Markets were closed yesterday for President’s Day.

music selection:  “Into The Night” — Benny Mardones

weigh-in:  212.0 +1.0 (Valentine’s Day dinner excess!)

I’m currently in a good place for this week’s expiries.  Ten net debit spreads mature over the weekend and I expect profits of 3,280 on the positions that remain open.  That is on about 21,000 capital at risk, so the return is substantial for the risk taken.  I continue to buy two spreads each week, one bullish, and one bearish.  The current strategy is to focus on names with low Beta, large capitalization, and a one month chart that confirms the direction of the trade.  I also seek downside protection by going into the money.

My first trade is a bull call spread in Fiserv (FISV).  The company is an 83 Billion market cap provider of fintech.  It sports a low Beta of 0.79 and is unlikely to make any sudden moves during my holding period.  I bought the 110/115 strikes bull call spread with 20MAR2020 expiry for a net debit of 4.65 a share.  The trade will be in force for about 32 days and will be worth 5.00 a share at that time unless shares fall past my downside protection of 6.21%.   That will be good for 7.5% or 86% annualized.  I’ll be following a 50% hard stop loss.

My other trade is a bear put spread in China Mobile Limited (CHL).  The company is a 174 Billion market cap giant with a Beta of 0.83, similarly unlikely to FISV to make a sudden price move during my short holding window.  I bought that 45/47.5 strikes bear put spread with 20MAR2020 expiry for 2.30 a share.  The trade has a duration of 32 days and will be worth 2.50 a share at expiry so long as the downside protection of 6.89% is not overcome.  That yield would be 8.7% or 99% annualized.  I will follow a 50% hard stop loss here as well.

Everything is back on track for my year to date trading to flip back to a strong profit.  My new low Beta approach will necessarily generate lower absolute returns on each individual trade but should also have a much higher win rate.  I hope to not have any more negative months like January, which was quite painful.

Devour your prey raptors!

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Weekly trades with yields up to 99%

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2 thoughts on “Weekly trades with yields up to 99%

  • February 21, 2020 at 3:04 pm
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    Have you considered selling puts on TLT, or using puts and calls to hop in and out? The benefit would be placing a long bet on a bond fund to offset some of your long options exposure in equities. If a stock correction came along, you’d have some money in a different market. TLT could certainly tank, but in that scenario your allocation of equity options and high yield debt could be doing the opposite. Meanwhile, the volatility of TLT is sufficient to pump up option prices.

    Reply

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