Infrastructure Bill passes through Congress and markets inch to record highs with some big winners coming from the main beneficiaries - steel and green energy.
Portfolio News
In a week where S&P 500 rose 0.78% to touch an all time high, my pension portfolio rose only 0.04%. Biggest individual drags were De Grey Mining (DEG.AX) down 7.1% and Jinko Solar (JKS) down 17% and Cronos Group (CRON) down 11%. The other culprit is marking covered calls that are in-the-money to market. The rise in prices of the call contracts (drop in value in portfolio) is greater than the rise in value of the underlying stocks.
Big movers of the week were Latin Resources (LRS.AX) (+25%), Big Star Energy (BNL.AX) (+24%), Nucor (NUE) (+21%), Livent Corp (LTHM) (+16.8%), Aegon NV (AGN.AS) (+12.9%), Eneti was Scorpio Bulkers (NETI) (+12.2%), ABN Amro (ABN.AS) (+11.8%), US Steel (X) (+11.8%), Flutter Entertainment (FLTR.L) (+11.7%), Pilbara Minerals (PLS.AX) (+11.5%)
There are a few themes here viz, alternate energy - lithium and copper, US infrastructure driving steel, Europe recovery driving European financials and UK reopening driving sports betting. Of note is the big themes did not flow through to underlying resources stocks like Kairos Minerals (KAI.AX) and Cobalt Blue (COB.AX)
Negative Interest Rates
Received a notice from Interactive Brokers on negative interest rates.
To date, IBKR have been shielding account holders from negative interest rates (not sure how but they say they have) on certain currencies.
The new policy is they will provide shielding only up to set deposit limits. Now this does not impact me as my accounts are in AUD, EUR and USD only and I do not hold large deposits in EUR.
Crypto booms
Bitcoin price pushed higher all week with the cycle lower mid week higher than the open and finishing the week 9.5% higher than the open.
Ripple (XRP) was the standout with a rise of 67% on the back of some obstacles emerging in the attempts by Congress to increase crypto reporting.
Honourable mention goes to Cardano (ADA) up 52%.
Bought
Victoria's Secret & Co (VSCO): US Consumer. I read an article in Wall Street Journal about the separation from L Brands and new listing. While price has moved ahead 25% since listing, the view was that with price earnings around 15 times there was value to be had compared to American Eagle Outfitters (AEO) (44 times PE) and Hanesbrands (HBI - negative earnings). My sense is this feels like a solid reopening trade and after all the brand is the leading lingerie brand.
I also had a look at options trades and bought a March 22 75/90 bull call spread. With a net premium of $4.61 this offers maximum profit potential of 225% for a price move of 25% from $71.73 trade price. I funded the net premium fully by selling a March 22 strike 60 put option - this is in line with the price at relisting (fist day close was $58.23) and is 19% below my trade price.
Let's look at the chart which shows the bought call (75) and 100% spread profit as blue rays and the sold call (90) as a red ray and the sold put (60) as a dotted red ray with the expiry date the dotted green line on the right margin. Official trading started on August 3 which does not give any base for looking back - but I will use the chart for tracking.
I also wrote a covered call for August expiry with a 3.8% premium and 11% coverage = feels like easy money.
In one of my other portfolios, I had to pay a bit more for the stock at $73.715 but did receive 3.16% of that on the same strike covered call. In this portfolio, I chose to also write a strike 65 naked put with August expiry for 1.9% premium
It was disappointing to see price close 6% down on the day below $70.
https://www.wsj.com/articles/makeover-at-victorias-secret-is-more-than-skin-deep-1162851238
Barclays PLC (BARC.L): UK Bank. See sale below for replacement purchase.
SPDR S&P Regional Banking ETF (KRE): US Banks. Bank stocks have been moving ahead steadily. It looks like I will be assigned on this ETF and also on Huntington Bancshares (HBAN). I chose to replace those shares with the regional bank ETF to reduce company specific risk. The replacement price was a small 1.6% premium to likely assigned price - of course, there is a chance that the stock will not be assigned if there is any bad market news in the next week. I wrote covered calls for 1% premium for September expiry with 6% coverage.
I did not make this chart at trade time - it was an instinct trade. The chart compares the Regional Bank ETF (the bars) to HBAN - the dark blue line - since the March 2020 lows. HBAN performed in line until Q1 of 2021 and then lagged = company specific risk. I have also put in one of the other regional banks for reference (FITB - light blue line) which has outperformed from the same turning point.
Glencore plc (GLEN.L): Basic Materials. My small holding in Glencore could be assigned at options expiry next week. I used a down day (on London markets) to replace the stock that could be assigned at 5.3% premium to assigned price. I am keen to stay invested in Glencore as it is a key producer of copper and cobalt and has industrial interests in battery production.
Sold
Changes to margin requirements by Interactive Brokers will be implemented on August 20. While I have quite a few assignments likely to happen that day, I have started to take some profits off the table to free up cash.
Lennar Corporation (LEN): US Homebuilder. Profit taking sale locks in 90% profit since January 2020. Purchase was based on relative underperformance with DR Horton (DHI) - a quick look at the side by side performance since purchase date shows that Lennar did under-perform in that cycle but not by much (less than one percentage point) - see TIB499 for the initial trade entry
Russell/Nomura Small Cap Core Index Linked ETF (1312.T): Japan Small Caps. Profit taking sale to raise cash locks in 30% blended profit since March/May 2016. Not exactly blowing the lights out but a profit nonetheless. Of note is the currency impact was another 1.4% profit in Australian Dollar terms.
Barclays PLC (BARC.L): UK Bank. Assigned early on a covered call for 3.3% blended loss since March/June 2021. I did average down in June and that slice was profitable. I replaced some of the stock at 6% premium to assigned price. Income trades since the initial purchase have recovered 77% of the capital loss. I wrote a covered call on the new holding for September expiry at 1.1% premium with 5% coverage.
Cryptocurrency
Injective Protocol (INJBTC): I added the next of my rising 10 crypto coins with INJ showing signs of reversing relative to Bitcoin. What I like is the chart showing MACD divergence on the daily.
During the week, I will make a video reviewing the 10 coin crypto as a strategy. The question I have is it easier to just buy Bitcoin and Ethereum on a dollar cost averaging basis and hold for the long run.
Income Trades
A few income trades in the week with 5 covered calls (4 US and 1 UK) and one naked put (VSCO - US). One stock was assigned early (BARC.L)
Currency Trades
Short AUDNZD stopped out. Next day - 3 different signals all aiming short. Key for me was bearish engulfing bar coming off the fast EMA. I had written a few trades back to wait for price to test back to resistance - I am seeing a consolidation and my sense is this will break lower as Australia struggles with the current codvid-19 outbreak.
As of writing the trade is profitable.
Trade open short on EURJPY is still open and trading profitably. I have moved stop loss to above the last daily reversal but not yet at breakeven.
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
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August 9 - 13, 2021