Spreads in LNG and ADM.
music selection: “Fight For The Rock” — Savatage
Following the long running theme of buying in the money bear put spreads on aristocrats, I have a BPS in Archer Daniels Midland (ADM) this morning. ADM is an agriculture and agricultural goods super star with 45 years of consecutive distribution raises. It is the definition of slow moving and perfect for this strategy. With shares trading at 52.99, I bought the 56/60 strikes bear spread for 3.645 a share and 19FEB2021 expiry. The trade will be in force for about 32 days and enjoys 5.68% downside protection. Should that protection not be breached, the spread will be worth 4.00 a share at expiry. Across 10 spreads I would earn 355 dollars against 3,645 at risk. That is good for 10% or 111% annualized.
Breaking with the theme, a have a macro play. I noted several articles on Yahoo! Finance regarding prices for natural gas rising in Europe and Asia and improving pricing for LNG cargoes. I immediately thought of Cheniere Energy (LNG). The chart shows a strong uptrend and the RSI is still in the low 60’s indicating the rally has legs to run. I’m going with an at the money bull call spread. With shares trading at 66.70, I bought the 62.5/67.5 BCS spread with 19FEB2021 expiry for 2.3324 per share. I have 17 spreads which will be in force for about 32 days. I need the price to rise 80 cents or 1.20% to earn the full profit on this spread. The uptrend is continuing today and I feel good about my chances. Should shares finish above 67.50, I will collect 4,535 on 3,965 capital at risk. That is a 114% return or 1,305% annualized.
Devour your prey raptors!