Weekly trades.

music selection:  “Rusted Wheel” — Silversun Pickups

weigh-in:  205.2 +2.0

First up is the reporting on an incident of your Lizard King stepping in brontosaurus sp. poo. My calendar spread in United Healthcare (UNH) moved against me in last week’s market volatility. I ended up with my puts deeply in the money and my advantage eroded. I originally opened the position on 29JUL2019 for 3.6867 per share. I closed today with a 2.70667 credit per share or a 98 cent per share loss. Across three contracts that is a loss of 294 dollars on 1,106 put at risk, which is a 26.58% loss. Remember that the net debit is the most you can lose on a debit spread. And these trades have much less capital at risk than a covered call trade.

I opened a calendar spread in Coca-Cola (KO). I’m going to assume this company needs no introduction and is widely recognized as a safe and slow moving mega cap. It is ideal for a calendar spread with its low Beta. I sold KO191018P00055000 for 1.8988 per share while simultaneously (using a combo order) buying KO191115P00055000 for 2.3188 per share. The net debit on the spread is 42 cents. The trade will be in force for about 54 days and the long put will be worth approximately 1.44 if nothing changes between now and the short put expiry. That is a 243% expected return or 1,641% annualized. The most I can lose is 1,008 and I might gain up to 2,448 in profit.

I also opened a bull call spread in Waste Management (WM). I have traded covered calls in this ticker before and done well. Today, I’m taking a smaller position and pairing it with a calendar put and bear put spread to position myself as market neutral. I plan to profit whether the markets continue to rally, decline rapidly, or even trade sideways. I bought WM191018C00105000 for 12.145 a share and simultaneously sold (using a combo order) WM191018C00110000 for 7.695 per share. The net debit on the spread is 4.45 and is expected to be in force about 54 days. So long as shares do not fall more than 6.02% in the next 54 days, I will earn the maximum return of 12.36% or 83.54% annualized. I cannot lose more than 2,670, which is much better than the almost 12,000 that would have to be put at risk to write a covered call.

Finally, I opened a bear put spread in Interpublic Group (IPG). This is an old line advertising agency that is taking it on the chin. They engage in traditional advertising and have failed to adapt to the internet. It is too late to try to catch up with the big players in online advertising, their moat is too wide. I expect the company to continue a slow decline. I am thus buying an in the money bear put spread to profit. I sold IPG190920P00021000 for 1.5866 per share while simultaneously buying, with a combo order, IPG190920P00022000 for 2.4477. The net debit is 0.8612 per share and the spread will be in force for about 54 days. So long as the shares do not rise more than 5.32% over the next 54 days the spread will be worth 1.00 per share at expiry. That is a 16.12% return or 109% annualized. The most I can lose is 2,670 (coincidentally same position size as above – not a typo). Whereas, I will likely profit 430 dollars in the 54 day period.

I continue to write covered calls on my existing long positions in an attempt to exit gracefully while raising cash to deploy in distressed bonds when the cycle turns. In the meantime, I will position myself in fixed income and market neutral options trades to keep earning income while I wait for an inevitable crash.