Staying the course.

music selection:  “Space Age Love Song” — Flock Of Seagulls

weigh-in:  211.0 +1.0

I continue to make two weekly trades.  These are net debit spreads purchased in the money to position the portfolio for a high win rate.  The yields are still very strong.  One trade is bullish and the other is always bearish.  Thus, I am positioning myself market neutral.  Lately, I have focused on large cap stocks with low Betas.  This reduces the yield somewhat but makes surprise moves in the wrong direction unlikely.  Finally, I am doing the most rudimentary form of technical analysis by ensure my bet is consistent with the 30 day price trend.

My bearish trade this week is a bear put spread in ICICI Bank (IBN).  IBN has a 48 Billion market cap and a Beta of 0.75.  No sudden moves are expected.  With shares trading at 14.97, I bought the 16/17 bear put spread with 20MAR2020 expiry.  The trade will be in force for 40 days and I got pricing of 92 cents per spread.  I have 6.88% protection against an upside move (a big move for a low Beta mega-cap).  So long as that doesn’t happen, the spreads will earn 8 cents profit each at expiry for an 8.7% yield or 79% annualized.

My bullish trade is in Duke Energy (DUK).  DUK has an almost 70 Billion market cap and low-low-low Beta of 0.15.  I purchased the 90/92.5 strike bull call spread for 2.29 each.  The contracts are also on the 20MAR2020 expiry and have 40 days remaining.  I have 3.6% downside protection and fully expect to earn the full profit of 71 cents per spread at expiry.  That is good for 9% over 40 days or about 84% annualized.

These weekly trades only make up about a third of my allocation.  I continue to be heavily invested in closed end funds with substantial yields (purchased at a discount to NAV), individual distressed bonds, as well as high yield REITs and BDCs.  This income centric approach provides passive income equal to 98% of my spending in the previous year.

I think it is important if you are going to actively trade that you have passive income that covers your baseline spending.  If you are compelled to make a trade, you cannot wait for the fat pitches.  Sometimes the best trade you can make is NO TRADE.  Don’t be afraid to sit on the sidelines.  I’ve been fortunate to develop a system that provides good opportunities almost every week.  I will not force a trade however.  In extended periods of low volatility, you may see me sit on the sidelines rather than take a risk for a trivial potential return.

Devour your prey raptors!

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Weekly trades with yields up to 84%

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One thought on “Weekly trades with yields up to 84%

  • February 10, 2020 at 5:04 pm
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    Gogogo!

    Hey, didn’t you also short Ford a while back?

    Reply

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