Monday Trades With Yields Up To 231%

Monday Trades.

music selection:  “Distant Early Warning” — Rush

weigh-in:  200.6 (1.2)

Multiple positions expired over the weekend. I’m just getting back into the swing of things after returning to Houston from Colorado last night. I will roll these positions tomorrow and report on the results Wednesday. CCJ, MIC, and ON all expired out of the money. DLB expired in the money and shares were called away. I will not re-enter a DLB position as I am raising cash between now and whenever the next market crash is to take advantage of distressed debt opportunities.

I set out this morning to make market-neutral trades in the form of one bull call spread, one bear put spread, and one calendar spread. The bull call spread was intended to by on the 8 and 9 strikes of Annaly Capital Management (NLY). This REIT has returned about 11% a year to investors for decades and is ridiculously cheap now (less than book value!) after cutting its distribution.  The company will be supercharged by a Fed rate decrease, which the markets are pricing in at a 100% chance. The options market apparently sees this as well as I couldn’t get the spread for 95 cents. I will be evaluating tonight slightly more aggressive, at the money spread, with 9 and 10 strikes.

For my bear put spread, I went with Tenet Healthcare (THC). This is a company I have LEAP long puts in and am up handsomely. The company is mismanaged and overly indebted. I was conservative by buying an in the money bear put spread. With shares trading at 17.57, I bought the 20/21 spread puts, leaving me well in the money and providing substantial protection if the shares begin to move against me. I sold THC190920P00020000 for 2.93 and simultaneously (with combo order) bought THC190920P00021000for 3.71. The spread price is a net debit of 78 cents. The trade will be in force for 60 days and, if shares decline, stay flat, or at least rise less than 2.43 will be worth one dollar at expiry. That is good for a return of 28.21% or 172% annualized.

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