Two new trades.

music selection:  “Numb” — Linkin Park

weigh-in:  210.0 +1.0 – Super Bowl overindulgence!

I continue to buy two spreads per week.  One bearish and one bullish.  I want to be increasingly positioned to profit whether the market goes up or down.  Recently, I tweaked the strategy to focus on low Beta mega caps and to consult the one month trend chart to ensure I am not “fighting the tape”.

This week’s bear put spread is in Simon Property Group (SPG).  The company has a market cap of almost 41 billion dollars and a Beta of 0.52.  It is unlikely to make large moves either up or down, even after reporting earnings.  The one month price action is downward and I’m betting on more of the same or at least a tepid recovery in the short term.  I bought the 145/150 strike spread with 20MAR2020 expiry.  I paid a net debit of 4.55 per share.  The trade will be in force for about 47 days and has 8.69% downside protection against a share rally.  Assuming that doesn’t happen, the spread will be worth 5.00 per share at expiry for profit of 45 cents per share.  That is a little less than 10% or 77% annualized.

My bullish spread is in restaurant giant McDonald’s (MCD).  The company has a 162 Billion market cap and a Beta of only 0.45.  Large surprise moves are highly unlikely.  And the one month price action confirms a bullish bet.  I bought the 205/207.5 bull call spread for 2.30 per share on the 21FEB2020 expiry. The trade will be in force for about 19 days and enjoys 3.68% protection against a share decline.  That would be a pretty big three week move for the Golden Arches.  Assuming that doesn’t happen, the spread will be worth 2.50 at expiry for an almost 9% gain or 167% annualized.

Should my remaining February expiry spreads finish as planned, I will flip to a net profit on debit spreads for the year.  I think the new low Beta mega cap strategy will do better than trying to guess the price direction and timing of more volatile tickers.  It should lead to a high percentage of wins.

Devour your prey raptors!

 

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