Keeping my trading market neutral.

music selection:  “Not Enough” — Van Halen

weigh-in:  203.0 +2.4

First up is the rolling of an expired position. I have several covered call positions still open that I am trying to exit at the strike they were entered. This weekend, Weyerhauser (WY) expired out of the money. I sold fresh covered calls this morning in hopes of exiting and raising more cash for the imminent roll over of the credit cycle. I sold WY190906C00026500 for 25 cents a share. The trade will be in force for 40 days and yields an expected 8.61% on an annualized basis. The underlying yields an additional 5.35% if I am unable to exit the position.

I have three additional spread trades this morning. I’ll be targeting three spread trades each Monday going forward. One will be a bull call spread, another a bear put spread, and the final a calendar spread. The net positioning of the three trades is thus market-neutral as I try to position myself to earn income in any market scenario. The portfolio as a whole is far too long tilted for this late in the bull run and I am trying to remedy that by exiting long positions with covered calls.

United  Health Group (UNH) is a fat, slow-moving megacap with a Beta of 0.68. It is perfect for a calendar spread that earns money from time decay and not from movement of the underlying price. I sold UNH190906P00250000 for 4.86 per share and simultaneously (using a combo order) bought UNH191018P00250000 for 8.54 per share. The net debit for the spread is 3.68 per share and the spread will be open approximately 40 days. If share prices do not move, the spread will be worth about 4.90 at expiry of the short put. That is a yield of 25% or 192% annualized.

Next, I have an in the money bull call spread on Abbott (ABT). This is a company with a fat pharmaceutical pipeline and great margins. I bought ABT191115C00082500 for 7.64 a share and simultaneously (using a combo order) ABT191115C00085000 for 5.75 a share. The net debit for the spread is 1.89 a share and will be in force for about 110 days. Should ABT stay at the same price, appreciate, or decline less than 2.75 a share, the maximum profit of 32% will be earned or 107% annualized.

Finally, I have a bear put spread in TSLA. I think years of empty promises and weak cash flow is finally catching up with this story stock. I bought an in the money bear put spread to profit. I bought TSLA191115P00250000 for 34.14 a share and simultaneously sold (using a combo order) TSLA191115P00245000 for 31.21 a share. The net debit for the spread is 2.93 a share and the trade will be in force for about 110 days. Should shares decline, stay flat, or rise no more than 16.96 during the holding period, the maximum profit will be earned. That would be 71% or 234% annualized.

I feel good about the direction of my portfolio transitioning from leverage long to unleveraged market neutral. I am also glad to be raising cash to take advantage of distressed debt opportunities when the tide finally goes out and we see how many heavily indebted companies have been “swimming naked.” It is going to be a once in a market cycle opportunity to make superior returns with minimal risk.