Weekly Trades With Yields Up To 99%

Markets were closed yesterday for President’s Day.

music selection: “Into The Night” — Benny Mardones

weigh-in:  212.0 +1.0 (Valentine’s Day dinner excess!)

I’m currently in a good place for this week’s expiries. Ten net debit spreads mature over the weekend and I expect profits of 3,280 on the positions that remain open. That is on about 21,000 capital at risk, so the return is substantial for the risk taken. I continue to buy two spreads each week, one bullish, and one bearish. The current strategy is to focus on names with low Beta, large capitalization, and a one month chart that confirms the direction of the trade. I also seek downside protection by going into the money.

My first trade is a bull call spread in Fiserv (FISV). The company is an 83 Billion market cap provider of fintech. It sports a low Beta of 0.79 and is unlikely to make any sudden moves during my holding period. I bought the 110/115 strikes bull call spread with 20MAR2020 expiry for a net debit of 4.65 a share.  The trade will be in force for about 32 days and will be worth 5.00 a share at that time unless shares fall past my downside protection of 6.21%. That will be good for 7.5% or 86% annualized. I’ll be following a 50% hard stop loss.

My other trade is a bear put spread in China Mobile Limited (CHL). The company is a 174 Billion market cap giant with a Beta of 0.83, similarly unlikely to FISV to make a sudden price move during my short holding window. I bought that 45/47.5 strikes bear put spread with 20MAR2020 expiry for 2.30 a share.  The trade has a duration of 32 days and will be worth 2.50 a share at expiry so long as the downside protection of 6.89% is not overcome. That yield would be 8.7% or 99% annualized. I will follow a 50% hard stop loss here as well.

Everything is back on track for my year to date trading to flip back to a strong profit. My new low Beta approach will necessarily generate lower absolute returns on each individual trade but should also have a much higher win rate. I hope to not have any more negative months like January, which was quite painful.