Financial Freedom Sloth

achieving financial freedom one lazy step at a time

Tag: day trading

Adventures in day trading

I already talked about how I ended up at Lynx here. Lynx offered a multitude of new possibilities for me and in my first post about how I was going to use these I also mentioned day trading.

I had this to say about it:

With the SAB MILLER position active and me not needing to work at the time I grew bored. So I tried my hand at day trading. Technically it was day trading because I was buying and selling on the same day. But actually I had identified some stock that was cheap and I wanted to buy some. I just didn’t feel too comfortable with already having a 200.000 GBP leveraged position so as soon as I made some profit I closed the position (and thus the extra leverage). I practiced a bit with Berkshire Hathaway and Coca cola. And then when Google went down to 730 USD I really had some fun with it. Real day trading is off course have dozens or even hundreds of trades and playing both an uptrend and downtrend in stock price. I just bought stock I thought was cheap and then sold with a small profit. Sometimes I only did 1 or 2 of these trades, and some days 6 or 8. I found it to be way to much work and also too much stress but I did make around 2.500 USD in profits from it (another 1% added to the stash). But it would have been much more profitable to just buy Google at 730 USD, keep it for a few months and then sell it around 780 USD. I just wasn’t very comfortable with that amount of leverage at that time.

I stopped day trading when I started working again but then my temporary contract ended at the end of January. Since I once again had a leveraged construction at 2x leverage in my portfolio I decided to start day trading again.

Let’s do it again

My approach remained the same. So I chose google again to trade in.

The reasons for this is that I believe in the long term prospects of google (by which I mean the stock price should go up over time) and it usually has enough volatility during the day to make a small profit of at least a 100 USD of it with a trade.

I usually buy 100 CfD’s on Google. This costs me 5 USD in fees as that is the minimum fee Lynx charges. Selling will cost me another 5 USD so Google needs to go up 0,10 USD for me to break even. I usually try to make 100 USD on a trade. So google needs to move 1,10 USD for this to happen. This is about 0.0011%. So changes of this happening are pretty good.

Pretty good doesn’t mean guaranteed. Last Thursday would have been a bad day to try to day trade in google.

One of my own rules is that really bad days I stay away. Yes, even Thursday there would have been 2 or three points (red arrows) where a quick in and out hopping could have made some money but chances of picking the exact right time are too low to risk it.

I also do not trade when the stock is at an all-time high price (though I broke that rule to buy just below 1000 USD and then sell just above 1000 USD just so I could say I traded Google went it went over the 1000 USD share price. I now, stupid. Especially because nobody but me cares about something like that…). I also do not trade when the stock is at a high for that day.

What do I trade? Little drops in the stock.

15 August would have been a good day to trade.

There are 4 moments where I might have traded. We had a friend over so I didn’t go and sit behind the PC but I did want to show off a little bit so late in the afternoon I did log in. I was just in time for the last moment and opened a position. The upward movement wasn’t as strong as I thought it would be (should have sold at the first black arrow) so I left some money on the table but in the end was able to close the position with a net profit of 50 USD (sold somewhere around the second black arrow).

The trick is off course to identify that the dip is in fact a dip and not the beginning of a big downward movement. Either I have been lucky so far or I kinda have a ‘feel’ for it. But I have also closed positions at no profit or only 5 or 8 USD profit because the upward movement I thought would happen just didn’t materialize. I have had Google do nothing but go down after I open a position. Lucky for me this happened at prize points where I didn’t mind holding Google. So my day trade position then became a multi-day or in two occasions even multi-week position until Google rebound so I could exit the position at a profit. It is why I do not day trade when Google is at (or near) an all-time high (with the one exception, I knew it would cross the 1000 USD mark). Let’s just say I am pretty happy with the last drop in Google price. It is now at a level I feel comfortable trading it again.

As you just read there is nothing sophisticated or glamorous about it. But it is some extra money on a regular basis. Last year I made around 2.500 USD (in a couple of months) and this year I am around 3.250 USD (the price of the Vespa!). It is a little bit extra I now do in an effort to get the home renovations done quicker. My estimate is that the remaining home renovation will take around 50.000 euro. The girlfriend and me can save around 10.000 euro a year so these should take 5 years to  complete. If I make an additional 10.000 euro by day trading in the next 4 years well that is one year quicker that our house is finished. Since I do not want to retire before the renovations are done this could shave off a full year of me working!

