I continue to trade market neutral with my options positioning.
music selection: “Oh No” — The Commodores
weigh-in: 209.0 +2.0
With the market at all time highs and political challenges on the horizon, I am trading market neutral. Each week I open two new options trades. One is bearish and one is bullish. I open both of these net debit spreads in the money so I have some protection if the underlying makes a move against me.
First is a bull call spread in Target Stores (TGT). The initial retail intelligence for the Christmas shopping season is Amazon is the big winner with omni-channel retailers like Target and Wal-mart a close second. I bought TGT200221C00115000 for 13.088 a share and simultaneously sold TGT200221C00120000 for 9.346 a share. My net debit is 3.742 a share and the trade is expected to be in force for about 82 days. I enjoy 4.01% protection against a downside move and expect the spread to be worth 5.00 a share at expiry. Against my cost basis of 3.742, that is a 34% return or 150% annualized. Only a sudden shift in consumer sentiment can derail this trade.
I also am opening a bear put spread in Uber (UBER). I have a long dated put for a long term trade but want some short term exposure for income as well. I sold UBER200117P00032000 for 3.25 a share. I simultaneously (using a combo order) bought UBER200117P00033000 for 4.05 a share. My net debit is 80 cents a share and my max loss is 80 dollars per spread. The trade will be in force for about 47 days and enjoys 7.60% protection against a move north. Against my cost basis of 80 the 20 dollars in expected profit is good for a 25% return or an impressive 194% annualized. Uber continues to burn through cash and is engaged in a margin squeezing price war with competitor Lyft. Both companies will be losers of that price war.
Wal-mart stores reported good Black Friday sales but my long calls are not performing as expected. They and Amazon are expected a strong Cyber Monday so I’m going to hold both calls one more day to see if I can turn a quick profit, else cut my losses and run.
Devour your prey raptors!