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TIB - An Investors Journal #618 - Pakistan, Silver Mining, Europe Financials, Oil, Alternate Energy, Hydroponic Gardens, Rare Earths, US Automotive, US Property, Altcoins (ENJ, AVAX)

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Markets bounce with the passing of the Inflation Reduction Act. Trade action is mostly dealing with the flow through of higher yields to bank profits - scrambling to cover opportunity profits. A surprising new entry in nuclear power

In a week where S&P 500 rose 3.3% and Europe rose 2.64%, my pension portfolio rose 2.69% making it better than Europe but lagging US. A big part of the discrepancy is the neutralising effect of rising covered call losses offsetting the gains. Big gains in Australian resources (quarter of the gains), Europe (10% of the gains), alternate energy in US (top 6 risers and 8 out of the 10 top risers from this segment)

Big movers of the week were Latin Resources (LRS.AX) (+46.7%), Livent Corporation (LTHM) (+26.3%), Dawson Geophysical (DWSN) (+24.6%), Redbubble (RBL.AX) (+22.8%), AXP Energy (AXP.AX) (+20%), Canopy Growth Corporation (WEED.TO) (+19.7%), Eneti (NETI) (+18.3%), ChargePoint Holdings (CHPT) (+17.5%), Mitsui Engineering & Shipbuilding (7003.T) (+16.8%), Maxeon Solar Technologies (MAXN) (+16.1%), First Solar (FSLR) (+15.8%), Ford Motor Company (F) (+15.6%), Blue Star Helium (BNL.AX) (+15.1%), Aurora Cannabis (ACB.TO) (+14.4%), Walt Disney (DIS) (14%), SunPower Corporation (SPWR) (+13.8%), Aegon N.V. (AGN.AS) (+12.7%), Lifeist Wellness (LFST.V) (+12.5%), GoGold Resources (GGD.TO) (+12.3%), Centrus Energy (LEU) (+12.3%), Solid Power (SLDP) (+11.1%), Gemfields Group (GEM.L) (+10.7%), Bod Australia (BOD.AX) (+10.5%), Honey Badger Silver (TUF.V) (+10%)

The obvious winning theme for the week is alternate energy with winners in solar, lithium, EV charging, electric vehicles and uranium. The smaller themes are a burst in marijuana in Canada and Australia and in silver mining.

US Senate passes the Inflation Reduction Bill after some compromises are made to keep Kyrsten Sinema onside - mainly to protect the Wall Street carried interest rules in place.

The details of the bill will take some time to work through who the winners and losers will be - solar power and electric vehicles and EV charging are winners.

Crypto booms

Bitcoin price pushed lower to start but ended the week about the same with a trough to peak range of 10.6%.

Ethereum price is moving more strongly ahead of The Merge with a 21% trough to peak range and about 10% up on the week.

A few pump candidates - Chiliz does 58% and holds around 40%. A big South African rugby team has signed up

Injective coin jumps exactly the same 58% but settles just above the previous cycle high before the pump

Last pump and dump show is Shiba with a 51% trough to peak rise. My portfolio holding is small - nothing to rave about.

Global X MSCI Pakistan ETF (PAK): Pakistan Index. Price pitched into the big movers last week - averaged down entry price. Yield is an attractive 8.89% - saldy no options market.

Centrus Energy Corp (LEU): Uranium. Price has moved 57% since last options expiry going past my covered call strike (35). Nuclear appears to be making a comeback as a realistic sustainable energy source. Rather than buy more stock, I put in place a January 2023 expiry (as far out in time as markets go) 45/55/35 call spread risk reversal. With net premium of $3.78 the call spread offers maximum profit potential of 164% for a 32% move in price from $41.71 close (Aug 8). Call spread is fully funded by the sold put which has 19.2% price coverage. The sold put strike (35) is the price stock will be assigned at at next options expiry.

Let's look at the chart which shows the bought call (45) as a blue ray and the sold call (55) as a red ray and the sold put (35) as a dotted red ray with the expiry date the dotted green line on the right margin. The trade wins comfortably if the price scenario from 2021 plays out - looking like price has the needed steepness now. The sold put is below the support line from the last consolidation on the way down which was broken with the latest rise. And price only has to go halfway to the previous highs to win.

Crédit Agricole (ACA.PA): French Bank. Price has moved 22% from last options expiry taking my covered call well past the 9.2 strike. In my managed portfolio, I chose to replace the stock in anticipation of assignment at 7.2% premium to likely assigned price.

