TIB: Today I Bought (and Sold) - An Investors Journal #305 - Covered Calls, Airlines, US Industrials, Europe
A catch up update for activity through the weekend. Contrarian action on a new CEO for GE. Profits in Europe and the air before oil prices get too far ahead. Lots of covered calls. Bitcoin is poised for a break out as price compresses into a triangle
Bought
General Electric Company (GE): US Industrials. GE replaced CEO overnight with Larry Culp joining from Danaher (DHR). Culp has done a great job at turning Danaher around from similar issues that face GE. The talking heads are split in their views. The key for me is they have a strong position in aircraft markets which are growing. They were planning to exit the healthcare markets - one of the talking heads suggested that Culp would nix that deal and would rebuild this business.
The opportunity for me lies in the fact that 2021 expiry options have just been listed which gives Larry Culp a little over 2 years to get things right. Implied volatility is high which pushed me to look at bull call spreads. I bought a January 2021 12/20 bull call spread for a $2.14 net premium. With a closing price of $12.32 the bought call is $0.32 in-the-money (15% of net premium). Maximum profit potential is 273% if price closes at or above $20 in the next 27 months.
Let's look at the charts which shows the bought call (12) breakeven and the sold call (20) as pink rays and pink text with the expiry date the fluoro dotted green line on the right margin. I have left in the other call options I am holding.
The price scenarios I mapped out in TIB211 have not panned out at all. Price did move up a little (middle pink arrow) and then fell away at the time the trade war got active. I have cloned those two price scenarios to the current price level. That shows that I have a chance of reaching maximum profit on the January 2020 15/20 spread but not on the 15/22 spread if the pink scenario plays out. That is all I am imagining can happen. That scenario is what is needed for the new trade to be a maximum winner.
What I like is price was around the $20 mark at the start of 2018. Now there is a risk that the other talking heads are right and GE can continue on the skids, especially as they have a large debt burden (153% debt to equity). I am exposed to GE through stock and a number of options trades. I am hoping that Larry Culp is able to take strong enough action that allows them to maintain their dividend payouts (4.2% yield).
Now there is a way to lever up this trade a bit more by selling a put at a price one would be happy to buy the stock, say $10 or even $8. Last trades were $0.96 and $0.56 respectively. Selling the 8 put would increase profit potential to 406% - I might just add that tomorrow. That says that I would be happy to buy GE stock if it fell another 50% from here.
Sold
iShares Europe ETF (IEU.AX): I needed some cash. Sold European index for 26% blended profit since February and November 2016.
Delta Air Lines, Inc (DAL): US Airlines. I have been watching oil prices rise and Delta share price stubbornly refuse to go to the top of the bull call spread range I was holding ($60). I decided to close out the January 2019 45/60 bull call spread to lock in profits. Profit at 113% was attained with both bought and sold legs profitable. That tells me that the market did not believe price was going to reach $60 either. I remain exposed to US Airlines through January 2020 options on American Airlines (AAL)
Income Trades
A raft of trades hit their pending orders. Quite a few of these are new - they do not have a % in the last column. With a strong move in oil prices, I expect most of the oil stocks to be assigned at expiry.
The table shows purchase price and closing price, the premium received and the % relative to close and to purchase price. The strike is shown and the important columns after that are the amount price has to move to reach the strike price - you will see they are all around 5% with a few more than that. The net cost column is updated each month to show purchase price less accumulated premium received - the percentage column at the end shows what contribution income has made compared to purchase price.
Cryptocurency
Bitcoin (BTCUSD): Price range for the 6 days was $361 (5.6% of the low). Maybe I should go away from the screens more often. Price is compressing into a triangle standing onthe $6500 support level. It did have a go at pushing up past $6750 on Friday but failed. That pink resistance level is proving to be a key level.
The Federal Court decision in Boston last week about commodity status for a coin (it was not Bitcoin) has provided another plank of certainty for Bitcoin. Chances are that it will continue to be regulated by the Commodities Futures Trading Commission. When price compresses like this it tends to break hard - I am going to suggest it is going up.
Ethereum (ETHUSD): Price range for the 6 days was $30 (14.3% of the low). Price is meandering around in the middle of "no mans land" and seems unwilling to push above $240. The encouraging part is we did get a higher low but have now made a lower high too. The difference to the Bitcoin chart is noticeable - price has not created that flat bottom on the support line - it has been drifting uppish.
CryptoBots
Outsourced Bot No closed trades. (221 closed trades). Problem children stayed at 18 coins. (>10% down) - ETH (-66%), ZEC (-64%), DASH (-63%), LTC (-46%), BTS (-46%), ICX (-77%), ADA (-68%), PPT (-81%), DGD (-82%), GAS (-82%), SNT (-58%), STRAT (-73%), NEO (-79%), ETC (-52%), QTUM (-77%), BTG (-72%), XMR (-33%), OMG (-66%).
Coins moved in a narrow band between 1 point up and 3 down. DGD (-82%) and GAS (-82%) are level pegging for worst coin honour.
Profit Trailer Bot and New Trading Bot
Updates tomorrow
Currency Trades
Forex Robot closed 12 trades (0.66% profit) and is trading at a negative equity level of 28.8% (miles higher than prior day's 19.1%). It is normal for negative equity to spike after trades close but this is the highest ever.
Outsourced MAM account Actions to Wealth closed out 3 trades for 1.3% losses (two days).
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
Charts: http://mymark.mx/TradingView - this is a free charting package. I have a Pro subscription to get access to real time forex prices
September 27/28, October 2, 2018
The addition of selling the put is a great approach as it provides a great risk/reward profile when considering the valuation of the company from a conglomerate perspective as the value of its pieces are probably higher than the market value to today despite the headwinds faced.
I sold the 2021 strike 8 put for $0.50
Nice write up on GE, but it might be a value trap at this point.
It might be - that is why I invested only 4 contracts (less than $1,000). With the sold put added in overnight the return is now 400% if I am right and price gets to where it started 2018. As with all options investing, is 27 months enough time. I certainly would not have gone for 2020 spread.