I continue to position myself market neutral.
music selection: “It’s Not Love” — Dokken
weigh-in: 209.0 +0.2
The market continues to roar higher (today being a Wuhan Corona exception). At some point there will be a correction. I hope to be positioned to make money whether the market is going up or down. Thus, two weekly trades, one bearish and one bullish. I’ve tweaked the strategy again and am focusing on large caps with low Betas. This will probably result in lower average yields but less volatility and a higher win rate. I will continue to buy in the money for downside protection and have added a chart element. I will consult the one month chart to ensure my trade is on the right side of the trend.
Today’s bearish trade is in Conoco Phillips (COP). This is a 67 billion market cap monster. The Beta is higher than I like but the one month trend is downward. I bought a Bear Put Spread with 65 and 67.5 strikes and 21FEB2020 expiry. The trade will be in force for about 26 days and enjoys 6.12% protection against a share rally. Should I finish in the money, the earnings ratio will be almost 12% or 163% annualized.
The bullish trade takes me back to Zoetis (ZTS). The animal medicine behemoth has an almost 65 billion market cap and a 5 year Beta of 0.80. The short term chart is also in an uptrend. Everything is set up for an in the money bull call spread. So I bought the 125 and 130 strike spread with 21FEB2020 expiry. The trade will be in force for about 26 days and enjoys 4.43% downside protection against a share fall. Assuming this finishes in the money, the earnings will be 90 cents a share on 4.10 a share outlaid or 22%, which is 308% annualized.
I will take a loss this month on a TGT bull call spread but all other February expiries are on track to earn full profit.
Devour your prey raptors!