TIB: Today I Bought (and Sold) - An Investors Journal #602 - eSports Gaming, Uranium, Internet Services, Europe, Consumer Electronics, US Treasuries, Nasdaq Index, Altcoins (LUNA, POLYCUB)

Another week to stay out of the markets. Did get assigned on one stock which put pressure on cash levels requiring some selling on the only up day in the week. Adjusted all the ratio put spreads.

Portfolio News

In a week where S&P 500 dropped 2.34%, my pension portfolio dropped a little more at 2.46%.

Big movers of the week were Mission Produce (AVO) (+11%), Cronos Group (CRON) (+10.5%), Direxion Daily Real Estate Bear 3X Shares (DRV) (+10%) = not a lot of movement up.

Inflation remains the news of the moment

The big drags were de Grey Mining (DEG.AX) down 10.6%, Centrus Corp (LEU) down 20.6%. Solar and Shipping and Silver mining dragged too. The surprise of the week was Europe ending up, especially financials and Volvo (VOL3.F) (+7.7%).

Crypto busts

Bitcoin price kept falling with other markets and then collapsed with the LUNA sell off with a peak to trough move of 25% and finishing the week 10% lower.

The key is price did find support below the buyer zone (now extended) which is around the $30k mark.

The week belonged to LUNA and UST

Bought

eSports Mogul Asia Pacific (ESH.AX): eSports Gaming. Received an Unmarketable Parcel letter - rather than sell, I averaged down my entry price - some way to go to get a recovery.

Paladin Energy (PDN.AX): Uranium. Scaled back allocation in SPP. Maybe it was a good thing to be scaled back - can use the cash for other things and one week on price is down below SPP price.

Fiverr International Ltd (FVRR): Internet Services. Assigned early on a naked put. This was part of a 175/250/150 call spread risk reversal. With expiry not until mid June, I thought I had time to roll this one out but was not keen to do it when the market was so far down.

Share price has been on a slide since I opened the trade. I believe in the concept of the business especially with the Great Resignation running. The chart tells its own story - the blue arrow price scenario could well play out. Do I cut my losses now or do I wait for the reversal, average down and ride the recovery? If we are going into recession this could be a long wait.

I bit the bullet and bought a parcel twice the size of the one assigned. I will trade my way from the low base. I wrote March expiry covered call for 1.2% premium with 19% price coverage - this is the start of the way back.

Sold

As soon as I hit the buy order for the FVRR above, I got a warning about reaching the 5% margin limit in this account. So I did some selling - booking profits in tech stocks on an up day and also in Europe. I am concerned the war is going to drive recession in Europe first.

iShares DJ EuroSTOXX MidCap (DJMC.SW): Europe Mid Caps. 70% profit since November 2012. As this stock is listed in Swiss Francs, one needs to add in the appreciation of the CHF in that time (18% vs GBP and 29% vs AUD - the currencies this portfolios will pay out in). The net annual return is quite a bit lower than an investment in S&P500 (+167% in the same time) but it did beat inflation.

iShares Euro Div (IDVY.L): Europe Index. 1.3% blended profit since April 2011/December 2012. The first trance was loss making. When I first set up this portfolio, I allocated stocks based on relative GDP across the regions. This holding stayed - I have averaged it down. This whole trad idea proves that balanced portfolios tend to under-perform. It is better to lean the portfolio in the direction of strength. I am now doing that in this portfolio - away from Europe. This stock under-performed the one above by 38 percentage points plus the 18% drop in the Pound = ugly.

Apple Inc (AAPL): Consumer Electronics. Sold half my holding for 12% profit since January 2021.

Alphabet Inc (GOOGL): Internet Services. Sold my entire holding for 13% profit since March 2021. I remain invested via a 2000/1960 credit spread which has 16% safety coverage.

Shorts

iShares 20+ Year Treasury Bond ETF (TLT): US Treasuries. Yields want to move higher. I am exposed to ratio spreads across 3 accounts AND was keen to reduce the risk of being assigned long. With price opening at $113.67, bought a May expiry 113 strike put option in my pension portfolio. This leaves me with a 120/116 bear put spread and a 116/113 credit spread - not quite what I wanted but it does cut the risk. In my managed portfolio, I chose to roll down and out the 113 sold puts to 110 strike. This incurred a 152% loss with the sold premium only 43% of the buy back premium. This leaves me with 121/113 and 120/117 bear put spreads and a 110 strike naked put.

Used the up day on Tuesday to fix this properly. Closed out 120/116 bear put spread for 121% profit. Used some of the profit to buy back the open 116 sold put and rolled it down and out to 112 strike with May 27 expiry. In managed portfolio, closed out 120/117 put spread for 53% profit since Apr 22.

The high inflation read on Wednesday (May 11) got me looking again with price opening at $114.78, I bought a June expiry 114/110 bear put spread. With net premium of $1.48, this offers maximum profit potential of 170% for a price drop of 4.4% - a bit more needed given that price rose 1.93% to close at $117.94. That does tell me taking profits the day before was a good move.

The chart shows the two sets of trades. The pension portfolio one is closer to the market action but it is short of time. The other trade is looking for the next leg down following a blue arrow price scenario (moved from last chart)

Pfizer Inc (PFE): US Pharmaceuticals. I saw a tweet suggesting Rady Johnson, Pfizer EVP had been arrested on fraud charges.

