The markets bounced a round all week ending a little higher. I am keeping an eye on this increased volatility with a view to building some cash reserves - this coming options expiry should release some. Trade action in the week was around European banks and inflation prospects.
Portfolio News
In a week where S&P 500 rose 0.83%, my pension portfolio rose 1.55% driven by a big move in De Grey Mining (DEG.AX), the largest holding, and a 3.8% rise in European banks and energy stocks.
Big movers of the week were De Grey Mining (DEG.AX), (+30.9%), Navios Maritime (NM) (+18.6%), Yooma Wellness (YOOM.CN) (+17.4%), Bayhorse Silver (BHS.V) (+13.6%), Commerzbank (CBK.DE) (+10.7%). It is not often a bank stock moves 10% in a week.
An undercurrent that is bubbling up is an emerging crisis (perhaps) in energy markets.
I reported a few articles from BBC News of looming problems in India and China and Lebanon and Greece. As this bubbles along I get the feeling that inflation is not transitory. I also feel there is a bigger agenda going on - if the world cannot agree climate targets, just drive prices so that shortages become the climate action.
Crypto booms
Bitcoin price pushed higher all week and finishing the week 16% higher than the open. There is conflicting news emerging - the possibility of an Executive Order from Joe Biden reining crypto in to the possibility of the first Crypto related ETF being approved and a more friendly stance from SEC - who knows which is true?
There is a wrinkle in the last 4 hours of this chart with a spike down - this chart comes from Bitstamp. That move was not showing on other exchanges.
There were some movers around the same size as Bitcoin - Chainlink, Polkadot, Ripple but the biggest in my portfolios was HIVE - at one point doubling
Bought
ING Groep (INGA.AS): Dutch Bank. Replaced stock assigned early on covered call at 1.75% premium to assigned price. Was keen to replace early as October 5 is record date for dividend. Dividend amount is €0.21 which is exactly the premium I paid.
In my other portfolio I added a small parcel for the first time since April 2019 - maybe time to look at relative charts for European banks again. Wrote covered call for October expiry for 1.1% premium with 4.5% price coverage.
With price moving over €12, I also looked to rollup December 2021 strike 12 call options to March 2022 strike 13. Trade did not quite go to plan as I managed to execute the trade on Amsterdam exchange with the existing options contract listed on Deutsche Börse. Now this will resolve itself at expiry if there is any exercise. The frustrating part is the trading cost in Europe is quite high and that will eat a fair bit of profits to fix.
I did fix the trade the next day. Closed the DTB listed options for 45% blended profit since May 2019/February 2020. Sale price achieved was just a little higher than first tranche bought - profits came from the averaging down. There was a big drop in the two weeks in May 2019 when ECB introduced negative interest rates. The buy back of the short interest was expensive and wiped out almost all the profit on the trade. I did not want to leave the trade open to wait for prices to come back as October 5 was dividend record date and I could not afford the margin to be exercised. Hopefully the March 2022 strike 13 options will do their work
ABN AMRO Bank N.V. (ABN.AS): Dutch Bank. With yields rising lifting all European banks, I added another small parcel in one portfolio - price did drift lower from the Friday spike. This replaces the last tranche of stock assigned in August 2021 at 13.4% premium to assigned price - this is the one disadvantage of writing covered calls - sometimes the stock runs away. Wrote covered call for October expiry for 1.1% premium with 2.3% price coverage.
Livent Corporation (LTHM): Lithium. Replaced third tranche of stock assigned on covered call in August for 4.8% premium to assigned price and 4.8% cheaper than the tranche before. Wrote covered call for 1.5% premium with 6% price coverage on this tranche - less on the others
Adyen N.V. (ADYEN.AS): Payment Services. Share price has been hammered in the tech selloff and as the reopening trade builds. Its technologies really benefitted from lockdown with apps like restaurant ordering and the like. Rather than buy a parcel of stock at €2366 a share, I set up a new call spread risk reversal. I bought a December 2022 2500/2900 bull call spread. With a net premium of €136.50 this offers maximum profit potential of 193% for a 22% move in price from the open - only 18% from the close. I funded that premium fully by selling a March 2022 strike 2250 put option - 5% below the open and 8.8% below the close.
Quick update of the chart shows the new trade with pale rays. This feels like a blue sky trade but the consolidation gives me a feeling there is a chance of another move up.
Sold
VanEck Vectors Vietnam ETF (VNM): Vietnam Index. Read an article in Wall Street Journal about the covid lockdown pressures on Vietnam manufacturing. It looks like Vietnam is going to be dragging in the reopening as it wrestles with the delta variant. Closed out positions in two portfolios for 33% profit since June 2016.