AXA SA (CS.PA): French Insurance. With price opening at €23.62, price has moved past the covered call strike (23). I chose to replace the stock in anticipation of assignment at 3.6% premium to likely assigned price. Wrote covered call at 0.25% premium with 4.9% price coverage.

Eni Spa (E): Italian Oil. Oil majors have shown solid price improvements. Eni has lagged but is showing signs of reversing off the lows. Bought a small parcel to average down entry price - oil exposures are a little low in the managed portfolio following various assignments on covered call on Shell and BP. Options market in Eni is not very liquid.

I have put up a comparison chart with the European majors (BP and Shell), the US producers ETF (XOP) and Chevron (CVX) and Alerian MLP ETF (AMLP). The chart shows that Eni has made a reversal and is lagging the industry in a big way - hence the averaging down.

Sunpower Corporation (SPWR): Solar Power. Replaced portion of stock likely to be assigned at next options expiry at 17% premium to the likely assigned price.

Coeur Mining, Inc (CDE): Silver Mining. Assigned early on a 5 strike naked put. I was not expecting it that early and was going to roll out before expiry week. Have been running income trades for some time with net profit, even after kicking the can down the road 3 times, of $1.27 bringing breakeven on this entry to $3.73, 15% premium to closing price of $3.23 (Aug 10).

NuScale Power Corporation (SMR): Alternate Energy. NuScale designs small scale modular nuclear reactors used for electricity generation. A friend has been studying their potential for use in covering emergency energy needs in his home state and likes the potential for rapid deployment for a range of uses. I bought a small parcel of stock and also a February 2023 expiry 15/20/12.5 call spread risk reversal. With net premium on the 15/20 call spread of $1.138, this offers maximum profit potential of 339% for a price move of 34% from $14.89 trade price. The sold put fully covers the net premium with 19% price coverage.

The chart looks a little scary with a huge spike in price coinciding with the evolution of the Inflation Reduction Act negotiations. I bought only a small parcel of stock in the event price does drop back to the consolidation zone and I will average down. The sold put is also at a tidy level to add more stock if it gets assigned.

NuScale's largest shareholder is Flour Enterprises, a division of Fluor Corporation (FLR). I will research how important this is to Fluor as it might be an asset that is beneath the radar screen in their numbers.

Now I have drawn in a vertical line to show where price spiked - July 15. I have also annotated when the Schumer-Manchin deal was agreed (Jul 29). The next chart compares a few stocks mentioned in this report to do with energy (not all alternate) - there are two lines drawn - the turning point for SMR and the turning point for Sunpower (SPWR) both of which are days before the deal was made. Either the market is very intelligent or the insiders knew as all the stocks moved before the deal.

Urban Plant Growers Hydroponic Gardens. Followed a crowdfunding idea on a product I have been using in my kitchen - a hydroponic garden for growing herbs and vegetables. Was a small dabble - will take some time for this to get to a saleable state. The business is growing well with geographic expansion plans.

https://equitise.com/offer/urban-plant-growers-offer

American Rare Earths (ARR.AX): Rare Earths. Sold a parcel to help my son raise a deposit for a house he is planning to buy. 991% blended profit since January/February 2017 and SPP February 2020. The idea came from a friend - watch BHP Prospecting he said which is a spin-off of small projects from iron-ore giant BHP.

Ford Motor Company (F): US Automotive. Assigned early (Aug 11) on a 14 strike covered call for 12.5% profit since July 2022. Ex-dividend date was August 10 for $0.15 dividend - there are odd things going on the way my broker reports dates. I might not get the dividend.

Barclays Group plc (BARC.L): UK Bank. Assigned early on a 1.65 strike covered call for 6.4% profit since March 2022. Barclays went ex-dividend on August 12 = the owner of the call wanted the 1.36% dividend. The covered call premium received was larger than the dividend.

Alerian MLP ETF (AMLP): US Oil. Assigned early on a 38 strike covered call for 2.1% blended profit since February/March/June 2022. March tranche was not profitable and the dividend was larger than the last call premium received.

In my managed portfolios, the assignment was at a 7.9% loss since June 2022. In this portfolio, income trades have not generated enough profits to cover capital losses in the last 12 months. Part of that resulted from a credit spread in July which cost a bomb.