I can feel my mind slipping

Before I started day trading I had read it is mostly a mental game and I can confirm it is.

First and all, you need to be able to stare at the price of a stock for hours. It literally is looking at a screen. So you have to be able to do that (luckily I have had lots of training at my previous jobs for this). And then you have to fight the urge to open a position. Believe me, this is hard! That is why you are sitting there after all! And the longer you sit there, the more you want to enter a trade.

Then when you do enter a trade there are nerves. Because your timing is never perfect. Meaning you buy in a dip, but the dip continues … And every 0.1 USD drop is costing you 10 USD. You are sitting there thinking: I should have waited a bit longer! I am leaving money on the table!!

Then the stock goes up. Oef, yes, it was a dip, yes I am going to make money here!

Then it goes down a bit again. We are talking cents here, cents on a 925 USD stock. So off course it is moving up and down. I always does that but what you need to determine here is: is the dip over and will it go higher or is the dip not over yet? Is this a little upward bounce before going down a lot more? How strong is the upward movement?

In all honesty, sometimes I exit the trade just in time before it drops another dollar. In those cases I feel pretty smart. But sometimes I get out with 5 or 10 USD profit thinking the stock will go down again but then it starts a strong upward movement, going up 2 or 3 dollar. Which means I just missed 300 USD profits. I feel pretty stupid then.

You need to leave your emotions at home. But you also need to be able to not give a fuck about the fact you missed profit. That is hard, because you are there, sitting behind the computer to make a 100 or 200 USD. You are thinking 10 cents movement = 10 USD. And since your timing is never going to be perfect you will always miss profits. So even if you know you missed some profit. Even if some part of your brain is screaming: nice going dimwit, you just missed 80 USD another part of your brain must scream back and say fuck it, I made some profit and I will continu to make profits, shut up other part of the brain! And that second part of your brain needs to win the shouting match! So you can continue trading and open a new position. And then the entire circus starts again. As you can read, it goes from utterly boring to utterly nerve wrecking.

Why do I do it then?

well, I seem to be decent at it. Within the rules I made for myself I am capable of making a little bit of profit. I don’t find it a pleasant activity to do but the 3.250 USD of profit so far equals 1,5 months of working in Brussels. Honestly, I prefer the day trading over the going to work. It takes less effort, and I don’t need to go to Brussels for it.

It also helps that it is a little extra on the side. I do not do it a lot. As a day job  I think it would be very exhausting. A little bit left and right is very doable. Sometimes I plan on doing some trading one evening and then when the time comes I don’t feel like it, so I don’t. Or the stock doesn’t move right so I stop after an hour. When I was unemployed I put in longer sessions. But even then, sometimes I made a nice profit in the first two hours so I just stopped for the rest of the day (or even week) and was off to do something a lot more fun than staring at a screen for hours.

So for the time being I am going to continue doing it. Hopefully get another 10.000 USD in profits from it over time so I can finish renovating the house one year earlier …

 

 

Frugal living: keeping the old timer motorcycle or not?

A little confession and question time. When I was in between jobs (feb – april) this year I bought a 125 cc Vespa scooter (and did some day trading). I am very happy with the Vespa and I am now wondering why the hell I didn’t buy a motorcycle earlier.

The thing is, and this is the confession part, I did. You see, I also was in between jobs roughly a year before. Kinda from sept 2015 till may 2016. Kinda because I only was really unemployed from march ’16 till 1st of may 2016. But I also didn’t really had to work between sept ’15 and march’16 (part of a severance deal with my employer). It’s a long and complex story. And yes, the severance package was finger licking good. Well anyway, during that period I also bought a motorcycle (and did some day trading, yes I am starting to see a pattern here …).
I bought an old-timer. A berini m21 (probably deluxe version) form the 1950’s. It’s a beauty.

 

Berini is a Dutch brand and has some following in Holland but is largely unknown in Belgium. Meaning I got it at a good price: 350 euro. I haven’t really driven the motorcycle as the old breaks needed some work and I put it at a friends place who is an old-timer aficionado. But he is taking his sweet time ….

Anyway, I bought it because I like old-timer motorcycles and part of me views it as a fun pass time once I am semi-retired. Working on it. Learning some mechanical skills. Driving around the country roads here. Perhaps going to an old-timer meet up …. And old-timer motorcycles are a hell of a lot cheaper (especially if you limit yourself to 125cc max) than cars ….

