TIB: Today I Bought (and Sold) - An Investors Journal #544 - Europe/US Banks, French Utility, Gold Mining, Silver, Marijuana, Semiconductors, Pharmaceuticals, Software, Automotive, Emerging Markets, Lithium, Oil Shipping
The week running up to options expiry, I was expecting to be assigned on quite a few covered calls. The selloff after the Federal Reserve announcements reduced that number quite a bit especially in solar stocks. What it also did was increase the number of naked puts that came into the zone, especially in banking and in gold and silver.
Portfolio News
I want to dwell on the Federal Reserve a bit. It feels like they have painted themselves into a corner.
Their mandate is to manage inflation. They have however become something of a stimulus engine for when the economy is not cooking right. They can also act faster than governments with fiscal stimulus - and they do. The 2020 pandemic has changed two important things - consumers are spending less and saving more and supply chains are choking up. The consumer will be the first to go back to a more usual mode and spending demand will rise. The supply chains are choked for a while. An example, I have a friend who ships goods into Canada from China. The cost of a container has gone from $4k to $24k. That has to go into rising prices = inflation will be more than transitory.
My gut feel is we will see rate rises sooner and more than the words say. Someone agrees - when Mohammed El Erian gets cautious I start to act - read the article below
https://www.cnbc.com/2021/06/21/heres-why-the-market-may-be-wrong-about-the-federal-reserve-and-interest-rates.html
Bought
Stocks assigned on naked puts - now these are all stocks I am happy to own. I have shown the relative price premium I paid - in most cases the naked put premiums received give me breakeven prices lower than the June 18 closing prices.
ABN AMRO Bank N.V. (ABN.AS): Dutch Bank. Assigned on naked put at 1.2% premium to €10.378 closing price
Deutsche Bank AG (DBK.DE): German Bank. Assigned on naked put at 4% premium to €10.958 closing price
ENGIE SA (ENGI.PA): French Utility. Assigned on naked put at 0.8% premium to €11.90 closing price in two portfolios.
Yamana Gold (AUY): Gold Mining. Assigned on naked put at 3.2% premium to $4.36 closing price. This has to go down as a trading mistake. I had a pending order for the 4.5 strike put option open running up to expiry which was taken up on expiry day. Lesson learned - close those out in the last week.
iShares Silver Trust (SLV): Silver. Assigned on naked put at 3.2% premium to $23.88 closing price
Aurora Cannabis Inc (ACB.TO): Canadian Marijuana. Assigned on naked put at 1.75% premium to C$10.81 closing price
Barrick Gold Corporation (GOLD): Gold Mining. Assigned on naked put at 11% premium to $20.75 closing price - this is going to hurt for a while but it adds to the hedging of the portfolio.
SPDR S&P Regional Banking ETF (KRE): US Regional Banks. Assigned on naked put at 3.7% premium to $63.66 closing price
Wells Fargo & Company (WFC): US Bank. Assigned on naked put at 3.0% premium to $41.75 closing price
The two US banks got sold off hard even though they benefit from rising rates. They will recover in time.
Sold
Stocks assigned on covered calls - some of these stocks I will be replacing and some I am happy to see go.
Advanced Micro Devices, Inc (AMD): US Semiconductors. Assigned on covered call for 7.6% blended loss since December 2020, January/February 2021. Jim Cramer idea which has not quite worked out. As it happens 7 covered call trades made since that first December 2020 purchase covered the capital loss fully. In another portfolio a smaller 5% blended loss since February 2021 which was also covered by the 7 income trades made.
salesforce.com, inc (CRM): US Software. Assigned on covered call for 3% blended profit since January/April 2021. Jim Cramer idea to buy back in worked. Income trades added a further 40% to profits.
Ford Motor Company (F): US Automotive. Assigned on covered call for 23% profit since February 2021. I did set up a 15 strike naked put during the week and bought a large position at 3.3% premium to $14.52 closing price. price had been trading above $15 all week until the Federal Reserve spoke. Income trades on Ford have been very successful - writing both calls and puts every month and replacing stock when it gets assigned.
Global X Lithium ETF (LIT): Lithium. Assigned on covered call for 5.5% profit since April 2021.I will keep invested in this sector.
Maxeon Solar Technologies, Ltd (MAXN): Solar Power. Assigned on covered call for 8.7% profit since May 2021. This was only against a portion of my holdings.
Capital Product Partners L.P. (CPLP): Oil Shipping. Assigned on covered call for 20% blended profit since July 2017/August 2018/September 2019/February 2021. I did buy Nordic American Tankers (NAT) in anticipation of this assignment
SPDR S&P Emerging Markets Small Cap ETF (EWX): Emerging Markets. Assigned on covered call for 23.7% blended profit since June/August/November 2018. See TIB244 for the rationale for the original investment. The name is a misnomer as the holdings are mid to large caps and the investment in Taiwan was particularly. Taiwan has been a strong performer out of the pandemic.
Eli Lilly and Company (LLY): US Pharmaceuticals. Assigned on covered call for 10.7% blended profit since March 2021. Averaging down worked well. Was a Jim Cramer idea - he did exit before I did as he was concerned that the FDA could slow down approval of the Alzheimer drug in development.
Expiring Options
Novartis AG (NOVN.SW): Europe Pharmaceuticals. With price closing at SFr 85.72 92/100 bull call spread expired worthless. While this trade was a losing trade it used profits made from a stock sale in September 2019.
Quick update on the chart shows that price was heading in the right direction and touched 100% profit mark in late 2019. The pandemic crunched that and price is stuck in a consolidation zone between SFr75 and SFr90 since. I must say there is some potential in the current chart set up with a solid resistance zone showing.
Trade rationale for the original trade is set out in TIB470
VanEck Vectors Gold Miners ETF (GDX): Gold Mining. With price closing at $34.13, the 33 strike sold put leg of a call spread risk reversal expired in my favour. The remaining 38/44 bull call spread still has many months to run. This gives me scope to sell another put option to lever the trade up even more.
I did not make a chart at trade time. Let's have a look at the chart which shows the bought call (38) as a blue ray and the sold call (44) as a red ray and the sold put (33) as a dotted red ray with the expiry date the dotted green lines on the right margin. The bull call spread is currently out-the-money. There appears to be support around the $32 mark. In Tuesday trade, I did sell another put option at that $32 level with August expiry (shown in green). As this is a hedging trade, I am not uncomfortable if I have to buy at $32 in two months time.
Note: Gold mining is not the best way to hedge inflation expectations as gold mining companies are susceptible to rising interest rates if they have borrowed extensively - many do. Holding Gold or Silver removes this risk but they do not pay dividends - miners do.
Income Trades
Of the 79 income trades written in my pension portfolio, 5 covered calls and 6 naked puts assigned.
Of the 57 income trades written in my other portfolios, 4 covered calls and 4 naked puts assigned.
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
June 18, 2021
Posted Using LeoFinance Beta
