Time is the main enemy in options trading. Lessons to learn this month - bad for short term trades and good for covered call writing. Switching to a long game on oil shipping. Adding a currency play to the Poland trade idea.
Portfolio News
Market Jitters - Tariff Tantrum Markets are diverging. US wants to go up and the rest wants to go down.
With US up 6% and global markets down 1% in 2018, US investors are being told by the analysts to stay at home. The uncertainty of the trade tariffs is reinforcing this view. Can the analysts really be right in assuming that US will escape the trade war unscathed? Well in the middle of earnings season they can be excused as earnings are pointing to solid economic growth and the flow through of the US corporate tax cuts. Just wait until earnings season is over and the only data is economic data (which is so prone to revisions after the event).
Nordstrom Earnings Nordstrom (JWN) announced solid comparative store by store results and price surged.
What I was looking for was Norstrom to close some of the gap to the retail sector on earnings (see TIB278). The chart tells the story with price closing almost the entire gap in one session. About the only thing holding it back is Nordstrom's increase also increases XRT (orange line).
My short term trade almost reached maximum profit at $60 price but not quite finishing there at $59.18. The options trade legs moved quite differently with the sold call ($60) rising a lot faster than the bought call ($52.5).
Expiring Options
Solid lessons in this month's expiring options - all about the challenges of short term trades and the time value of options pricing. Time and implied volatility are the key things to manage in options trading, my coach always used to say. He was always a fan of waiting to expiry rather than closing out at 50% or even 70% down.
Direxion Daily 20+ Yr Trsy Bear 3X ETF (TMV): US Interest Rates. The expiring options trade was a 22/25 bull call spread looking for interest rates to rise in the short term (see TIB200). The chart tells the story of rates stopping their rise and tracking sideways for the length of the trade = 3 months. I really needed an expiry date past the September Federal Reserve meeting. They never raise rates during the summer holidays in the August meeting. Turkey also scared markets and drove a lot of safe haven buying of treasury yields.
The chart for 20 year Treasuries shows this sideways tracking really well with my trade only showing profit (below the red line) on three occasions. TMV trades the inverse of TLT - i.e., it goes up when TLT goes down.
Capital Product Partners L.P (CPLP): Oil Shipping. This is what I wrote last month in TIB267 when I rolled the options out one more month at the same strike price
price has a small chance of reaching breakeven but will not reach 100% profit by the August expiry. I was better off taking the loss and looking elsewhere.
I was holding strike 2.5 call options with a trading price of $3.02 in three of my portfolios (i.e., in-the-money but not profitably so). In one portfolio, I do not have enough cash to take delivery of the stock. Rather than roll out another month, I sold the options for a 6% loss this month. This was the smallest loss for the 4 roll outs - overall the trade lost 84% since July 2017. In my other portfolios, I changed tack and decided to take delivery of the stock. I will now remove options time from the equation and wait for the oil price move to play out (if it wants to ).
The chart tells the story. Contracts just closed are the pink rays. Price has basically gone sideways since July 2017 . I have plotted the average true range percentage in the lower window which shows how price variability has dropped from 10% then to 5% now. What was wrong with the options trade?
- Contracts not far out enough in time
- Not enough liquidity (in CPLP you will see my trades were the only trades)
- Distance between strike prices are too wide to make rolling up a possibility.
How does it stand up as a stock investment? Revenues are rising modestly at 5% annually (but less than the oil price). Margins are holding up. Overheads are under control. Debt to equity is low at 51%. It is not going out of business. Dividend yield is high at 10%. A jump in oil prices will improve margins and price should ratchet up. See TIB106 for the original stock and options rationale.
Transocean Ltd. (RIG): Offshore Oil Drilling. This is what I wrote in TIB267 when I rolled up this short term trade in June and July.
I am happy that there is a chance of the trades winning given the premium paid.
The chart tells the story of price not wanting to break up past the bought strike (the green ray) but rather rolling over and tracking down.
Oil prices did not move and all oil services stock were pushed down. Now I am still invested in longer term options (the blue rays (a January 2020 10/20 bull call spread)). There is still time for a blue arrow scenario to play out. If it does from the current levels, maximum profit potential is still possible BUT I do need to see higher oil prices.
ING Groep N.V. (INGA.AS): Dutch Bank. My short term options trade in ING was based on price grabbing back half of the decline in the prior two months to offer a solid profit. (see TIB209 from March 26, 2018). The chart tells the story - trade was put on at the left hand end of the blue rays.
Price had just made a reversal on a weekly chart. It stopped that and simply kept going down and is pretty well following the price scenario I modelled for the long term trade. There is still time for the long term trade to win.
Income Trades
Another successful month of income trades with only one trade closed early at 98% profit and all the others making 100% profit. This raises over $1,100 to take into next month's investing pool. I will set up next month's covered calls overnight.