I still like that idea. But with the new job in Brussels and going swimming and still needing to do some renovations at the house, our large garden and such I am not going to have the time as long as I am working full time. I do have plenty of storage space to put it. And it is not costing me anything just standing there.

On the other hand I know I can sell it and easily get my money back. It is 400 euro after all. But then, day trading in 2016 made me 2.455 USD and last Friday I passed the 3.000 USD mark for 2017. If I really want another 400 euro I can easily suck it up and do some extra day trading in the evening. I hardly do it anymore since working again because it is sitting behind a screen and staring at numbers, something I already do for 7,5 hours at my job … But it would also take me time behind the PC to sell it. So spending that time day trading would get me the money AND I would get to keep the motorcycle. And I know that kind of reasoning is a very dangerous slippery slope. It is one of the reasons I am not a big fan of the day trading. It screws with your view on money. Last Friday I made 300 USD in less than 30 minutes. You start getting these thoughts where 100 USD equals a quick in an out trade in Google… But the psychology of day trading is something for another post if some of you are interested in hearing my thoughts/struggles with it.

Back on track for this post. The confession part was that when I do not need to work I seem to buy a motorcycle and do some day trading. The question is, do I keep the Berini M21 or not? Even if I will probably not use it or have time for it the next 5 years?

Special circumstance investing – June update

Another month has passed. If you sell options this is a good thing because the more time elapsed = the more money in your pocket!

What did I do

I sold the UVXY puts! I bought 3 puts on 16 February this year. I bought them at 8 USD and sold at 8,82 USD on the 26th May
After all costs I made a 9,6% profit on 3 months and 10 days. In % this is impressive but in cold hard cash it is only 231 USD as liquidity is an issue with this product. I would love to be able to plow tens of thousands into this but with liquidity being low and bid ask spread being high I still have my doubts. But a guaranteed profit is hard for me to ignore so I’ll probably continue with it but perhaps in the girlfriends or parents portfolio so it annoys me less.

The ADM put I sold in May expired out of the money. This means I pocketed the 151 USD premium. A 0,75% return in 1 month is not that fantastic but it is on cash that I hold to unwind my leveraged construction if necessary. The leveraged construction should net me around 8% on my entire portfolio so this really is extra. And anyway, it’s a whole lot better than the 0,11% A YEAR people are getting on their savings account.
It actually is a bit better as that option only expired on 16 June and I already wrote a new put on ADM with expiry in July on the 6th May. So for 10 days the cash was pulling double duty, covering both the put with expiry 16th of May and the put with expiry in July. Premium was a little bit better and I should get 1.2% return but on a slightly longer time period : 1 month and 10 days. I am too lazy to calculate the annualized returns. If this one expires out of the money it will be another 238 USD in the bank account. We’ll see in July.

I actually really like my cash pulling double duty (the harder my money works, the less I need to work!) so on the 26th May I sold another 5 puts on ADM. This time with expiry in august. A little longer time period and a little higher premium again: 2.09% on less than 2 months. it will be another 418 USD I can once the put expires out of the money.
All puts have been written at strike 40 USD and I expect them all to expire worthless.
It also means I will probably do no trades in July. I might double up again after the July put has expired but probably only do that in august. It’s July, there are festivals and BBQ’s to attend!

Day trading a few times in June earned me another 300 USD.

So 450 USD in extra profits (and another 650 USD on their way) because I was not a complete sloth this month.

The girlfriends portfolio

I liked the put I sold on ADM so much I did the same one in my girlfriends portfolio. So another 5 puts sold on ADM with strike 40 and expiry in July. She too will be getting an extra 238 USD in premium.

I actually liked it so much I did it in my parents portfolio too. This is why the low liquidity of the UVXY puts annoys me so much. I want things that can scale. So that if I like something. If I am convinced of the attractiveness of an investment I can scale it up and not only put more of my money in it but also plow some money of the girlfriend and the parents in it. I am way too lazy to find 10 good investment opportunities in a year. Two or three is more than enough for me, but when I find those I want to be able to go big.

Like I said, I like cash working hard so I was contemplating of also writing a second put for august on ADM when the price of AB Inbev dropped below a 100 euro. I like AB inbev at the 100 euro mark a lot! So I did double up in the girlfriends portfolio but with a 2 puts on AB Inbev. Went for a longer time period: expiry December 2017. It will be a 7,7% return in under 6 months. Not exactly UVXY put territory but close. And scalable and liquid. In cash terms it means a 1546 euro premium for the girlfriend.

