This week’s primary trade is in Pepsico (PEP).

music selection:  “I want you (she’s so heavy)” — The Beatles

weigh-in:  217.6 +1.8

The market continues to march steadily higher despite many headwinds.  I continue to position myself defensively to take advantage of inevitable volatility pull backs along the way.  My trade this week is in Pepsico (PEP).  PEP is a dividend aristocrat and a fully mature company in its cash gushing stage of life cycle.  It’s stock should move slowly.  With shares priced at 147.36, I bought the 155/160 strikes bear put spread with 19FEB2021 expiry for 4.15 a share.  The trade will be in force for about 54 days.  I enjoy 5.18% protection against an upward move in price before my profit is threatened.  Should shares finish below 155, the full profit of 85 cents a share will be earned.  Across 9 spreads that would be 765 dollars against 3,375 put at risk or 20%, which is 138% annualized.

Short puts in Annaly (NLY) expire on Thursday.  They are safely out of the money as of this writing.  Should that continue, I’ll book 444 in profit on the trade before the week is out.  I don’t expect any additional trading action.  I’d like to roll VXX but I don’t think it will get into target range before the year ends.

Devour your prey raptors!

Bear Put Spread PEP with 138% yield

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3 thoughts on “Bear Put Spread PEP with 138% yield

  • January 7, 2021 at 4:41 pm
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    Mr Lizard King, do you anything special around the expiry date? Do you sell the spread a day before expiry? What if the other side exercises the PUT that they have bought? Many thanks for helping a noob out 🙂

    Reply
    • January 7, 2021 at 10:46 pm
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      FFC,

      I close a few days before expiry only if the spread has threatened profitability. If it is well in the money, I let it ride. Early assignment sometimes happens. It means you are in the money though and thus fully hedged. once you get the notification from your broker, you can unwind the hedge for early profit. Theoretically, there should be some time value left in the trade that you can pick up an extra few cents a share in profit. I find it is hard to get the market maker to give up those few pennies and usually just exercise my long puts to close out the trade. You can also close by exercising your long puts during after hours. You don’t need the market to be open and for me that is a commissionless exchange.

      Thanks for reading!

      Reply
      • January 8, 2021 at 8:56 am
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        Many thanks for the kind reply, very useful.

        Reply

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