TIB: Today I Bought (and Sold) - An Investors Journal #454 - Network Equipment, Rare Earths, US Real Estate, Europe, US Healthcare, Semiconductors, Consumer Staples

Busy options expiry time shows challenges of timing market turns (more losers than winners). Another great month for writing covered calls. Broker rules mess up defensive trading moves on Cisco

Portfolio News

Market Selloff

Markets grab hold of the slightest hint (from China) that China trade discussions can be met halfway and move higher. Yields rise too.

This feels like a Punch and Judy show. Trump baits the market as he tackles what he sees as the China ogre. The White House then rolls out Larry Kudlow when the market gets clubbed (by a different ogre) to appease everyone - there is no recession imminent he says. Just look at the strong retail numbers that came out on Thursday.

Well Mr Kudlow if you could curb the Trump tweets tongue the market would only have the data to look at and react to.

Bought

Cisco Systems, Inc (CSCO): US Network Equipment. Strike 50 naked puts expired in-the-money. In one portfolio this resulted in stock being assigned (i.e., I bought the stock). In another portfolio, the broker decided that there were insufficient funds and they forced a buy back of the expiring options = ouch in cash up front. Disappointing as sales of CVS Health (CVS) on assignment generated sufficient funds to cover the purchase. This opens up a complication as I wrote September covered calls anticipating taking delivery of the stock. I have to choose whether to buy the stock in that portfolio at $46.96 when market opens, or buy back the covered calls or run the risk that price does not get to $52.50 in the next 4 weeks.

I have been writing naked puts on Cisco since March 2019 and last week I wrote covered calls against the stock in anticipation of the assignment. The cumulative income amounts to $1.39 per share which brings break even down to $48.61, 3.5% above the Friday closing price. This level of income does help with the quandary decision in one portfolio.

Sold

CVS Health Corporation (CVS): Assigned on covered calls written across all 3 portfolios for 0.6% blended profit since Q1 2019, 0.76% blended loss (February and May 2019) 3% blended loss since Q1 2019. Cumulative income for covered calls was 1.3% and 2.5% and 2.96% respectively - i.e., cumulatively just profitable across all 3 portfolios.

I will replace these holdings to some extent. This is one of those beaten up stocks that Jim Cramer believes the market does not fully understand.

Shorts

Vanguard FTSE Europe Index Fund ETF (VGK): Europe Index. I was holding an August 52/50 bear put spread. With price opening at $50.89, I was comfortable that the trade would end in-the-money but I did not want to be exercised on the bought 52 put leg. Normally I would hold the sold leg BUT I was concerned that price could drop below $50 on a whiff of Trump tweets about Europe or ravings from an ECB official (though this was after Europe markets closed). I closed out the trade for a 120% profit since June 2019 in two portfolios.

I replaced the trade with a September 2019 48/46 bear put spread with a net premium of $0.16875 offering maximum profit potential of 1085% if price drops 11% from opening price of $50.89. Premium was so low, I chose not to buy a ratio spread.

Expiring Options

Starbucks Corporation (SBUX): 82.5/70 bear put spread expired worthless with price closing at $96.52 - CNBC Options Actions idea that never was right. Price only tested the 82.5 bought put once in the first week. The market retains an appetite for growth stories even when multiples are stretched.

iShares U.S. Real Estate ETF (IYR): US Real Estate. I was holding a 91/88 bear put spread. With price opening at $90.71, I was concerned that trade might not end in-the-money so I had to close out the trade to protect some capital. As it happened price moved strongly up and closed out-the-money at $91.50. Normally I like to hold the sold leg and run the chances to expiry on the bought leg. Market move was up = exited both legs for a 72% loss since June 2019. This is a trade idea I have been working with for a while. The premise for this edition of the trade was to use a put spread to span the typical trading range (3 % each way). Time to look at the updated charts which shows the bought put (91) as a red ray and the sold put (88) as a blue ray.