US Masters Residential Property Fund (URF.AX): US Property. Closed out this small holding to raise cash to meet the next pension payment. I chose to sell this now as the company is running a share buyback and that is underpinning the price. Locks in 84% blended loss since November 2012/March 2014/September 2016. All tranches were loss making. The original trade idea was to invest from Australia in US property market struggling to recover from the 2008 property collapse. The move from first entry to the peak was 54%. That was the time to put in stop loss protection at least at the initial entry price. I kept adding to the stock as dividend yield was solid and tax deferred.

US property market was solid - I thought. I have today put on a US property stock onto the chart - Simon Property Group (SPG) shows the same collapse but it has recovered.

What happened inside the business is harder to unravel? It looks like a lot of Australian investments in foreign markets. The team do not know the market well enough. They kept buying properties and started to run a rental portfolio not a property portfolio. My investing thesis was about buying and selling US properties - this did not do that.

So two big lessons: 1. Take the 50% profits and set stop losses 2. Do not invest with people investing outside their home market who do not know the market.

Bought AVAX

and ENJ both selling Bitcoin

Set in place a new 50% sell order model for averaged down positions - first such winner is Chiliz at 50% profit since June 2022

A quiet week with one covered call written (US 1), 3 assigned and one naked put assigned.

Covered Calls

Air France-KLM SA (AF.PA): Europe Airline. With emergence of AirFrance in the big movers last week, I chose to buy back the covered call as price (€1.585 - Aug 8 open) has passed the sold strike (1.5). That incurred a €0.07 premium loss. Come to account for the trade and notice that the multiplier on the contract was not the standard 100 - in fact what I had was a partly covered call. Good thing I covered it by buying back. I wrote a September covered call at a higher strike for 1.9% premium with 10% price coverage.

Canopy Growth Corporation (WEED.TO): Canadian Marijuana. Price traded over C$4 two days in a row. That got me buying back the 4 strike covered calls for a nasty 293% loss. I have had good success writing covered calls starting in 2019 when price was over C$30 but have held off writing when price dropped below $10. Decided to start again and get hit with a price move that was bigger than the 34% coverage I chose. My philosophy is to use covered calls to let the market decide exit points and if 34% was the price move needed then it is exit. Maybe I should stick with that. The worst part is price dropped 12% on trade day (Aug 9) and my call would still be out-the-money.

Credit Spreads

Crédit Agricole SA (ACA.PA): French Bank. Price has moved 22% from last options expiry taking my covered call well past the 9.2 strike. I put in place an August expiry 9.6/9.3 credit spread offering 15.4% ROI with 2.9% coverage with two weeks to expiry. Tough part is with net premium of €40.00, trading costs took away 55% giving a net yield of only 6.4%. One day I will learn the lesson and stop using spreads on Europe exchanges. I used Germany and not Paris - cheaper by 27%. Unlike US exchanges, they charge a flat fee per contract - buy 10 contracts €11.00 - not a fee per trade.

Commerzbank AG (CBK.DE): German Bank. Price has moved 22% from last options expiry taking my covered call well past the 6.8 strike. I put in place an August expiry 6.8/6.5 credit spread offering 25% ROI with 4.1% coverage with two weeks to expiry. ROI after trading costs is only 13%. The sold put strike is the same as the covered call strike that could be assigned.

Risk management reports shows lower exercise risk this week though some of the Coeur Mining risk was realized (Aug 15 data)

Cautions: This is not financial advice. You need to consider your own financial position and take your own advice before you follow any of my ideas

Images: I own the rights to use and edit the Buy Sell image. News headlines come from Google Search. All other images are created using my various trading and charting platforms. They are all my own work

Tickers: I monitor my portfolios using Yahoo Finance. The ticker symbols used are Yahoo Finance tickers. Crypto tickers come from TradingView

Charts: http://mymark.mx/TradingView - this is a free charting package. I have a Pro subscription to get access to real time forex prices

Investing: Interactive Brokers provides comprehensive global markets coverage with very competitive commissions. Open an account to earn up to USD 1,000 in IBKR stock. https://mclnks.com/ibkr

Crypto Trading: Binance offers a wide range of coins to trade, tight spreads and low fees if you use BNB to pay https://mymark.mx/Binance

Kucoin offers a wider range of altcoins than many of the other exchanges. I do like to diversify my holdings in case an exchange gets knocked over. Grab 15% discount on your trades when you open an account on this link https://mclnks.com/kucoin15

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August 8-12, 2022

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