It also means that if AB Inbev doesn’t move a lot at opening on monday I can do the same in the parents portfolio as well (I forgot to take the log in codes with me to work, sorry dad!).

 

Special circumstance investing

So after having explained my general views on investing. And why I really, really like the combination of our low interest rate environment, CfD’s and Lynx (a reseller of Interactive Brokers). I will now go into a bit more detail of what I did in 2016 with the newly discovered tools and what I am on the lookout for at the moment.

2016

I covered most of this in my post about the origin of my stash. But I’ll try to give a bit more explication on why I did it and the difference leverage made.

The first opportunity I had to use leverage was when AB Inbev made a take offer bid on SAB MILLER. They offered 44 GBP but the market had doubts so the SAB MILLER stock traded at 40 GBP. This was a 10% gap. I had no doubts that a) the take offer bid would materialize and b) this would happen in less than a year. So what I saw was the possibility to borrow at less than 3% to make around 10%. I was confident because I knew AB Inbev for more and a decade, this was the final piece of puzzle they had been putting together for a long time and they had successfully done the take over/merger with Anheuser-Busch. But I also looked at the downside and there the picture looked good as well: SAB MILLER had actually grown more in the last years than AB INBEV, the markets they operated in had more promise, they promised to apply the cost cutting culture of AB INBEV if the merger did not go through and they actually paid a dividend that almost covered my financing fee. The downside was actually not all that bad. Sure, the stock of SAB MILLER would probably drop to around 34 GBP (the price before the offer) but looking at the economics of SAB MILLER I felt confident they would be at 40 GBP within 2 years. So merger goes through: I make a nice and quick profit, merger does not go through: I’ll still make a profit but it will probably take 2 ears or more. So I bought 5000 CfD’s on SAB MILLER at around 40.50 GBP. The brexit and a change in margin requirements would force me out of the trade but in the end I still made a net profit of 8366 GBP. Less than I had anticipated but since the leveraged position was about the size of my total stash it did add a nice 4% extra return. And I made it between the end of December and mid June. the leverage made all the difference. Without it I would have been forced to find some free cash or sell other stocks. Berkshire was around 130 USD when I started the leveraged position and it was 140 USD. It had actually gone up 7% in the same time period. Not using leverage would have made me miss this run up in Berkshire Hathaway.

With the SAB MILLER position active and me not needing to work at the time I grew bored. So I tried my hand at day trading. Technically it was day trading because I was buying and selling on the same day. But actually I had identified some stock that was cheap and I wanted to buy some. I just didn’t feel too comfortable with already having a 200.000 GBP leveraged position so as soon as I made some profit I closed the position (and thus the extra leverage). I practiced a bit with Berkshire Hathaway and Coca cola. And then when Google went down to 730 USD I really had some fun with it. Real day trading is off course have dozens or even hundreds of trades and playing both an uptrend and downtrend in stock price. I just bought stock I thought was cheap and then sold with a small profit. Sometimes I only did 1 or 2 of these trades, and some days 6 or 8. I found it to be way to much work and also too much stress but I did make around 2.500 USD in profits from it (another 1% added to the stash). But it would have been much more profitable to just buy Google at 730 USD, keep it for a few months and then sell it around 780 USD. I just wasn’t very comfortable with that amount of leverage at that time.

But a friend of mine had combined everything we had learned about investing and the possibilities that Lynx offered and found a very interesting construction one could set up. I will not go into detail because it uses around 2X leverage (very, very dangerous!) and you should only do it with some very specific stocks (1 in particular is well suited for it) at certain price points. No need to feel left out as at present prices, one most definitely should not do it!

But in June 2016 the price was right and with the leverage of SAB MILLER gone I myself set up a similar construction. This would net me around 10.000 USD a 12.000 USD. With the leverage involved and the long period of the construction it is a bit difficult to determine the exact profit (or I should start keeping more detailed records, for which I am way too lazy! The construction was wildly profitable and that is good enough for me).

In-between all of the above, and because I was now making profits with my leveraged positions I also wrote a few puts on Berkshire Hathaway, none of them called because Berkshire Hathaway had a really good 2016! I would have liked to buy extra shares at a lower price but the 1 500 USD in premiums was nice as well. I did pick up some Berkshire Hathaway shares to hold and add to my collateral (all that profit had to go somewhere).