The story is quite clear - SNOOZE you LOSE. The trade concept is valid. Price traded 3 times to drop below the sold put (88) and bounced back each time. There is clearly a lot of resistance above $91 - maybe time to get back on this horse and be more aware as the trade progresses. Two of the dips did happen when I was on holiday - that is no excuse for the third one. Of note is how quick the moves are and how much steeper the falls were.

VanEck Vectors Semiconductor ETF (SMH): Semiconductors. 100/90 bear put spread expired worthless. This was short term CNBC Options Action idea based on a belief that the Huawei ban would have wider impact on semiconductors than analysts were expecting. With price closing at $112.23 another China trade related idea that did not pan out. With a softened stance on Huawei and signs of a little progress on China trade discussions price moved ahead. Good news is I left my long trade in place.

Quick look at the chart (showing both trades) shows price reacting to Huawei noise for a few days but not enough to drop below $100 and marching ahead as the good earnings news flowed. TIB437 has the trade rationale

VanEck Vectors Rare Earth/Strategic Metals ETF (REMX): Rare Earths/Strategic Metals. August 16/18/13 Call Spread Risk Reversal expired with price blow the sold put leg (13) closing at $12.72. As I am already holding the stock I bought back the sold leg adding to the overall loss. This ETF has large holdings in lithium and cobalt and has suffered with those prices falling hard. As it happens the broker would not have allowed the purchase as I was short of margin in this portfolio. Total loss of $214 = one standard options trade for this account.

The updated chart tells a story of a textbook break out trade coming off the early 2019 lows and breaking the downtrend and then never holding the momentum. The driver is the lithium performance - see the orange line (Global X Lithium ETF - LIT) which turned over before REMX did and then dragged it down. I will be watching this chart to see if there is a break off the lows which would be a solid triple bottom - maybe time to put on another call spread risk reversal selling a put below current levels.

Consumer Staples Select Sector SPDR Fund (XLP): US Consumer Staples. August 59/56 bear put spread expired worthless. This was a frustrating trade with trade in-the-money during Thursday trade and bouncing out on Friday.

The updated chart also shows a trade management challenge with price testing down to 100% profit level in the selloff but never venturing much beyond that. Technically it is hard to exit a trade like that when it holds a level lower than the prior higher high for several days - typically price breaks lower after a lower high.

Income Trades

Naked Put 3 trades closed with 2 out of 3 expiring in my favour (Honeywell (HON) and McDonalds (MCD)) and one assigned (Cisco Systems). With increasing market volatility and greater risk of a selloff I will hold off writing naked puts. I have one open on Roku (ROKU) expiring in November.

Covered Calls 46 trades written at average 0.98% premium and average price move cover of 8.8%. Only one stock rose more than cover with CVS Health Corporation (CVS) assigned after a rise of more than 8% in the month.

Cryptocurency

Bitcoin (BTCUSD): Price range for the weekend was $804 (8% of the low). Price action over the weekend was fully contained by high and low on Friday with price testing the support at $9954 and trading above.

Ethereum (ETHUSD): Price range for the weekend was $22 (12% of the low). Price tested the support at $177 on Friday, traded inside for one day and moved ahead with some momentum pushing back to test the $201 level.

Ripple (XRPUSD): Price range for the weekend was $0.03758 (14% of the low). Price move mirrors Ether with a quiet day on Friday and a strong move over the weekend to push up and through resistance at 0.27735. The rumour mill of news has been churning all weekend in the chat rooms. That $0.30 seems to be a strong psychological level (though not really a technical one)

CryptoBots

Profit Trailer Bot Two closed trades (2.28% profit) bringing the position on the account to 9.51% profit (was 9.44%) (not accounting for open trades).

Dollar Cost Average (DCA) now at 6 coins

Pending list now at 12 coins with ADA added to PT Defender duties to free up trading ability.

New Trading Bot Trading out using Crypto Prophecy. No closed trades

Currency Trades

Outsourced MAM account Actions to Wealth closed out one trade on AUDNZD for 0.25% profits for the day. No trades open

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

Tracking: Keeping track of your crypto trades is a whole lot easier with CoinTracking.info. Get 10% off all your account upgrades https://mymark.mx/CoinTracking

August 16, 2019