Financial Freedom Sloth

achieving financial freedom one lazy step at a time

Tag: AD

Special circumstance investing – september update

Wow, one month without a post. Some bloggers have the decency of warning their readers beforehand, me, not so much …

What did I do

Well I rolled my Ahold Delhaize puts to november. Same strike price. I might still walk a way with a profit from this one. The market is really overreaction for this one. It just shows how tight the nerves are …

AB inbev is still doing fine and my leveraged construction can now take a 20% drop without me losing any profit on it! Despite all this great news I am still planning on further deleverage. No more new option writing and once the present leveraged construction is unwound no more leverage (except for the occasional day trading).

Day trading in September brought in 800 USD. Day trading in this case isn’t the correct word. I bought 100 CfD’s on Google on the first of September and then Google went down and kept going down. I have been there before and it is one of the reasons why I don’t trade when it is near an all time high. At 955,40 USD it was my conviction it would eventually go higher. High enough to recoup the financing fees and make a profit. I also had stuff to do in the evening like preparing a big bbq for the 9th September (and thus needing to clean up the garden), job hunting and preparing for my two week holiday in Lanzarote. It was nice to have a break from day trading in the evening en just do practical stuff. Time proved me right so while vacationing in Lanzarote I put in a sell order at 969 USD. When not filled I lowered it to 965,50 USD for the next day and while driving to the vulcano on Lanzarote on the 29th September the order got filled at a price of 966,017 USD. Google actually shot up a lot more that day so I could have made more money but hey, I was on a holiday. Actually, holding the position would have made me a lot more. But I just didn’t want another leveraged position during my holiday. Day trading is an extra for me so I will take what I can and try not to be bothered to much by the money I leave on the table.

Before going on holiday I also bought 10 puts on UVXY, expiration 01/2019 for 11,75 USD a piece. I have a nice profit on them and probably will sell them on Monday.

Add the nice rise of Berkshire Hathaway to the above and my net worth reached a new all time high. And that while I was vacationing and doing absolutely nothing productive with my time. Gentleman of leisure indeed!

The girlfriends portfolio

Here too I rolled her Ahold Delhaize puts (and in my parents portfolio).

Turns out I kinda miscalculated here free cash position last month and should not have done the UVXY puts in August so I didn’t enter a new trade in her account this time. Once the puts are gone I will move agressively into it.

Since Google dropped after I bought my CfD’s and I had a strong conviction they would go up I bought 100 CfD’s in the girlfriends portfolio to. Bought at 954,90 USD and sold at 968,99 USD (I never lowered her sell order as I did on mine). So she actually made more money on this trade then I did! After financing fees a cool 1 150 USD was added to her account.

I usually only day trade in my portfolio as switching between accounts is a bit of a bother. But on occasion I do enter a trade in the girlfriends portfolio also. It is so random and few I don’t even bother keeping score. But up to now, all have been profitable.

Why deleveraging and moving aggressively into UVXY puts

Three reasons

– prices are high for most stocks and in the case of a correction/crash even cheap or moderately priced stocks will drop in price

– I hate cash

– I suck in market timing

Prices are high, but that doesn’t mean they can not go higher. I also know that timing the market is a fools game. So I keep the stock I already have.

But I prefer to buy my shares when they are cheap and there isn’t a lot of cheap out there. Not buying stock and building up the cash should be the logical way then. But I hate cash, I want my money to work hard for me so I can be lazy! Enter UVXY puts. UVXY is a play on volatility so not linked to the high values of stock. And it should give me a minimum return of 10% a year.

So I am positioning myself that:

– if there is no crash I have the growth of Berkshire Hathaway and the return on my UVXY puts investments. My average return should still beat the market.

– if there is a crash: Buffett can finale deploy his 100 billion cash reserve, insuring further rise in Berkshire share price. I too have some nice cash standing at the sidelines, ready to buy good stock at cheap prices. Loses should be less then the market average and gains after the correction should be a lot bigger than the market average.

Heads I win, tails I also win.

The cost for this is the extra profit I could have made by some leveraged positions. But I no longer feel these extra profits justify the extra risk I am running. There is a time to be greedy and this isn’t the time.

 

Special circumstance investing – august update

As mentioned here I need to deleverage. So option writing is out for the time being. The put option on ADM at strike 40 USD expired out of the money so that is some leverage gone.

What did  I do

Since I still want to be finished with the renovation as soon as possible and options were out of the question I doubled down on day trading. Total day trading income for August was 800 USD. The highest since I am back at work! I’ll be on holiday for part of September and October so I do not expect to repeat this any time soon.

For the remaining puts I have: AB Inbev is doing fine but Ahold Delhaize will need to be rolled to a further date. The market decided to behave like an idiot and send the stock a lot lower because Amazon completed the takeover of  Whole Foods and reduced some prices (actually brought them in line with the competition as Whole foods had the reputation of being expensive). This will work itself out over the next couple of months and I expect Ahold Delhaize to regain most of this drop. It is one of the reasons I chose companies with predictable cash flows to write puts on. Even if the market is stupid, a few quarters of the same predictable cash flow gushing in usually fixes that ..

The only reason why it annoys me is because I now want to get rid of all options and even build up my cash further. The reason for this is UVXY but since I did the trade in the girlfriends portfolio I’ll explain it there. It’s going to be a long read so let’s put on some tunes shall we?