Cryptocurency
Bitcoin (BTCUSD): Price range for the weekend was $325 (4.9% of the high). After Thursday's inside bar, price made what are called "train tracks" - two parallel bars with high and low about the same level. Price did just squeeze out a new high on Saturday. This is classic market indecision. The good news is there are buyers around the $6000 to $6200 range but the sellers are sitting around the $6500 level.
Ethereum (ETHUSD): Price range for the weekend was $32 (12.1% of the high). Price also made the train tracks formation though a little differently to BTC as price made the highest and lowest prices of the weekend on that day (Saturday). The price action feels different because price rose hard after the long tailed bar and came back to retest the support level. This is much more interesting poising for breakout.
The key news for the weekend was that Coinbase opened up Etherem Classic (ETC) wallets. This was expected to to drive a big switcheroo into ETC. Did it and who were the victims? First chart shows ETC against the US Dollar. We can see the price spike when the announcement was made the week before.
Weekend price action was a drop in price for ETC. In fact, price action apart from the announcement time looks exactly the same as Ether (ETHUSD - orange line). I have open positions on ETC vs ETH in my bot accounts. They were not doing well. If people were doing a switcheroo one would expect ETH to suffer. It did not - here is the chart.
CryptoBots
Outsourced Bot No closed trades. (213 closed trades). Problem children stayed at 18 coins. (>10% down) - ETH (-55%), ZEC (-58%), DASH (-68%), LTC (-47%), BTS (-45%), ICX (-77%), ADA (-60%), PPT (-69%), DGD (-72%), GAS (-83%), SNT (-55%), STRAT (-73%), NEO (-77%), ETC (-42%), QTUM (-73%), BTG (-73%), XMR (-44%), OMG (-60%).
BTS (-45%), and PPT (-69%) each improved one level. Most coins improved a point or two. GAS (-83%) remains the worst.
Profit Trailer Bot 12 closed trades (1.39% profit) bringing the position on the account to 1.35% profit (was 1.24%) (not accounting for open trades).
I moved ETC onto the PT Defender list. There is one coin on the Dollar Cost Average (DCA) list
Pending list remains at 13 coins with 9 coins improving, 2 coins trading flat and 2 worse. EOS was the best improver at 8 points.
PT Defender is working on 4 coins and has made recoveries on 3 of them.
New Trading Bot Positions improved 1 point to -63.2% (was -64.7%)
NEO traded up 2 points while other coins traded flat.
It has been close to 6 months and there are no signs of recovery. I am going to stop reporting on these positions and move them into buy and hold category and/or continue day trading them. One bot is enough for now.
I did trade one Ethereum Classic trade using Crypto Prophecy signals on Friday. I closed the trade early at 0.43% profit as I was heading away for the weekend and was not going to be able to manage the trade if it fell over.
Currency Trades
Polish Zloty (EURPLN): I wrote the other day about a Real Vision idea about Poland. The trade idea was to trade the differential in growth rates between Poland and Europe. I decided to invest in Poland directly through a Poland ETF (see TIB280 for the rationale). At the same time, I did review the forex charts and I quite liked what was shaping up but I wanted to see confirmation of a reversal. I put in a pending order that would trigger if the reversal was confirmed. That trade was triggered on Friday. This is what I saw on the daily chart.
Price is very tidily making higher highs and lows on the way up and starting to make lower highs and lower lows on the way down. The reversal has come along on this cycle as some of the fear about Turkey eased off. I put on a small trade in one of my forex accounts. If the patterns continue, exit point could be when the trade touches the downtrend line or maybe even when it reaches the lows where the uptrend began.
Time to step back and look at the bigger picture. Firstly checking the comparative growth charts. Poland (blue line) has been growing faster than Europe (black line - European Union Europe) for the last 3 years and has not softened like Europe has in the last quarter. Europe did grow faster in the early stages of this chart.
https://tradingeconomics.com/poland/gdp-growth-annual
Secondly, when I look back at the currency chart (weekly bars) going back to the 2012 lows following the European Debt Crisis, the chart looks like a mess. There is no discernible trend (up or down).
What really stands out is "Europe Muddles" certainly smack the Euro (Greece, Spain, Italy, Turkey now). One cannot tell with confidence from this chart that Europe was growing faster than Poland in 2014/15. What feels comfortable is the Zloty does cycle well - the trade expectation is that it will do that for at least one more cycle (maybe two) before reversing and heading back to the top of the range again.
Forex Robot did not close any trades and is trading at a negative equity level of 9.6% (lower higher than prior day's 8.6%).
Outsourced MAM account Actions to Wealth closed out 4 trades for 0.38% profits for the day. Some way to go to make up the horror ten days of trading.
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. Poland GDP chart comes from TradingEconomics.com. 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
August 17, 2018