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!

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Market neutral trading with yields up to 97%

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3 thoughts on “Market neutral trading with yields up to 97%

  • November 19, 2019 at 4:42 pm
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    I consider Ford to be weaker than GM. The decision to put the Mustang name on a crossover SUV is their “new coke” moment and probably represents the quality of other decisions.

    Reply
    • November 20, 2019 at 3:27 pm
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      I kind of like the decision to put the Mustang name on their EV (disclosure: I drive a Mustang and have a small position in F). Here’s why:

      Ford recognizes that electric cars are luxury/performance cars. Maybe some day they’ll be mass market, but they’re not now. It’s smart to tie their first steps in EV with their performance segment, instead of going for the low-end as GM did with the Bolt. They’re positioning it to compete with Tesla and not with the Leaf and Bolt.

      The risk is that it waters down the Mustang brand. If Mustang is all about loud sound and ICE, then maybe it’s a bad decision. Personally, I bought my Mustang when I finished college because I wanted an inexpensive performance car and I liked the styling.

      But you’re right, Ford is probably weaker than GM. I just don’t think that the Mustang EV decision is indicative of desperation.

      Reply
      • November 21, 2019 at 7:30 pm
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        It probably will sell just fine, but the decision to break up a 65 year old brand’s identity won’t contribute anything to that. Ford has retired the names of most cars it has ever produced, and for good reason – except the mustang. My guess is they are stopping production of the sports car and said why not.

        Reply

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