Financial Freedom Sloth

achieving financial freedom one lazy step at a time

Tag: ADM

Special circumstance investing – august update

September 3, 2017 / / 7 Comments

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 – July update

July 29, 2017 / / 4 Comments

I had good hopes that I would do 0 trades in July. If you are a sloth less is more and nothing is bliss! Alas, the market continued to serve me with some juicy targets so I just HAD to take a swing at them.

What did I do

The ADM put I sold in June expired out of the money so that premium is completely in the pocket! When selling options time is indeed on your side. I love the time decay as it means that I am making money when sleeping or sitting on the toilet …

Last month I told you how I jumped on AB Inbev below 100 euro in the girlfriends portfolio. I really wanted to do it in my own portfolio as well but my money was already pulling double duty for the put with expiry July AND a put expiry August. I eagerly awaiting 21st July. Luck was on my side and AB inbev was still below 100 euro that day. With ADM well above 41 USD and no change of exercise anymore I jumped on the AB Inbev trade with full force. Sold 4 put contracts for expiry December 2017 at strike 100. Got less of a premium than the girlfriend (only 6,25 euro) but with double the amount of puts this trade will net me 2 492,80 euro! I was really lucky because a few days after this AB Inbev published results and the stock went above 100 euro again. Sometimes luck favors the lazy!

Remember I already made 780 euro on AB inbev when it went below 100 euro back in March of this year. These two trades would account for more than 1/4 the of what I would need from investments once I pull the plug and only work three months a year. Back in February I wrote : ‘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.‘ I am even more convinced of this now.

Small explication for the higher amount of puts here. The cash I use here is actually there so I could unwind my leveraged construction if necessary. The longer this construction runs the less cash I need. Because of rising share prices and because 6 months have passed I was comfortable putting 20.000 USD at work (2x times) for writing puts that should not be exercised. But in December the construction will almost be at its end date which means that by then the full cash amount should be available. And that is why I set 40.000 USD at work for the December expiry. I’d like to say I have a spreadsheet that makes all of this more clearly but it’s all in my head (and it’s a mess up there).So small recap, I have:

-a leveraged construction for 450.000 USD with end date January 2018

This pays an upfront cash premium of around 40.000 USD which I use to pay the financing fees and keep so I could unwind the construction if necessary. But also to write puts

– 5 puts on ADM, expiry 08/2017 strike 40 (so 20.000 USD at risk)

-4 puts on AB Inbev, expiry 12/17 strike 100 (so 40.000 USD at risk)

The 21st of July was a very good day for me. I got to write the AB Inbev put but since it was an official holiday in Belgium I also had the day off.  The girlfriend was in Ghent for the festivities there and what do I do when I am home alone? Yep, day trading! And it was a good day for trading: 450 USD of profits! Can  we have more official holidays at option expiry days? I did a little bit of day trading on two other days in July so total profits are 570 USD.

So three days of option writing and day trading in July (and it only took a couple of hours per day) earned me a grand total of around 3.000 euro. An amount that far surpasses my wages from work which sit around 2.000 euro and for which I need to go to Brussels 22 times and work 7,5 hours a day. Too bad not every month is like this because otherwise I could pull the plug on work now.

The girlfriends portfolio

I didn’t do any trades in the girlfriends portfolio this month. UVXY did shoot up the last two days so I might do the UVXY put in her portfolio over the next couple of days. Thinking about it …

I did repeat the AB Inbev put in my parents portfolio on the 3th of July because I forgot their log-in on the 30th of June. So 2 more puts on ABI strike 100, expiry 12/2017. My forgetfulness cost my parents 30 euro since they got 1516 euro in premiums and the girlfriend got 1546 euro the Friday before. Sorry mom and dad!

With AB Inbev now firmly above 100 euro I am looking for a new target to double up in both the girlfriend portfolio and my parents and do another put option. ADM price is too high. Been thinking about Ahold Delhaize, it still hasn’t fully recovered from the price drop a few weeks ago. I like the premium for strike 17,50 in September quit a bit …

Damn, I might do it on Monday which would technically make it a July trade. Screw it, not going to rewrite this post. I’ll just post it in the comments.

Special circumstance investing – June update

July 1, 2017 / / 3 Comments

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 – May update

June 7, 2017 / / 6 Comments

Not a lot happened.

The UVX put is still not sold. Mainly because I just do not feel like logging into my computer when I get home after work (and my broker’s site is blocked at work). But I now am clearly in profit on this position so it will definitely go in June. Profit will be around 10% which is not bad for 4 months. Still not sure if I will do this again or not in the future for the same reasons I mentioned last month.

What did I do?

Like I said, not a lot.

The ABI put expired worthless. So the premium off 786,40 euro is now completely profit and in the pocket. I must repeat I really love my broker as he lets you trade on margin. My previous brokers insisted on having full coverage when writing puts and although I agree with this on principle it always annoyed me when I had to buy back a worthless position before being able to write new puts. just for this reason I would now always choose a broker which allows leverage. At my previous broker I would have need to buy back the ABI position at a cost of 20 euro (and a fee) before I could enter into a new position. Now I could just let the ABI put on the books until expiry thus not having to spend the 20 euro on something I knew was worthless and avoid another trading fee. It is not only that you avoid small costs but also that you gain a lot of flexibility. And having flexibility can mean big profits sometimes.

Also, it’s less work to do. Which lets me be lazy, always a big win in my book!

I am in profit on the UVXY put I bought. I am in profit on the ADM put I sold and I am in profit on the leveraged construction. Life is good.

Day trading grinded to a halt due to work. 1 May I was home due to it being an official holiday in Belgium and I made 95 USD with day trading that day. Then I started working and I only did one more day trade on 16 may. Made 20 USD, exited the trade because my head was not into it and that was it for the month. The girlfriend is going to a music festival in Portugal this week (yes I know, the decadence!) so I hope to get some day trading in on those days. Best laid plans and all of that ..

The girlfriends portfolio

Well, since I did almost nothing in my own portfolio you can guess what I did in the girlfriends portfolio: zero, zip, nothing. She should have received her dividend (around 2.000 euro) from her main position in May, still need to check that! I guess this is the best passive income you can have: just pocketing the dividend and the only thing you need to do is transfer the dividend or re-invest it.

The girlfriend got her current portfolio seven years ago. When we bought our current home together she sold her house in Ghent. She made a very nice profit on that sale but I decided we should borrow 100% of the purchase price of our new house. Part of her profit she wanted to use for renovations (with me putting up the same amount in cash for renovations) on the house but I decided she needed to invest a big part of it as well. She wanted dividends so ended up with a good stock (but not my first choice). After almost 7 years this position is now close to double the original worth (including dividends)! The downside of this was that for the next 7 years all our savings have been going to the house renovations (and we are still not finished). The alternative would have been to not do the investment and use all the money for renovations. And then start saving up to build a stash (in her case, or me to rebuild the stash). Well, after almost 7 years I can say that the profits on her stash are bigger than anything she would have been able to save! And I was a lot less active in her stash than I was in mine (so the difference for me would have been even bigger but not so easy to calculate). The only downside is that we are now still not finished renovating and that for a few years we were living on a construction side (although last year, with the kitchen and bathroom renovation, was the hardest). It just proves there is profit in being able to handle discomfort.

Special circumstance investing – April update

May 3, 2017 / / 7 Comments

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.

Disclaimer

I am not a certified financial advisor and do not hold a license from the FSMA. Everything written on this blog expresses my own personal journey and opinion and is pure entertainment. It is never an advice on what how and where you need to invest. If you need this advice, then please reach out to a financial service expert

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