Reporting on stock assignments for August expiry shows some interesting patterns which do not fully make sense in a selloff week. Normally gold and silver hold up when markets get rocky - not this month. The stocks that passed their sold call strikes are easier to understand = reopening and infrastructure bill
Portfolio News
I wrote last time about the way bond markets seemed to shrug off the stocks selloff. It is hard to pin down why that happened - either the bond markets are not as bothered about the start of tapering and the rising delta variant cases or maybe there is something more simple - my gut tells me it is the way the Federal Reserve repo market is working. With a slightly positive interest rate there, money managers are holding reserves there and staying away from capital risk in the bond markets. Time will tell.
Here is a view from Bloomberg about the conundrum facing the Fed.
The stakes are high, with the gusher of cash awash in the financial system driving U.S. stocks to record highs, and Treasury yields holding just above six-month lows. Pulling back too quickly may derail the economic recovery just as the surge in the delta variant is posing a new risk. Moving too slowly could fuel the inflation pressures unleashed by the reopening from the pandemic.
A little further along the same article
U.S. 10-year yields have drifted steadily downward since March and are now around 1.34% amid concerns that the resurgent pandemic in the U.S. will damp the recovery. The spread between long- and short-term yields has also narrowed since hitting a more than five-year high in March, a sign of speculation that the Fed will start to withdraw its stimulus. The prospect of higher rates has boosted the dollar, driving the currency this month to its highest since November, according to the Bloomberg Dollar Spot Index.
Bought
Naked Puts
The naked puts that were assigned were clustered in gold and silver. I do not mind buying these at these sorts of levels as they act as hedge trades. There is risk in the miners if we see interest rates rising.
Coeur Mining, Inc (CDE): Silver Mining. Assigned on naked put at 13% premium to $6.20 closing price with breakeven at $6.70
VanEck Vectors Gold Miners ETF (GDX): Gold Mining. Assigned on naked put at 3.7% premium to $30.85 closing price with breakeven at $31.36
iShares Silver Trust (SLV): Silver. Assigned on naked put at 3% premium to $21.35 closing price with breakeven at $21.76 (in two portfolios)
FireEye, Inc. (FEYE): Cybersecurity. Assigned on naked put at 5.8% premium to $17.01 closing price with breakeven at $17.67. FireEye often disappoints around earnings time - maybe analysts misunderstand the business. The last cycle was no exception.
In this portfolio, I have been running income trades since December 2017 with the first tranche of covered calls running all the way through to October 2019 - that is a lot of income. In fact income trades have delivered double the capital profits achieved in that time.
A quick look at the chart shows the gap from the last earnings. It also shows why I have been happy to write naked puts month after month - I last owned the stock in December 2020 but have kept writing naked puts. Price moves in a pretty narrow range even when it is trending down. The effective breakeven price for this series of naked puts is $16.89 - the lower red ray.
Cybersecurity has long been one of my investing theses - it will get more and more important.
Wynn Resorts, Limited (WYNN): US Gaming. Assigned on naked put at 7.6% premium to closing price $88.3 with breakeven at $93.87. I had chosen to to set my longer term call spread trade up as a credit spread risk reversal preferring to sell naked puts - I needed 5 to make the spread cash neutral. Well I got one.
Quick update of the chart which shows the January 2023 110/135 call spread and the 95 strike naked put just assigned. At trade time the trade needed a copper arrow price scenario to win. Now the trade needs a blue arrow price scenario to win. There have been two like that since 2019. The trade plan was to write naked puts to lever up the trade. As I now won 100 shares I will write covered calls on these shares and let the market decide the exit price. Then I can go back to writing naked puts.
See TIB550 for the trade rationale
Credit Spread Risk Reversal
The next purchase was part of credit spread risk reversal. At the time of setting up the trades I was happy to be buying in at the sold put strikes if price dropped that low.
Global X Copper Miners ETF (COPX): Copper Mining. Assigned on sold leg of credit spread risk reversal for 2.3% premium to closing price $33.22. Monday trade has price above the sold strike. Breakeven is $33.60
Quick update of the chart shows price dropping below the sold put (34 - dotted red line) the day before expiry and has since bounced. I have copied across the price scenario to that low and coloured it copper. Get that and this trade will win. The passing of the infrastructure bill certainly helps copper. The slowdown in China does not.
