One more Bull Call Spread and Bear Put Spread pair.
music selection: “Pump Up The Volume” — M|A|R|R|S
weigh-in: 208.8 (0.2)
With the bull market long in the tooth and the market at all time highs, I am positioning myself market neutral with new trades. I achieve this by making two weekly trades, one bullish and one bearish. My net debit spreads are entered well into the money to ensure that I can still earn maximum profit even if the underlying shares move against my by several percent. This is a low risk way to earn consistent profits on small positions. The portfolio is still anchored by a heavy allocation to fixed income including Closed End Funds bought at a discount to NAV with the underlying securities in bonds and bond like instruments, and distress bonds. The goal is to produce sufficient income to maintain my lifestyle on a small portfolio while preserving capital and defending against the next big recessionary cycle.
I’ve made some easy money by buying Bear Put Spreads on General Motors (GM). The company is saddled with debt, hostile employees, and is dependent on sub prime lending for a large portion of its revenue. The company is due for a reckoning but trades in a stable range most of the time making it a good candidate for the in the money approach to spreads. I sold GM200320P00040000 for 4.55 a share and simultaneously (using a combo order) bought GM200320P00041000 for 5.45 a share. The net debit is 90 cents and the trade will be in force for about 75 days. The trade enjoys 11.61% protection against a rally in share price. Failing that, the max profit will be earned in 75 days for a return of about 11% or 54% annualized.
I also made a Bull Call Spread trade in Adobe (ADBE). The software maker supports fat margins and slow but steady growth. It scales well and should continue a slow share price climb and I have to say I like the technical chart. I bought ADBE200320C00305000 for 33.42 a share and sold ADBE200320C00310000 for 29.54 per share yielding a net debit of 3.88 per share. The trade will be in force for about 75 days and enjoys 7.10% downside protection against a decline in share price. Otherwise, the spread will be worth five dollars a share at expiry for a profit of 29% percent or 140% annualized.
My HD and ROKU bull call spreads are in jeopardy. HD has until 17JAN2020 to rally 3.88% or suffer a capital loss. ROKU (also on the 17JAN2020 expiry) is currently in a profitable place but only has 0.09% to give up before moving into the red. For now, I am going to hold and hope the slow rebound off the recent lows for both of these stocks continues. All other net debit spreads are on pace to earn their maximum profit at expiry.
Devour your prey raptors!