achieving financial freedom one lazy step at a time

Tag: UVXY put

Special circumstance investing – January update

The last of the big moves has been done Things are going to get boring from now on. Here’s hoping it’s a profitable boring.

What did I do

Well I didn’t do a lot this month since the new leveraged position is, well, new. I like to have a nice safety buffer before adding another leveraged postion by day trading. And at the moment the leveraged position is reporting a loss. No big deal as especially in the beginning smaal fluctuations in price can cause big movements in value. Time is at my side in this construction and thing generally smooth out after a month or three. Nothing left to do as wait.

Waiting can be good.The put option on Ahold Delhaize is gone! Expired out of the money so A) I didn’t have to do anything (my preffered activity) and B) I didn’t have to pay any fees! I was right, the market was wrong and I made 750 euro because of it.

Did I do anything at all, except lazily wait? Yep, I entered a new UVXY puts position. Ramping it up: bought 71 puts, strike 6 expiry January 2020 for 4,35 USD. That is around 31.000 USD I now have in it.

The girlfriends portfolio

Same situation for the girlfriend.

AD puts are gone and entered a new UVXY puts position: 59 puts for her.

The big move was in the parents portfolio where I finally also unwound there old leverage position and set up the new one on AB Inbev as well.

All three portfolio’s are now running similar position which is a lot easier to manage. Yes, my parents portfolio also had the AD puts expiry out of the money and entered a new UVXY puts position. 43 puts for them. In total I have now over 70.000 USD in UVXY puts. I am hoping to triple this in the next two years.

For the next few months my only investment activity will be to take profits on the UVXY puts and then enter a new postion and perhaps roll the AB Inbev puts I still have. So pretty good change I will do nothing at all in February. Does that make me a happy sloth? Yes it does, yes it does … Gives me time to hunt for some more classic trance songs …

Special circumstance investing – December update

Another month with large moves. The year has been good but that is a subject for the annual post. First this month.

What did I do

I had to roll my AB Inbev puts. the low price of AB Inbev was on the one side good news as it created an oportunity for a new leverage construction that should bring nice big profits but not so good news for the put option at strike 100 I had sold. Luckily I could roll it to a later expiry date (March 2018) and even collect some premium for doing it: another 485 euro added to the investment account.

I unwound my old leveraged construction. Final profit there is around 20 000 USD. The federale reserve raised their intrest rates twice which in turn made my financing fee more expensive. So I lost some profit there. I also didn’t feel like keeping a detailled overview of the exact cost as that is just to much work 😉 At the beginning of the construction I had estimated potential profits being broadly between 21 000 and 24 000 USD. The higher borrowing costs knocked a little bit off but all in all it was a good run. And I rather put time and effort in finding new investment opportunities than keeping exact and detailled cost overviews.

About the new investment opportunties: I replicated the levereaged constructon I did in the girlfriends portfolio last month in my own. Kept the leverage at a reasonable X 1,6. Profits of this should be between 20 000 and 40 000 euro. We will see in December 2018 how it went.

I sold the UVXY puts I bought early November. 53 puts bought at 5,5 USD a piece and sold for 6,20 USD. So more than 10% profit in 2 months. After costs I added 3 455,80 USD to the investment account.

Daytrading brought in another 300 USD. I stopped day trading around 10 december because I wanted to close out the old leveraged construction and start a new one. And I didn’t want any other postion on my books while doing it. it will be some time before I start again with the daytrading as I first want a decent profit buffer in the leveraged construction. I am ok with it as I started to become a bit tired with the frequent daytrading in the evening. We’ll see in May, June if I get back into it but for the next few months my investing will be limited to watching the leveraged construction and UVXY puts. Lazy investing at it’s finest, bliz!!

The girlfriends portfolio

Off course I rolled her AB Inbev puts also. An extra 237 euro in her account. (I also did it in the parents portfolio, I told you I had a busy month!).

No more day trading in her portfolio as she allready had the leveraged construction since november.

I also sold her UVXY puts at 6,20 USD. Total profit for her: 2 608 USD. Happy Christmas honey 😉

I also sold my parents UVXY puts, also for a nice 10% profit. I did finally convince my parents to put some extra cash in the investment account. Next month I will unwind the old leveraged construction they still have and then duplicate the same leveraged construction both me and the girlfriend already have. All this means I will have some extra cash to plow into UVXY puts for them as of next year.