See TIB551 for the trade rationale
Sold
ABN AMRO Bank N.V. (ABN.AS): Dutch Bank. Assigned on a covered call for 3.8% blended loss since June 2021. Disappointing as price did close at €11.52 which is higher than my first entry price on the blended holding. 7% loss in another portfolio since June 2021. I will buy this back in small parcels and average down if I have to.
Danone S.A. (BN.PA): Europe Consumer Products. Assigned on a covered call for 6.6% profit since February 2021. 6.5% profit in another portfolio since February 2021.
ING Groep N.V. (INGA.AS): Dutch Bank. Assigned on a covered call for 0.4% loss since May 2021. I did buy back half the contracts as sold strike was really close to purchase price.
Cisco Systems, Inc (CSCO): Network Equipment. Assigned on a covered call for 4.1% profit since June 2021. 3.6% blended profit since June 2021 in another portfolio.
Wisdom Tree India Earnings ETF (EPI): India Index. Assigned on a covered call for 12% profit since February 2021
First Solar (FSLR): Solar Power. Assigned on a covered call for 19.3% profit since June 2021 - partial holding only.
Huntington Bancshares Inc (HBAN): US Regional Bank. Assigned on a covered call for 7.4% profit since June 2021 - profit taken on last stock purchased - average cost is higher.
Livent Corporation (LTHM): Lithium Compounds. Assigned on a covered call for 82% blended profit since February 2020. 2nd parcel at a higher strike price was 126% profit also since February 2020.
In another portfolio with a much larger holding the first tranche had a blended profit of 89% from February 2020. 2nd tranche had a blended profit of 99% since June 2020/February 2021. in this portfolio income trades contributed an additional 31% profits over 18 months.
In TIB506 and TIB507, I dug into the constituents of the Global X Lithium ETH (LIT) and picked one laggard that was involved downstream from lithium mining. This is how Livent was picked. I did some averaging down. I will be doing the same again to look for something to replace LTHM. As it happens LTHM underperformed LIT from the time of my first purchase but not from the March 2020 correction
The pink line is the candidate to replace - Sociedad Química y Minera de Chile S.A. (SQM) - it has lagged for most of 2021
Nucor Corporation (NUE): US Steel. Assigned on a covered call for 5.6% profit since June 2021. This is one that got away with sold strike of $100 and closing price of $116.42.
Star Bulk Carriers Corp (SBLK): Bulk Shipping. Assigned on a covered call for 4.3% blended profit since July 2021 - partial holding only.
Walmart Inc (WMT): US Retail. Assigned on a covered call for 1.7% blended profit since November 2020/February 2021. The averaging down in February did help ramp up the return somewhat.
United States Steel Corp (X): US Steel. Assigned on a covered call for 8.9% blended profit since June/July 2021. Price did close 8% higher than the sold strike. 1.9% profit since June 2021 in another portfolio.
Carrefour SA (CA.PA): French Supermarket. Assigned on a covered call for 0.8% loss since May 2021. Closing price at €17.29 was a little higher than my initial entry price = a good candidate to replace.
ENGIE SA (ENGI.PA): French Utility. Assigned on a covered call for 2.3% blended loss since May/June 2021. I have been running income trades on ENGIE since January 2020. There have been a few capital losses along the way but the income trade has delivered a return of around 25%. For the most part price trades in a narrow range making the stock suitable for writing both covered calls and naked puts. I did land up with an odd lot of only 6 shares. I will round that up to 100's and start again.
Linde plc (LIN): Specialty Chemicals. Assigned on a covered call for 10.6% blended profit since February/June 2021.
Wells Fargo & Company (WFC): US Bank. Assigned on a covered call for 1.1% blended profit since May/June 2021. The 2nd purchase was from an assigned naked put that did average down entry price to drive this small profit.
Expiring Options
iShares MSCI Australia ETF (EWA): Australia Index. With price closing at $25.33 short term strike 26 call option expired. This was a ETF Trade Signal idea - price did not move the 3% needed. I did manage to get some of the premium back by selling a next strike up call option. I remain exposed to the stock but will be looking to bail out at breakeven if I can - the way the covid story is unfolding here looks like domestic recession will wipe out any export growth
Shorts
iShares 20+ Year Treasury Bond ETF (TLT): US Treasuries. With price closing at $150.55, the 146/143 ratio put spread used as a hedging trade expired for a small profit on the cash neutral trade.
Income Trades
In my pension portfolio, of 73 covered calls written 13 were assigned and of 19 naked puts written 4 were assigned.
In my other reporting portfolios of 43 covered calls written 10 were assigned and of 16 naked puts written two were assigned.
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
August 20, 2021