Two new trades with a market-neutral effect.

music selection:  “Die With Your Boots On” — Iron Maiden

weigh-in:  205.6 (0.6)

I continue to look for opportunities to exit my calendar spreads strategically. The market is in a strong uptrend and probably develops a Santa Claus rally into the last two months (I’m already seeing heavy foot traffic at malls, Wal-Mart, and Sam’s Club.) I intend to stay market neutral however due to high valuations with one bull spread and one bear spread.

For my bull spread, I like the financial sector for the recent Fed rate cut and the technical chart setup. I’m trading a double levered ETF (UYG). To that end, I bought UYG191220C00046000 for 4.5492 a share and simultaneously sold UYG191220C00047000 for 3.67 a share. My net debit is 87.92 cents per share and the trade will be in force for about 40 days. That is good for a 14% return or 125% annualized. The trade also enjoys a 5.62% downside protection against a move in the underlying in the wrong direction.

For my bear spread, I am going back to Hertz (HTZ). The rental car companies are in my opinion a leveraged bet on the used car market.  With millions of vehicles coming off lease and rising delinquencies in subprime auto lending, I see a soft market for used cars. At the same time, HTZ is seeing increasing pressure from ride sharing services. I have a long term bet against this company with a long date put but want some short term exposure as well. So I bought HTZ200117P00019000 for 2.8945 per share while simultaneously selling HTZ200117P00018000 for 2.1215 per share. The trade will be in force for about 68 days and has a projected ending value of one dollar per share. Against the cost basis of 77.3 cents per share, that is good for a 32% return or 169% annualized. The trade enjoys 8.70% downside protection.