More market neutral net debit spreads.

music selection:  “My Hometown” — Bruce Springsteen (Happy birthday to the “Boss!”)

weigh-in:  205.0 +1.6

I have several positions that expired since the last update.  Shares of GM were assigned early on my bear put spread.  I closed out the shares and remaining long puts for a net gain of 458 dollars (out of 1,020 put at risk.)  My bull call spread in MTCH was threatened with one of the calls slightly out of the money so I closed early.  I booked 174 in profit on 3,157 capital at risk.  Bull call spreads in HDS and MSFT finished in the money over the weekend.  They earned 220 out of 1,280 at risk, and 430 out of 2,070 at risk, respectively.

I opened as new trades a calendar, a bear put spread, and a bull call spread.  Something will make money no matter what the market does and I’ll likely make money on all three positions.

First is a calendar spread in Pulte Homes (PHM).  I sold PHM191115P00035000 for 1.7355 per share an d simultaneously bought (using a combo order) PHM200117P00035000 for 1.1355 per share.  My net debit on the spread is 60 cents, putting just 60 dollars per spread at risk.  This is a low risk trade that even beginning options traders can do with limited capital.  According to the calculator at the CBOE, if all parameters stay the same between now and the expiry of the short put, the long put will be worth about 1.28.  That would yield a 113% return in 63 days or 657% annualized.

Next, I bet against Lyft (LYFT), the market share laggard in the ride hailing space.  Lyft has cut costs to the bone, alienated its drivers by cutting compensation, and is still losing money every quarter.  They can’t realistically catch UBER without cutting prices but they cannot afford to do so.  In addition, there is regulatory trouble on the horizon as the state of California wants to reclassify ride sharing drivers as employees rather than contractors.  This would radically increase Lyft’s costs.  I’m betting against the company but also hedging my bet with a spread that is in the money so I have some wiggle room if shares start to move against me.  I sold LYFT191115P00050000 for 6.586 per share and simultaneously bought (always use a combo order) LYFT191115P00052500 for 8.48 a share.  My net debit is about 1.89 per share.  This trade can be entered into with only 189 dollars in capital, great for beginning traders.  While it is possible to lose the entire 189 dollars if the underlying finishes above 50 dollars at expiry (employ a stop loss!), you also stand to make 32% over 54 days unless shares rise almost 11%.  That comes out to an annualized return of 218%.

Finally, I made a bullish bet on Oracle (ORCL).  Oracle is one of my favorite long ideas when it comes to options.  I like the “big cheap tech” names as they are mature slow moving businesses but still command a tech company premium in the options market.  The low volatility is simply mispriced by the market in my opinion.  I bought ORCL191115C00047500 for 6.40 per shares while simultaneously selling ORCL191115C00050000 for 4.15 a share.  My net debit is 2.25 per share and thus puts only 225 dollars in capital per risk per spread.  Unless the shares fall by more than 6.87% in the next 54 days, the full profit on the spread will be earned of 11.11% or 75% annualized.  This is a fantastic return on a sleepy stock with a solid balance sheet.

Devour your prey raptors!

Monday Trades With Yields Up to 657%

Never miss another opportunity to devour prey!

4 thoughts on “Monday Trades With Yields Up to 657%

  • September 25, 2019 at 1:45 am

    Under what conditions, if any, would you go full bearish/ defensive?

    • September 25, 2019 at 2:12 am

      I don’t think any. A market crash is rife with opportunities in the distressed debt space. I’ll be backing up the truck.

      • September 25, 2019 at 6:16 pm

        What if, for example, stocks rise 15% next year, led by tech unicorns, despite the yield curve remaining periodically inverted, consumer defaults starting to increase, and profits staying flat or falling?

        • September 25, 2019 at 11:46 pm

          I don’t see any probable scenarios where I’ll go full bearish with nothing that looks attractive. But I’m committed to remaining flexible including sitting the market out when necessary.


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