MA and ORCL bull call spreads matured over the weekend for nice gains.
music selection: “Map Of The Problematique” — Muse
weigh-in: 207.4 +1.8
I continue to make two trades a week. One a bull tilted spread and the other a bear tilted spread. I buy these spreads in the money so that I earn maximum profit if the underlying stays flat and even if it moves against me several percent. I am doing this instead of writing covered calls to tie up less capital and to have high probability trades. I need to raise capital for the turning of the credit cycle when there will be ample opportunities to make a superior return in distressed bonds.
My bull call spread this week is in Tyler Technologies (TYL). TYL is a provider of software solutions to government entities. They have great margins, great recurring revenue, and are in a strong 6 month and 2 year uptrend. I bought TYL200117C00250000 for 39.55 dollars a share. I simultaneously sold TYL200117C00260000 for 30.55 a share. My net debit is 9 dollars, making the most I can lose per spread 900 dollars. The trade will be in force for 61 days and enjoys 9.40% protection against a downward move. The return is about 11 percent or 66% annualized.
My bear spread revisits a formerly profitable bear put spread in General Motors (GM). I consider the American automakers at risk. They have grown increasingly dependent on providing generous financing to subprime borrowers. They also have a large number of vehicles starting to come off lease. With credit standards tightening, revenue should be threatened. I sold GM200117P00039000 for 3.14 a share and simultaneously bought GM200117P00040000 for 4.00 dollars a share. That makes my net debit 86 cents a share and my maximum loss per spread 86 dollars. The trade will be in force for 61 days and enjoys 6.7% protection in a move upward by the underlying. The yield is 16% over 61 days or 97% annualized.
I continue to look for opportunities to exit my calendar spreads strategically. I will probably get out of TOT soon as it is showing a profit. A calendar spread in APD has moved far from the money and looks to be a loser.
Devour your prey raptors!