unlikely they will make a large move in a short period of time unless the market completely tanks, in which case my long put hedges should theoretically kick in.

      But if the broad market goes nowhere? I certainly expect to win on all three positions. In fact, I expect to win so long as the broad market doesn’t go completely wild.

      I’ll do the study on what works and doesn’t but not today. I’ve only been at this a few months and I think the strategy needs more time to play out before drawing a conclusion.

      Reply

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