Bear put spread in PEP.
music selection: “She’s So Fine” — Thunder
weigh-in: 217.8 (1.6) – more like it!
I’m taking a more cautious approach with the presidential election approaching. First, I sold three leveraged long positions. I had deep in the money long dated calls on KRE, SLV, and ULTA. I cashed those out today for gains of 375, 1,260, and 260, raising some cash and taking some risk off the table.
I’m going with an in the money bear put spread on Pepsico (PEP) for this week’s spread. I have good downside protection and if the market tanks, the spread will do even better. With shares trading at 140.15, I bought the 150/155 bear put spread with 20NOV2020 expiry for 4.50 a share net debit. The trade will be in force for about 40 days and is expected to earn about 11% over that time or 101% annualized. I enjoy 7.38% protection against a move up in share price before break even on the trade. That would be a pretty remarkable move up for a mature company like PEP in 40 days so I think I should do well.
Anytime you can double your money with good downside protection, I think you have to take the trade. Buying spreads lets me play both ends against the middle to limit my risk and lower my position size. It also allows for strong returns with downside protection. I’ll still be writing covered calls – selectively – as the pandemic goes on but I’ll primarily be buying spreads.
In addition, I have a limit order open to sell my VXX puts at 10.00 a share. That would represent a 48.87% annualized return. I’m not going to chase the bid lower, the trade should close within a week or so either way at a good profit percentage. I’ll be rolling down and out once the trade clears market. I’ll detail in a separate post when that happens.
Devour your prey raptors!