Shorts
iShares 20+ Year Treasury Bond ETF (TLT): US Treasuries. It is becoming clear to me that inflation is going to prove it is not transitory. In Thursday trade (Oct 7), price closed below the $143 sold put level I am holding in a few places. Friday trade saw price drop another 0.7% to close below $142 at 141.88. My hedge trades are normally constructed as ratio spreads with twice as many puts sold as bought. I do not want to be holding treasuries long in a rising yield environment. What to do? One idea: Take the loss and buy back the surplus sold puts and reduce the ratio to a bear put spread - I have done that in one portfolio. As it happens it looks like the profit on the spread will cover the loss. In another portfolio, I took another path - I sold an October 29 call option at 143 strike - i.e., the same level I will be assigned the stock. Premium was close to 1% for 10 days exposure. We shall see how it plays out.
Quick update of the chart which shows the initial trade (147/144.5). I closed out the 144.5 and sold 143 instead the week before - that was not enough. This move is more marked and a bit more like what began in May 2020. Get a repeat of that and I am right in wanting the trade to be open ended.
Cryptocurrency
As part of my top 10 crypto strategy, I review coins that arrive in the top 20 and decide whether to add them. A few weeks ago I added Avalanche (AVAX) and that worked well. This week I had a look again at Terra. Terra offers a platform for minting stable coins vs US Dollar, Korean Won IMF special drawing rights and Mongolian Tugrik with plans to do more. They use their own coin LUNA to keep its one-to-one peg through an algorithm that automatically adjusts stablecoin supply based on its demand. It does so by incentivizing LUNA holders to swap LUNA and stablecoins at profitable exchange rates, as needed, to either expand or contract the stablecoin supply to match demand.
I decided to add a small parcel of LUNA which is now ranked at #11 by market capitalisation. Normally I fund purchases like this by selling BTC or ETH. This time I did something different. In 2018, I constructed a few portfolios of rising 10 altcoins - many of those went down hard. I took all the rats and mice on my Binance portfolio and converted then to Binance Coin and then sold BNB for LUNA. 0.31535 BNB equates to around $135. What did I sell - ICX, VTHO, SXP, NULS, ONT, ONG, WABI, AION, BRD, INJ, GTO, GVT - all under $25 worth and some a lot less. 9 coins I bought in 2018 for $900 valued now at $135. This convert to BNB was a super easy way to clear out the dross and find a new project. I staked the LUNA for 30 days.
Hive (HIVEUSD). Hive price went through a pump action in the week which saw price more than double from $0.70 to peak at $1.50. I took that chance to sell a small amount of Hive and bought LEO. I used the LeoDex for this so that I could go directly from HIVE to LEO at 0.248289 - price at time of writing is 0.269083. I powered up the LEO
Income Trades
A quiet week with only 4 covered calls written (US 2, Europe 2) and 4 naked puts wriutten (US 1, Europe 3) across all portfolios
Naked Puts
Commerzbank AG (CBK.DE): German Bank. With price opening at €5.68 and trading up to a high of €5.86 (Oct 5), there is a chance my split covered calls at 5.6 and 5.8 will be assigned next week. I am keen to stay invested in this yield environment. Rather than buy replacement stock at 3% rise for the day, I sold a 5.5 strike naked put below the lower of my covered call strikes. If price drops below €5.50 I do not mind doubling my position.
Electricité de France S.A. (EDF.PA): French Utility. With price opening at €12.14 and trading up toward €12.50 (Oct 5) my October expiry covered call will go to assignment. I sold a naked put at a strike price higher than that assignment level but 4.2% closing price for 1.3% premium.
Navios Maritime Holdings Inc (NM): Shipping. Price has jumped 31% from the October 1 open. This has driven past the covered call strike I have (5) over half of my holding. The bad news is that strike is the level at which I bought a large parcel of stock that will be assigned. I am not keen to replace the stock at the new price but I am interested in staying invested in shipping. The supply chain problems can only be good for shipping rates. I elected to write a November expiry strike 5 put option as I am assuming that the covered call will be assigned next week. If price does drop back below $5, I am happy to buy at that level. Premium was 6% of strike and gives me a breakeven of $4.70 if it goes to assignment. Of note, my average cost is $6.05 which is below October 7 close of $6.20.
Options chain shows I am the market.
Currency Trades
None
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
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October 4-8, 2021