Thursday, May 16, 2013

Buy HOT SBUX (sell puts) SPY backratio

Buy HOT via selling Jun 60 puts @66.7
Buy SBUX via selling Jun 57.5 puts @63.8
Buy SPY via selling Jun 153/156 put backratio @166.0

I add longs for Starwood Hotels HOT and Starbucks coffee SBUX. Again, the puts I am selling are far out of the money and the premiums are tiny. I am way underinvested, have been for most of the month. These put sales are part of the scaling in process. I was hoping for more of a pullback for a better entry, but option expiration is tomorrow. I have been sitting on a lot of buying power, and have a slew of short option positions will expire tomorrow, that will free up yet more capital.

The SPY backratio consists of selling two Jun 153 puts for every one Jun 156 put bought. It nets out to slightly bullish at about break even. There is a big profit on a decline to the 153 to 156 range. Losses get large if the decline is below 150.

So while I continue to have a red flag warning up for the stock market, I don't want to sit with zero long exposure as the zombie bull rally rolls forward. I think of it as having about half or one-third the exposure I might have if I were full on bullish on the stock market. The SPY backratio gives some modest protection against a normal correction.

Elsewhere, gold is drifting back to its recent lows. Bonds have an uptick after a week of selling. If I were to anything in these two markets, it would be a long bond position.


Net long APC SPY
expiring LEN TSLA WFC

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