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Playing Small Ball, Defensive

|Includes: 3M Company (MMM)

As this situation is developing, the market is unconcerned with what's going on in Washington. Everybody thinks they can find a way to make money on some kind of Trump trade, while the heady combination of deregulation and increased deficit spending will propel the market higher, indefinitely. It doesn't work that way.

The last options expiration, plus my usual rolling up activity, left me almost 50% in cash. That's too much to leave idle, so here's what I'm doing.

The roster of CCC and DGI type stocks is well-known. I have a representative sampling in a watchlist at Morningstar. So I sorted it by TTM PE and browsed the names. 3M (NYSE:MMM) is good quality and not that expensive.

So I bought call spread, long Jul 160 calls and short Jul 165 calls, for which I paid $3.95, with the stock in the $175 area. If it closes above $165 at expiration, I made $1.05. If not, the position is similar to a put, in that I will be the proud owner of shares below $165. If the shares go below $160, I plan to roll down, so as to be sure I can buy them.

Net result is, I either make a small profit or I buy MMM at a price $10 or more less than today's. It's like selling a put, but the control is much better if things go sour.

I plan to do one of these a day, CCC or DGI type stocks, until I have sufficient exposure to the market, but at a lower level than we are at right now. Small ball, and defensive.

Disclosure: I am/we are long MMM.