Financial Freedom Sloth

achieving financial freedom one lazy step at a time

Tag: monsanto

Special circumstance investing – April update

I am still waiting to be able to sell the UVXY put I bought at a profit. I know this eventually will happen as the UVXY is guaranteed to lose value. But I must confess I am not a fan of the product. The liquidity is so low and spread so big on the options on this, that selling it is not always a given. I find this annoying so once I exit this position I will probably not do it again. It is an almost certain way to make some profit. But the annoyance I have with the product and the fact that you can only deploy limited money in it (due to the low liquidity of the options) make it unattractive for me.

What did I do?

The two put options I wrote on ABI have expiration May. Strike is 100 euro, current price 103 euro, there is only two weeks left and the dividend has been paid. I am almost 100% sure these puts will expire worthless. So I am letting them run their course but I did write 2 new puts, again strike 100 but expiry July. I explained last month why I prefer not to get assigned but I do not mind picking up another 400 euro. And the cash I have is really working hard for the next two weeks. It is

A) insurance if I have to unwind my leveraged position -buffer there is still healthy-

B) covering the put that expires in May and

C) covering the put that expires in July.

I love it when my money works hard since it means I can be lazy 😉

Do not forget I earned this cash by creating a leveraged construction in January. So this is money I earned by borrowing money. This why I keep it in cash so I can unwind the leveraged position if necessary. But thanks to these puts on ABI the cash will have earned 5% in the first half of the year!

I have also been day trading a bit in April. I started with Monsanto as I found that very safe due to the offer by BASF. Volatility was a bit low in Monsanto so it didn’t make a very good day trading stock. But I did make a bit of a profit on it and by some dumb luck I happened to have a position in Monsanto when it went ex-dividend. Hooray for a lucky extra 210 USD! I switched to Google afterwards which turned out to be a good choice. Current total profits of day trading are 2.250 USD which is exactly the amount I needed to bridge the difference between unemployment benefits and my previous wages (not a coincidence!). Since I am now working again, day trading activity will be very sporadic (the evenings my girlfriend has to work until 22h). But I am going to try to continue, so I can speed up the home renovations a bit.

Update: the 2 new ABI puts didn’t actually go through so they have been replaced by 5 contracts on ADM (Archer Daniels Midland Company), strike 40 and expiry June. Full explication in the comments, grr how does work dare to intervene with my investing!!

The girlfriends portfolio

I did a merger arbitrage play on Monsanto in the girlfriends portfolio at 1x leverage. Now I have to confess, I can be a bit pushy when it comes to investment stuff. So I kind of just did it, and then went and explained it. Thing is, my girlfriends ethical side is a lot more developed than mine. Which means that ethics play zero role in deciding where the money goes. The only deciding factor is if I can make a profit at a low risk. Actually, if it didn’t carry those big expense ratio I would have bought a bit of the Vice fund for the sole reason to annoy some of my friends. It turns out that for my girlfriend it does matter where her money is invested.

So she actually wasn’t too happy to be invested in Monsanto and to profit of the merger. So after hearing her compalin about it for almost two months, I have unwound this arbitrage play. With a profit of course, and after the dividend pay out!! But at a lower price than the current one, so her ethics have cost her over 400 USD already. And it will cost her more as I am still convinced the merger will go through! But hey, a happy girlfriend makes a happy sloth. And a 1.200 USD profit in less than 2 months isn’t bad either.

Since she didn’t have any leveraged position any more I did do some day trading in her account also. Profits there are around 500 USD.

As said, I am working again so for May i just hope to finally be able to sell the UVXY puts and do a little bit of day trading if I feel like it after a loooong day at the office.

Special circumstance investing – march update

The UVX put I bought will take some time to move into a profit. And I am getting bored again.

What I did

So yesterday I sold 2 put contracts on ABI, strike: 100 and expiration in May.

This gets me a premium of 3,95 euro which is not a bad return for a 2 and a half month time period. Another 790 euro of cash added to the stash. This is actually less than 0,3% of the stash but if I can do it 2 more times I will have added another 1% to my return this year!

If I get assigned I buy a great company with a decent dividend at 96,05 euro a share. I chose the lower strike of 100 euro as I do not really want to be assigned. I do kind of have the money to pay for the shares. You see, my special construction (which I do not explain since it is highly leveraged stuff) pays me a lot of cash up front: around 38 000 USD. Financing fees will eat up around 14 000 USD during the life of the construction but in the end I should end up with around 24 000 USD in profits. I keep all this cash as cash as things can always go wrong and then I need to move fast and close the construction. But with the recent rise in stock prices I now have a nice little buffer and I abhor cash not working for me! These puts are a way to get some return and most probably still keep the cash buffer intact. I have to admit that I do like making money on money I made with money I do not own!

stack of stones

balancing my investments on top of each other

The risk of things going bump in the night

If everything goes well I’ll have made a bit off extra cash. If stocks start going down again I will close the construction (which I would do anyway) with a small profit. I will then not have enough cash for the 200 ABI shares. But if I do get assigned the ABI stock, I still have the ability to buy them with borrowed money from Lynx. This will then be the only leveraged position I have. It will be less than 10% of my total portfolio. Dividends of ABI would cover most of the financing fees for this leverage so I could keep it for a very long time. Most likely I would also write covered calls on the position, more than generating enough cash to cover the financing fees. With leveraged plays I always look at the possible downside and then determine if the risk is acceptable.

Variation on a theme

Whendoyouretire did a similar trade but at 110 euro strike. That’s actually pretty smart of him because he does want to get assigned since he is a dividend growth investor! If the stock does go higher, he will have earned one hell of a premium! Since I would prefer not being assigned I chose a much lower strike. But that is one of the main advantages of options. With put and call, sell and buy, moving the strike price or the expiry date, options actually offer you a very big pallet of possibilities for a whole lot of different purposes.

The girlfriends portfolio

I only figured out the construction in June of 2016 and I first wanted to test it out in my stash. This meant that the girlfriend was a bit late to the party. Her construction ends in March. At present prices I do not feel secure in repeating the construction for her. So yesterday I unwound the construction in her account. Total profit of it was around 7.000 USD. Not bad for 6 months. I also opened a new 1 x leveraged position (the construction was 2 x leveraged) in Monsanto with the use of CfD’s. Only 1 x leverage as I want to avoid any possibility of margin call on her portfolio in the small change that the merger between Bayer and Monsanto falls through. I am also keeping her construction profits in cash as an extra precaution and to cover the overnight financing fee’s of the CfD’s. When Monsanto moves higher and the risk of losing money on the leveraged position gets smaller I will look for a way to invest some of this cash. Financial Velociraptor did a similar merger arbitrage play but without the use of any leverage I think. The merger arbitrage of Monsanto first came on my radar when I read Berkshire Hathaway did it. But one should always do one’s own homework. I am not that impressed by the performance of Monsanto but the 2 billion USD breakup fee if the merger would not succeed convinced me. If the merger does not go through (and Bayer has 2 billion reasons to make sure it does happen) Monsanto will be sitting on a mountain of cash!

That is me done until I can profitably sell my UVXY put. Time to start concentrating on my diet!