It is hard to pin down what is true or not in these sensitive areas. What I do know is the 80,000 pages of evidence produced by Pfizer contains enough evidence to mount strong legal suits against the company. I added to my January 2024 40/30 bear put spread. With net premium of $2.35, this offers maximum profit potential of 325% for a price drop of 62% from $48.64 close (May 9)

Update of the chart showing short term and long term trade. Price did bounce on earnings but has stayed below my short term bought put (52.5). For now the sold put level (45) looks safe. The Pfizer acquisition of Biohaven gives me a clue o how Pfizer is going to weasel out of the mess - keep growing in size.

Hedging Trades

Deutsche Lufthansa AG (LHA.DE): German Airline. Replaced expiring 6.8 strike sold put with a 6.4 strike sold put - I did push expiry out to to weeks. With price dropping to close at 6.77 (May 9), the trade went back to a calendar put spread. One month to go to expiry of the long put - they way markets are, I could be using the protection.

Vanguard European Stock Index Fund (VGK): Europe Index. With price opening at $56.73, I wanted to convert the ratio spreads I am holding to bear put spread. This changes the trades from hedging trades to short trades. Step one was to buy a May expiry 55 put option. This pairs up with June expiry 54 strike sold put (i.e., a credit spread). I am hoping to see price bounce a little so I can roll out to a wider bear put spread in the June expiries. A price drop to $55.02 (May 9) certainly helped the profile of the trade. In my managed portfolio, I bought a May expiry 55 strike put option to match up with 58 strike sold put (i.e., a credit spread).

The big lesson here is to read the switch in market mood from the need to hedge and using ratio spreads to being bearish and buying bear put spreads. on Tuesday, locked in profits on 61/57 bear put spread for 171% profit since Apr 11. In managed portfolio, closed out 61/58 put spread for 84% profit. Used part of the profits to buy back outstanding 58 sold puts and roll down and out to June expiry 54 sold puts.

Spent Tuesday opening session tidying up all the ratio put spreads. Step one was to bank profits on all spreads in-the-money. Step two was to match up all unmatched sold puts with bought puts at higher strikes (i.e., make them bear put spreads)

Invesco QQQ Trust (QQQ): Nasdaq Index. Spent Tuesday opening session tidying up all the ratio put spreads. With price moving up over $304, I locked in profits on in-the-money spreads and evened up all the ratios to get to bear put spreads. Closed out 321/305 spread for 98% profit since Apr 18. Added a 288/278 June expiry bear put spread (May 11). With net premium of $2.85, this offers maximum profit potential of 251% for a price drop of 7.3%.

I failed to notice the expiry of 308/300 bear put spread in this portfolio was May 16 and when I retired on Friday night price was well below $300. With price closing at $301.94, this leaves this spread in-the-money with the bought put (308) exercised and the sold put (300) expiring worthless. I will check at market open and look to close before expiry.

I do not have QQQ hedges in my managed portfolios. I watched the market try to open higher and felt it was not going to last. So I bought a June expiry 288/280 bear put spread. Normally, I hedge in the range of 5 to 10% drop. I felt that as the market is already in bear territory to tighten this to a 3.5% to 7% drop. With net premium of $2.53, this offers maximum profit potential of 216% for a price drop of 7%. Price obliged by dropping 2.97% on the day to close at $291.84 (May 11).

New chart update shows the new June expiry options which are in place to catch the next leg down following a blue arrow price scenario.

Eurodollar Futures,Jun-2022 (GEM22.CME): Interest Rates. Interest rate markets are pointing to 183bps in rate rises from the zero rate. The odds of rate rises of 175-200 bps by the July meeting are at 85%. This sugegsts to me there is an opportunity to short the futures market - I shorted the June 2022 GE contract at 98.155 implying an expectation of rate rise of more than 185 bps. The high inflation read helped my thinking.

https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

There are few ways to invest on a rising interest rate theme.

Buy bank stocks. This takes a long run view and is vulnerable to recession and property market slowdown.
Sell to short ETF's that hold long treasuries or bonds, like TLT or even HYG.
Buy inverse ETFs that short bonds (like TMV). Do this for a short duration only as they tend to revert to the mean
Sell interest rate futures contracts short
Use options - put options on ETF's is class 2 or interest rate futures in class 4

Cryptocurrency

Bought LUNA and POLYCUB

Income Trades

One covered call and one naked put written across all portfolios (all US)

Naked Puts

Coeur Mining, Inc (CDE): Silver Mining. Rolled out half the May expriy strike 5 naked puts to June with same strike. Incurs a 560% loss though the sold premium for June expiry was only 3% lower than the buy back = kicks the can down the road.

Credit Spreads

Spreads out look improved a little in the week with less exercise risk in both pension and managed porfolios.

TTB risk has increased dramatically and in the pension portfolio will result in a loss this month as TTB risk is higher than net spread income. I will be monitoring the exercise risk in the pension portfolio as I am a bit tight on margin to cover this and naked put risk in gold and sliver mining.

Currency Trades

Sold CHF for EUR following sales of Swiss listed stocks

Resources

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 whn you open an account on this link https://mclnks.com/kucoin15

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May 9-13, 2022

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