I’m going with a bear put spread in HRL.
music selection: “Kids in America” — Kim Wilde
weigh-in: 215.0 +1.4
Several positions expired over the weekend. I had to take a loss on CL on Friday. I booked 1,724 short term loss which was about 43% of capital at risk for 33 days. I made 50% over 68 days on KO as the bull call spread expired in the money. A bull call spread in BRK-B earned 33% over 47 days. A bear put spread in PEP earned 11% over 40 days. And bull call spread in MTCH earned 116% on capital at risk over 26 days (an astounding 1,629% annualized return.) Additionally, I earned 1,348 in premiums on short puts and calls that expired out of the money.
A Wells Fargo short put expired out of the money. The shares have rallied further than I’d like to continue chasing the trade so I’m letting that one go. A strangle in NLY expired out of the money and I like that trade at current pricing. I sold a covered call on my NLY shares at the 8 strike for 16 cents a share (26 days till expiry) which is good for an expected 28.08% annualized. At the same time I sold short puts on NLY at the 7.5 strike for 12 cents a share (39 days till expiry) which is good for an expected annualized return of 14.97%.
Finally, the core trade of the week is 18 bear put spreads set in the money on Hormel Foods (HRL). This is a mature company and dividend aristocrat that usually moves very slowly. I bought the 52.5/55 spread with shares trading at 50.13. That gives me 4.73% protection from a move in share price against me. I’m using the 15JAN2021 expiry which is 54 days out. I got average pricing of 2.0822 per share. That puts 3,748 capital at risk. Should my downside protection not be breached, I will earn the full profit at expiry of 752 dollars. That is good for 20% return over 54 days or 136% annualized.
Of interest are two positions at risk. A bull call spread in BABA in out of the money and needs to rally almost 10% to get back into profit range. A bear put spread in DOV is still in the money but has only 1.02% protection left against a continued rise in price. Finally, I should be able to roll my long dated long puts in VXX soon. I have the 18 strike and the spot price is approaching that. I’ll probably roll around 17 and I expect 1,785 in profit at that time.
Devour your prey raptors!