I have several long puts open as market hedges.

music selection:  “Groove Is In The Heart” — Deee-Lite

I keep about 2/3 of my portfolio in instruments with high yields, mostly closed end bond funds.  This generates enough passive income to ensure I can sit out the markets with my core budget covered.  I also like to  put 5-10% in hedges, usually long dated puts on flawed businesses with declining revenue and too much debt.

Cheesecake Factory (CAKE) is a household name but it has too much debt.  And its door traffic is highly dependent on regional shopping malls that are taking a beating from e-commerce giants including Amazon and Walmart.com.  On 25JUL2019, I bought two puts at the 40 strike and 15JAN2021 expiry for 4.24 a share.  I had an outlay of 848 dollars (a trivial amount for my portfolio size).  The plan is paying off thanks to CAKE continuing to struggle with door traffic and general market decline.  I closed today for 11.10 a share.

I took 1,372 in profits over 224 days which is good for 162% or 264% annualized.  Overall, my hedges are in the green by a small amount.  They provide for a lowered portfolio Beta and ease of mind during times like now when a potential viral pandemic spooks the markets.  I am also glad to have switched my options strategy to market neutral and in the money.  All of my open positions are doing well.

I got early assigned overnight on two positions: 10 contracts of EIX put spreads and 20 contracts of IBN put spreads.  Each was well in the money.  EIX is now closed out and IBN still has 14 spreads open.  I made 12% over 10 days on the early closed EIX puts or 430% annualized.  I made 9% over 24 days on the IBN spreads or 132% annualized.  I expect the month of March to have trading profits over 3,500 dollars even with sitting out trading this week.  With continued high volatility, I am likely to sit out the markets again next week.

Devour your prey raptors!

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Taking profits on CAKE puts

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