 

The girlfriends portfolio

So, I had mentioned I would probably move to the girlfriends portfolio to play with puts on UVXY. True to my word on 9 August I bought 3 puts on UVXY at strike 20 USD and paid 10,25 USD for it.

I wanted to do the same trade in my portfolio but I didn’t get assigned on the 9th. After that the price of UVXY started going up. Logic would dictate the price of the put to go down. But it didn’t. It actually went up! The reason for this is that UVXY is a play on volatility and most people use the puts to do short term gambles on sharp rise (or drops) in volatility. So a lot of people flooded into this product. Which drove up the price of the puts even if they should have dropped! We had an interesting ‘talk’ about it in the comment section of this and this post.

I do recognize stupidity when I see it. I also like to profit from said stupidity so I myself did not buy any puts. I did sell the girlfriends puts on 15 august at 11,30 USD maxing almost 10% profit (300 USD) in less than a week.

Bottom line for UVXY is that it is an absolutely crap product, designed with short term gamblers in mind (read that explication people, so cool!). It is constructed in such a way that over time the house always wins (it will lose value over time, so Proshares who created it wins). The thing is, there is one way you can make a consistent profit on it it! And Velociraptor discovered that way. By buying long term puts (as I have done now two times) you put yourself more or less in the same position as the house. And over time you should profit of it. It can take several months, in rare cases even more than a year. Or it can take less than a week. But I am now convinced that a 10% annual profit, at the least, should be possible with this puts on this product.

Liquidity remains an issue since to play it correctly you buy the puts when the gambling masses are not interested in the product. But Velociraptor is able to put more than 20.000 USD in it. So I am now freeing up as much cash as I can and see if I can do this too!

Finally a good reason to talk to the parents and transfer some of their non working cash parked on savings accounts to their Lynx account!

Made it all the way to the end? Great! If it all seems a bit much

just remember, that you’re standing on a planet that’s evolving
And revolving at nine hundred miles an hour,
That’s orbiting at nineteen miles a second, so it’s reckoned,
A sun that is the source of all our power.
The sun and you and me and all the stars that we can see
Are moving at a million miles a day
In an outer spiral arm, at forty thousand miles an hour,
Of the galaxy we call the ‘Milky Way’.

Special circumstance investing – taking on to much risk

I sold puts on Ahold Delhaize strike 17,50 expiry 09/17 and received 0,50 euro premium.

I did this for me (10 contracts, 488 euro net premium received), the girlfriends portfolio (11 contracts, 530,20 euro premium) and my parents (5 contracts, 241 euro premium). I just took on to much risk in my own portfolio and I know it.

I knew it from the start. When I transferred all my positions to Lynx (a reseller of Interactive broker) and started looking at all the shiny new toys they offered I felt like a kid in a candy store. And I knew right from the start: this is dangerous.

Especially the leverage part. Leverage is wonderful in good times and can really turbo charge your profits but when it works against you it can devastate your portfolio. I knew I needed to be careful with pulling that particular lever. Only to be used in very special circumstances (hence the name for these posts).

So I did my leveraged construction only at a good price point with an excellent stock. And I would keep the cash I got upfront in cash so I could unwind it whenever it was necessary.

Then the stock went up, my buffer grew bigger and I thought it to be ok to use some of that cash to also write puts. Puts that would not be exercised! The money now has to cover two positions. I am good as long as only one thing moves against me.

Then the put went out of money and I used the same money for two different put series. The same money now has to cover three positions. Profits are great and everything is ok as long as only 1 out of the three positions doesn’t work out.

Then the second put also went out of money and I wrote puts on Ahold. The same money now has to cover four positions. In my own portfolio I definitely have taken on to much risk and I now it. Sunday evening I logged in and only did an order in the girlfriends portfolio (no leveraged position, money only serves two put positions now) and the parents (leveraged position + 2 put positions). Then Monday morning before work I quickly entered the same order in my portfolio.

It will work out. I am sure of it. It will be a nice 488 euro extra in my bank account. But the fact remains I took on too much risk. I went over my own limit* and I know it.

There is something in my personality that likes testing boundaries. I want to know where my limit is. I only got truly, completely utterly drunk around three times in my life. I now know where my limit is and have no need to test it anymore. With other products I, as with everything, got informed. Delving deep into the internet, deep into forums. Determining save doses. Using those save doses. And then, again, testing my limits. Going, knowingly, over the save limit. I wanted to know exactly where my limit was and the only way to be sure is to go over it. I actually have a somewhat amusing post ready about the time I experimented with boosting my natural  testosterone levels. There too, I went over my limit.

So I also knew I would be testing my limits on Lynx. Going over them. Even now, with the put on Ahold Delhaize (AD) done. With knowing I have already taken on too much risk I am thinking about buying some puts on UVXY again. It shot up the last couple of days and doing it now will probably make me another 10% or even 20% profit on the money I put into it. But it would reduce the cash I have even further. It would make the risk position even worse.

I’ll probably do it after I have posted this. Because it seems to be in my nature to do so. I need to test my limit. Just that one time …

 

*With limit I mean my own limit. I am nowhere near the margin limit of Lynx. They offer up to 8x leverage which in my mind is totally crazy. My own imposed limit is 2x leverage. I am now well above that, approaching 2,5x leverage.