Continuing to make a basket of market neutral trades weekly.

music selection:  “Never Gonna Let You Go” — Sergio Mendes

weigh-in:  207.6 (1.4)

I continue to buy one bull call spread and one bear put spread weekly.  I buy these in the money.  That reduces my profit potential some but increases my odds of a profitable trade if the underlying starts to move against me.  I earlier was also buying at the money calendar spreads hoping to profit from time decay on big, fat, slow moving mega caps but recent market volatility made those trades roughly break even.  I have one calendar still open in TOT and am trading to close it for a nickle a share profit today.  In the meantime, I will continue to trade conservatively while raising cash to deploy in distressed bonds when the credit cycle turns.

My bullish trade this week is in drug maker Amgen (AMGN).  The company has a fat drug pipeline and is in a nice recent uptrend.  I bought AMGN200117C00215000 for 20.88 a share and simultaneously sold AMGN200117C00220000 for 16.395 per share.  My net debit is about 4.49 and the trade will be in force for about 40 days.  I enjoy 5.92% downside protection against a move in the wrong direction.  The return is about 11% over 40 days or 98% annualized.

My bearish trade this week is in mall based retailer Nordstrom (JWN).  The heirs of Mr. Nordstrom previously were trying to take the company private at 35 dollars a share.  That was putting support under the shares but the family no longer appears to consider the franchise worth 35 dollars a share.  Mall traffic is falling.  JWN is maintaining sales but at the expense of falling margins.  Shares trade for a premium to the mall based retailer sector and are certain to fall without a knock it out of the park Christmas season which is unlikely with mall traffic being reported at down 7%+ this season so far.  I sold JWN200117P00042500 for 4.88 a share and simultaneously bought JWN200117P00045000 for 7.1125 a share (using a combo order).  My net debit is about 2.23 a share and like above, the trade will be in force for 40 days.  The return is a little over 12% over that 40 days or 110% annualized.  The trade also enjoys 9.11% protection against an upside move in the underlying.

I have some year end clean up to do with PTON and a synthetic long position in ROKU.  I’m trying to use up the rest of my unapplied capital losses from last year’s tax return.  The move will also raise cash and eliminate my cash margin loan.  The loan is trivial in size but still a drag and a thorn in my side when I want to have latent cash to deploy in the inevitable crash.

Devour your prey raptors!

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Monday trades with yields up to 110%

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2 thoughts on “Monday trades with yields up to 110%

  • December 9, 2019 at 5:48 pm
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    I like these themes. Short physical retail, long biotech monopolists.

    Speaking of shorts – Have you seen the Detroit Free Press story about how Ford covered up severe transmission problems with the Focus and Fiesta? It’s the Pinto scandal all over again. Yet the stock sports a 22.5 PE ratio.

    Reply
    • December 10, 2019 at 5:52 pm
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      Hadn’t seen the Ford scandal. I do have long dated puts open as a long term hedge. GM too.

      Reply

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