Market Neutral Trades With Yields Up To 170%

Staying market neutral.

music selection:“Rumors” — Timex Social Club

weigh-in: 209.0 +1.4
I am still trying to exit some old covered call trades gracefully.  ON, IP, and MO are likely to be called away on the 20th.  I am also closing some net debit trades early when I can secure most of the spread while taking risk off the table.  To that end, I closed DHI bull call spread early today at 95 cents on the dollar.  I earned 130 dollars on 820 in capital at risk.  The trade was in force for 63 days and yielded 92% annualized.

My bullish spread this week is Delta Airlines (DAL).  I traded DAL before around June.  The company is transforming itself into a premium carrier that is preferred by business flyers.  Margins and profits are up and planes are full.  I bought DAL200320C00050000 for 8.342 per share and simultaneously sold (using a combo order) DAL200320C00052500 for 6.158 per share.  The trade will be in force for about 96 days and has a net debit of 2.184 per share.  The spread will be worth 2.50 per share at expiry unless shares fall by more than 7.46% (my downside protection.)  That provides a yield of 14 percent or 55% annualized.

My bearish spread is in mall based retailer Dillard’s (DDS).  Year over year mall traffic for the Christmas season to date is down.  DDS is likely to feel some pain as a result.  I sold DDS200221P00075000 for 10.273 per share while simultaneously buying DDS200221P00077500 for 12.173 per share.  My net debit 1.90 per share (and most I can loose per spread is $190).  The trade will be in force for 68 days and enjoys 7.98% downside protection while sporting a yield of 32% or 170% annualized.

It is the time of year to make some decisions that are driven by tax considerations.  I have already moved 13,000 from tIRA to Roth to maximize my ACA subsidy.  At the same time, I have some retained capital losses from last year related to the year end volatility event where I was caught over leveraged.  I will be looking to use those up and exit the year a few hundred dollars over break even on capital gains/losses.  This move will also raise additional cash and put me in a good position to capitalize when the credit markets turn and reveal tasty distressed bond opportunities.

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