Looking at 2016, it may seem as I was all over the map. But if you discount the ‘day trading’ activity I actually did not do a whole lot of trades and I was only active in 5 different stocks. All of which I have known for years, or even decades. For me, most of the work is in identifying good companies to invest in. Once that is done, doing trades in them, even if that is with options or via CfD’s does not take a lot of time or effort. It is my long held belief that an investor only needs a handful of quality stocks he knows really, really well and a good understanding of all the possibilities of options to do very well for himself.

Thanks to the smart use of leverage I added a bit more than 10% extra return to my stash.

2017

Early in 2017 I could repeat the construction from mid 2016. This will add around 24.000 USD to my stash, or an extra 10% return. The price point at which I could do it was stretching my comfort zone somewhat. A sharp drop in stock price is the only risk I have, stock price remaining equal or going higher do not make any difference (I do have around 5% downward protection, but after that, things become dicey). At 2 times leverage I have felt a bit unsettled but we are now one month into it and prices have risen another 6% so that does give me another safety cushion!

Setting up the construction only took 5 minutes (10 if you add the time i spend on my parents stash) and then left me with not a whole much to do. I grew bored. I also came to the realization I like investing. I like it a lot. I have literally zero need to keep reading financial and economic stuff but yet I continue to read, read, read.

I miss being active and when I find something really, really smart I am not ashamed to admit I drool over it.

I am drooling over UVXY. it seems to be a product designed to go lower in price over time. Financial velociraptor found it. Which makes it ideal to short it (or buy puts on it). With the construction it is prudent to keep a decent amount of cash at hand. Especially in the beginning. At the moment that is around 40.000 USD. Over time, the leverage is going to cost me around 12.000 USD.

So me being bored, having found this really cool stock to play with and having a lot of cash available. Well, I had to try a trade in it! I copied Velociraptors last trade. It is not beneath me to copy somebody’s cool idea! So I bought three contracts of UVXY190118P00013000. We will see how it turns out. It is ideal to familiarize myself with it. The longer the construction runs, the less need to hold large amounts of cash. So starting slow with not too much cash and slowly building my confidence in these trades and making them larger as time goes by is ideal for me at the moment.

Prices of most stock are pretty high but I am looking at some stuff.

Resilux, there is a takeover bid at 195 euro and the stock currently sits at 188.75 euro. Takeover bid has the support of current management and there is a fair change it will go through. At 185 euro it would be a nice CfD play. Doubtfull it will go so low, and volume is also low but I have set an e-mail alert on it at 185,50 euro.

Vandevelde got knocked down to 57,5 euro. They pay a net dividend of 4.2% at current stock price (3.5 bruto – 30% taxes). But I do not like them paying full free cash flow in dividends, or being geographically limited (bulk of their sales profit come from Belgium and France and with the upcoming presidential election in France, 2017 may be bumpy). Still, good company with a nice product (Belgian men know what I am talking about) and well run. But too many doubts.

I almost wrote some puts on coca cola when they stood at 40,50 USD last week. I wanted a slightly higher premium and also visited some friends on the day I was planning to do it (and I forgot t take my log in information with me, doh!). Here is hoping they go back down. Last time Coca-cola was around the 40 USD price level I made around 15% in a 4 month time frame. Would like to repeat that if at all possible! Set another e-mail alert at 40,80 USD. I would write 5 put contracts at strike 40 and an expiry 5 to 6 months away. Can stocks please go a bit lower? It’s starting to become a bit ridiculous!

And then there is another takeover arbitrage possibility. Bayer wants to pay 128 USD cash for Monsanto but Monsanto is only trading at 110,70 USD at the moment. That is a nice 15% gap. It is also an arbitrage Buffett is apparently playing and he is seldom wrong. But I need to do my homework on Monsanto first. Would I mind holding the stock for some time at current price if the deal falls through? Since I am already at the max leverage I want to tolerate, this would actually be something for the girlfriends stash. So I really need to do my homework. She still hasn’t decided if she wants to actually make a profit of Monsanto as she doesn’t like the company or its products. Personally I am amoral if it comes down to investments but like I said, I really need to read up on Monsanto before risking any of the girlfriends money. If I do it, I will limit the leverage to 1X or even only 0.75X of her stash.

So this what I have done in 2017 and what I am currently looking at. Did anybody make it all the way to the end?