Bureaucrats unlock some merger value (sort of). Markets hate Huawei ban and then think. Time to lock in some profits. Contrarian trades in automotive and ride sharing. Lots of covered calls and profits continue to flow in crpyto and corn.
Market Rally Stutters
The market digested the Huawei ban and sold off all semiconductor stocks = ouch.
Market sentiment was a bit jumbled up as investors sought to buy into stocks with low China exposure - holding the fall to modest levels
Europe was harder hit with talk turning to problems in Italy again.
Intesa Sanpaolo S.p.A. (ISP.MI), a portfolio holding dropped 8.87%
ING Groep N.V. (INGA.AS): Dutch Bank. Took the proceeds of covered call on Commerzbank (CBK.DE) and bought January 2021 strike 12 call option to average down my entry price there. Now this is a long shot with price dropping below €10 to close at €9.96. A quick update on the chart which shows this trade as a green ray (I have not adjusted the 100% profit line).
I have overlaid the price of Commerzbank (CBK.DE - orange line). ING is an appreciably better managed bank with tighter cost structures and more growth businesses, yet it is following the same sort of price trajectory as Commerzbank. I am figuring that in the next 2 and a half years, the market will work out which is the better bet.
Ford Motor Company (F): US Automotive. CNBC Options Action idea as a US-dominated stock that is less likely to be affected by US-China trade war. Idea was to buy a short dated option one strike out-the-money. Ford announced the next tranche of job cuts (mostly in Europe) after the trade idea was floated. Bought a June 28, 2019 strike 10.5 call option for a $0.25 premium ($0.30 in another portfolio - price did dip on the announcement). The updated chart includes the new trade as pink rays with the expiry date the dotted red line
I have extended the downtrend line. Price has had 3 attempts at breaking that trend and was knocked back each time. The technical chartist in me tells me that price might well reverse as the runs up have all been the same sort of length. The argument in favour this time is the tariff war brings in a different dynamic with Ford less exposed to China than other automotive manufacturers. It also tells me that the June 28 expiry seems a bit too close as price needs to keep driving at the same steepness since earnings rather than the blue arrow normal steepness. Talking about blue arrows, if price follows a trajectory like that from the December 2018 lows, my other trade will reach breakeven before expiry.
Uber Technologies, Inc (UBER): Ride Sharing. Options on Uber have just been listed with very high implied volatility - implying a move of 20% in either direction. CNBC Options Action idea was to set up a covered call to get the benefit of the high option premium. I did exactly that and bought a slice of stock at $40.31 and sold a June 41.5 strike call option against it. Call premium was a tasty 5.58% which gives me an effective stock purchase price of $38.06. Price closed at $41.59 which means my stock has already passed the sold call strike price. This feels like free money. Risk in the trade is if price sags below $38.06. I am not fussed about missed opportunity if the stock does get assigned as I was not going be a buyer of Uber anyway.
Sprint Corporation (S): US Telecom. FCC announces that they would support the T-Mobile (TMUS) merger if the business commits to a national 5G rollout.
Classic example of the Trump model for the country - pressure the FCC to approve the bid on those sorts of terms only days after banning Huawei/ZTE involvement in US especially addressing 5G. I listened to the talking heads expressing concerns that the Department of Justice (DoJ) was still not happy with the bid. Truth is there are still a lot of anti-business employees in US government agencies. I chose to take the exit rather than wait any longer and collected a 26% blended profit since August 2018/March 2019.
In another portfolio sold January 2020 strike 7 call options for 97% profit since August 2018. At the time of trade, price was $7.67 with the day's close a little lower at $7.44 as the DoJ doubts emerged.
The Home Depot, Inc (HD): US Home Improvement Retail. CNBC Options Action team reviewed the US retail stocks reporting earnings this week. Their view was that they were due a correction as the weather has been less than perfect this spring for home improvement stuff. The trade idea was to buy a bear put spread to run the price down. As I was holding stock in one of my portfolios, I chose to set a take profit target at the Friday close which was higher than the Monday open. That target was hit for 4% profit since March 2019.
Qualcomm (QCOM): US Semicoductors. The Huawei announcement flowed through to all semiconductor stocks even those that are not affected by the Huawei announcement. The announcement does have wide ranging ramifications as Huawei sources about $50 billion of semiconductors annually. Of course the displaced business will go somewhere else but that will take time. I elected to close out a profitable position in Qualcomm to avoid being caught in an irrational seller panic. Trade closed for 36% profit since December 2018
Corn Futures (CORN). One contract hit take profit target for $25.35 (7.0%) per contract profit. Corn price continues to push higher and I have started trailing a manual stop loss on my other positions. This trade exited at a target set above the 2019 highs. The chart shows the momentum - that suggests to me that the agriculture side of the China trade deal will flow through. Take profit targets are the top two dotted blue lines
A raft of covered calls written (28) in the opening session of Europe and US trade. With prices dropping across all markets, there were fewer trades taken up than I expected. I will review the European trades especially before market open tonight. A quick reminder on my process for writing covered calls. I am using the changed percentage move parameters. 5% for stocks in profit. 10% for stocks under water. 7.5% for technology stocks. 20% for leveraged ETF's.
- Select stocks I am happy to sell if I get exercised.
- Calculate percentage move up in price from previous day close
- Choose a one month out call option closest to calculated move up in price.
- Place a bid between bid and ask. Ideally one should aim for a premium of about 1% to make this worthwhile - this starting list averaged 1.25%
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 to 10% 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 (blank if it is a new trade). Note: multiple trades showing from different portfolios
Bitcoin (BTCUSD): Price range for the day was $618 (8% of the low). Price tests down to support level at $7761 and ends day inside high and low of the prior day = inside bar. This does not feel like it wants to push to test $8400 - due date for Van Eck Vectors ETF application will weigh on the market.
Two closed contracts for $742.22 (10.2%) and $9.14 (0.1%) per contract profit. Continue to test trailing stop losses in addition to setting profit targets at previous highs. One of each type of exit in this cycle. Replaced both contracts on one hour reversals
Ethereum (ETHUSD): Price range for the day was $22 (9% of the low). Price also makes an inside bar in the middle of the range between support and resistance levels.
One closed contract for $5.72 (2.3%) per contract profit exiting on a trailed stop loss. Replaced contract on one hour reversal.
Profit Trailer Bot One closed trade (1.72% profit) bringing the position on the account to 7.88% profit (was 7.86%) (not accounting for open trades).
New Trading Bot Trading out using Crypto Prophecy. No closed trades
Outsourced MAM account Actions to Wealth closed out 3 trades on AUDNZD and EURUSD for 0.12% profits for the day. Trades open on EURUSD and GBPNZD (0.12% positive)
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
May 20, 2019