7/05/2020 Plan: Two ideas this week in two very different names – Seagate Technology PLC (Ticker: STX) and Hartford Financial Services Group Inc. (Ticker: HIG)
7/05/2020 Plan (continued):
- STX – Sell either the 17 Jul 45/42 put spread for 0.38 or 24 Jul 44/41 for 0.40
- HIG – Sell 31 Jul 30 put for 0.30
- Prices are as of market close 7/2/2020, actual fill and strikes may differ depending on Monday open, post will be updated accordingly.
- All trades are for educational purposes and do not constitute advice
- As always, reach out with any questions!
7/05/2020 Commentary:
These trades are both bullish in their respective names – feel free to pick one or the other to evaluate. Seagate is one of the two big manufactures of computer storage (think hard drives) with Western Digital their primary competition. I’ve been trading STX for years and they provide a pretty nice dividend that has smoothed out the returns over the years. You’ll see the stock has recovered from the last couple trips down to the 46 range and we place our short put spread below this level. As a trade, one can do the spread 2x for a bit more than $500 in risk ($260*2 = $520). Or if one is interested in taking ownership of the shares, 1x with the intent to accept delivery between 45 and 42 (or 44 and 41 for the July spread). This trade returns roughly 15% on risk if it expires worthless.
HIG is an insurer, and industry that often provides a nice mix of stability plus reasonable option premiums. This is a straight forward play to receive a reasonable annualized return on a stock that we would accept delivery. With the annualized dividend (which has steadily increased) of $1.25, we’ll receive a 4.2% yield while we sell calls against the underlying. We could also roll the put. This trade returns roughly 1% on risk ($30/$2970 = 1.01%). Note that this trade Does include earnings, which is why we are able to receive such a high premium for a strike so far out of the money. As with any ‘naked’ put, only place the trade if you are willing to accept delivery of the shares.
7/6/2020 Entry:
The market was up quite a bit on Monday making it hard to fill at the prices we planned. Sometimes we do better, sometimes worse. I filled the following and will be on the lookout for better entries as well.
- Sold STX 24 Jul 45/42 put spread for 0.41
- Sold HIG 7 Aug 30 put for 0.30
Higher strikes in STX means a slightly decreased probability of profit, but STX was also higher which helps a bit.
Went out one week in HIG, price was also up today. I’m ok with taking shares at a 20%+ discount! The amount of premium is roughly the minimum I would accept at this duration.
7/12/2020 Update:
Both positions are currently down a bit of money. With HIG earnings on the 30th, expect a very slow decay as Implied volatility remains elevated. I would expect that our first opportunity to close the position for a profit won’t be until after earnings unless there is a big run up in the name.
7/19/2020 Update:
The Seagate put spread expires this week. The long put at the 42 strike is effectively worthless and there is an offer for 2.16, which will skew the spread price if you look during off hours. There are a few ways to play this. You can simply wait for Friday and if STX remains significantly above 45, let both options expire. Another approach is to simply close the 45 strike short calls (which can be done now for about 0.15). This will result in a profit of $26 and a couple long puts at 42 in case the bottom drops out of the market this week. Often when you have “worthless” puts that are trading for a few pennies, keeping them on can be easier than closing them and they remain lottery tickets
HIG as expected has remained pretty firm as we still have earnings coming up. The position is profitable by a couple of dollars.
7/26/2020 Close (partial):
The STX put spreads expired this week, taking in $41 for every put spread you put on for a solid 15.8% return on risk ($41/$259) in a little less than 3 weeks. STX moved up steadily all week until Friday when it dropped quite a bit. The short strike was never really in danger, however.
The HIG short put is profitable as it slowly loses value. Earnings are this week, Thursday the 30th. The expected move is roughly $2.60, with HIG closing the week at 41.48, our short strike of 30 should be well outside of all but a drastic post-earnings move. One could take it off before earnings and take the easy profit (currently ~$12 per put) or let it go until after earnings depending on risk preferences. I’ll personally be leaving the puts on and monitoring it accordingly.
8/2/2020 Update:
HIG rose after earnings last week, leaving our put effectively worthless at no bid/0.10 ask. If you still have it open, you can close it for 0.05 or simply let it expire this week. There is always a chance the market or stock plummets unexpectedly and we’d be assigned at 30. If this is a concern, simply close it.
8/9/2020 Update/Close:
Our HIG put expired worthless, allowing us to keep the full $30 credit. Our overall results have been updated accordingly.
