My trades (except for a special update coming next) for the week.

music selection:  “Cool Night” — Paul Davis

weigh-in:  208.8 (0.2)

Several net debit spreads expired over the weekend.  I couldn’t trade yesterday as the markets were (justifiably) closed for the MLK holiday.  I took some losses that are going to take my monthly trading totals into the red on a net basis.  February is looking better but TGT is underwater.  I’ll close tomorrow if the price doesn’t start to rebound.  I’ll be looking for more low Beta trades and slow moving mega caps for net debit spreads, especially the short bias trades.

Also expiring over the weekend were covered calls in MIC and IP.  Shares of MIC where called away adding a few hundred dollars in short term capital gains.  IP calls expired worthless so I wrote a new covered call for additional income while I wait for price recovery to call my shares and raise more cash.  I sold IP200221C00047500 for 57 cents a share.  The trade will be in force for 32 days and yields an expected 13.69% on an annualized basis.  Including distributions and options premiums, I am up 7.16% in IP since 12AUG2019.  That is actually a pretty decent return for an otherwise sleepy stock.  Still, I’m eager to exit the position gracefully and raise cash.

For my bullish net debit spread, I bought the 57.5/60 strikes of LEN at the 21FEB2020 expiry.  I took a net debit of 2.25 a share.  The trade will be in force for about 32 days and enjoys 6.61% downside protection.  Assuming shares do not fall more than that, the spread will earn 25 cents a share at expiry or 11%.  Over 32 days that is 127% annualized.  I like LEN for longs right now because it makes a lot of starter homes (a segment that its competition is largely ignoring) and serving the Millennials who are finally starting to buy real estate.  The company is also improving its balance sheet with a shift in strategy from buying and holding land on the balance sheet to securing rights with options.  The new way is a lot less capital intensive, reduces risk, and boosts returns.  Like my chances here.

For my bearish bet, I am buying an in the money bear put spread on Wal-mart.  I think WMT is a fine company for long term compounding but it meets my short term needs.  The market cap is large, the stock is slow moving, and the Beta is low.  The one month chart is also in a downtrend.  I’m going to increasingly go with the theme of “the trend is the trader’s friend” in an attempt to avoid some of the slip ups I had this month trades that turned against me.  I bought the 120/125 strikes bear put spread with 21FEB2020 expiry.  The net debit was 4.29 per share.  This trade will also be in force for 32 days and enjoys somewhat lesser 4.51% downside protection against a share rally.  I think that is a large amount for a mega cap to move in 32 days and feel pretty confident the trend is in my favor.  Unless shares rise by more than 4.51% by expiry, the maximum profit of 71 cents per share will be earned.  That is a cash on cash return of 17% or 189% annualized.

Devour your prey raptors!

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Weekly market neutral trades with yields up to 189%

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