Market Neutral Trades With Yields Up To 134%

Staying the course.

music selection:  “Fat Bottomed Girls (Live)” — Queen

weigh-in:  209.0 +0.2

My spreads in HD, ROKU, and UBER are all out of the money. I will probably close them tomorrow and take my lumps. Most likely, January will be a month of negative options income. I’m also taking a beating on a synthetic short in TSLA.

This week’s bear put spread is in the Cheesecake Factory (CAKE). The company is dependent on mall based traffic for revenue and has a debt problem.  I like that the share price is otherwise stable and unlikely to surprise me the way ROKU and UBER have. I sold CAKE200320P00045000 for 5.90 a share and simultaneously bought (using a combo order) CAKE200320P00050000 for 10.63 a share. My net debit is 4.73 a share and the trade will be in force for about 68 days. I enjoy 14.21% protection against an upward move in share prices. Otherwise, the spread will have 27 cents of profit per share at expiry for a 5.71% return or 31% annualized.

My bullish play is in Twitter (TWTR). The company has surprised me by turning profitable and producing a lot of free cash flow. It is a grow story that is reasonably price and still cheaper than GOOGL. The company should see increasing traffic as the election cycle ramps up. I bought TWTR200320C00028000 for 5.456 per share and sold TWTR200320C00029000 for 4.656 per share. My net debit is 80 cents per share and the trade enjoys 11.29% downside protection.  With the trade in force for about 68 days, the 20 cents in profit at expiry will yield 25% or 134% annualized.

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