Special circumstance investing – November update

A busy month where some large moves were made. Busy is relative, some people think nothing of doing dozens of trades in a month. My ideal is two or three trades, a year! On the other hand, the flurry of activity has been profitable. And I like doing it so it remains to be seen if I will be able to restrain myself once I hit my Fire numbers …

What did I do

I rolled my Ahold delhaize puts again to January this time. But this time I did book a nice profit on it. An extra 265 euro on the account for my troubles. Ahold Delhaize has, in the mean time moved above 18 euro proofing that 17,5 euro was indeed not a bad strike price to write puts at and that the market would take a few months to realize this company will continue to make healthy profits even if Amazon did purchase Whole Foods …

AB inbev did move in the wrong direction so I might have to roll this one now. On the other hand, the price drop did create a nice new opportunity (more about that in the girlfriends portfolio).

As mentionend last month I was planning on deploying a lot more money in a new UVXY put position. I bought 53 puts on UVXY, expiration 01/2019 for 5,5 USD a piece. I had a nice 5% profit on them but am at a small loss now. It is a volatile product which I am watching closely. But all profits, and day trading profits, will be used to enlarge this position in the future.

Day trading profits are 1 500 USD for the month. And I didn’t trade for a week as Google reached all time highs. My rule of not day trading proofed it’s worth once more as it helped me avoid the drop from 1074 USD to the current 1025 USD level.

All in all I more than earned back the 1 500 euro withdrawal from last month.

The girlfriends portfolio

I off course had to roll the Ahold delhaize puts in the girlfirends portfolio as well (and in my parents portfolio too!). Same strike and same expiry as I want to keep things as simple as possible to keep track of. The girlfriend added 302 euro to the portfolio.

Also a new UVXY put postion for the girlfirend: 40 puts same expiry, strike and price as mine. Add to this the position in my parents portfolio (yes there too!!) and I now have a very large position in this. Watching it as a hawk!

Daytrade profits for the girlfriend were 700 USD this month.

I already mentioned the drop in AB Inbev created a new opportunity.  After having no leveraging since March I set up  a new leverage construction in her portfolio. No details as I do not want any responsability for anybody blowing up with this weird shit. For certain stock at certain price levels it offers very attractieve returns for very little risk. In all other circumstances it is very dangerous …

But if all goes well she should make 12 000 euro of it. It just proves you do not need dividend paying shares to generate a nice cash flow from your investments. As a bonus, dividends are taxed at 30% where option premiums and the above are tax free!

cash before the construction

cash after the construction

Best of all is she received the money up front meaning she will have that more cash to deploy in the UVXY puts. UVXY puts being another thing offering nice returns at certain price levels and under certain conditions but dangerous at all other times/price points. The combination of both, provided the execution is done well, should make for very, very healthy returns …

I guess 2018 is the year where I find out …

Special circumstance investing – October update

Google, in which I day trade a bit posted excellent quarterly numbers and hit an all time high in the month of October. So was it a profitable month for me as well? Let’s find out.

What did I do

Still patiently waiting on the expiry of my AB inbev puts (December). Ahold Delhaize finally moved in the right direction price wise but it looks like I will need to roll this one a bit more before making a profit on it.

I did close down the position I had in UVXY puts I bought in September for a profit of 1 252 USD. This was a 10,6% return in less than a month. I will be deploying way more money in UVXY puts in the future. Last month I explained why.

And then there was my day trading. I literally closed my last position 2 minutes before starting to type this post.  Total profits in October are 1 100 USD.

I try not to get hung up on the profits I leave on the table while day trading but this month was very difficult. First off: I left A LOT of money on the table. And then there is the girlfriends portfolio…

The girlfriends portfolio

As I mentioned last month I do, on occasion, day trade in her portfolio as well. Last month I even  made more money in her account than in mine. This month, well, this month was worse. Total day trading profit came to a whopping 1 830 USD! This is the second month in a row I did better in her account than in my own, and the difference is getting bigger! It shows I should work on my discipline and enter in fewer, but more profitable, trades when day trading. Lesson learned.

Off course the point of me managing her stash is to build it up as good as I can so the more money I make in her account the better. I do not think it would be very good for or relationship if I pulled the plug and she still had to work. But I have to be honest, it does sting a bit that my biggest day trading profit didn’t happen in my account. O, the fragile male ego!!

But all in all it was a pretty good month (especially because we were still on holiday for the first week of it). All of the above is generated by using leverage or using cash which was previously generated by using leverage. We haven’t added any extra money into our investments accounts for the last 7 years (all savings eventually going to home renovations). It is an extra on top of the growth of our old investments. And those old investments are doing pretty good also. I bought my very first Berkshire Hathaway B shares on 19 January 2006 at around 60 USD a piece. I did a lot of stuff in between (my trading overview is 12 pages long at present, and that is without my day trading) but never sold those shares and now am fully invested in Berkshire Hathaway.

The girlfriend bought GBL at 60,5 euro in September 2010 and never sold those…

Choose your stock well, and you only ever need to do 1 trade. It was what originally attracted me to investing. It is the only thing I have found where being lazy can bring in a lot of money. It is off course very boring. Which explains all of the above, because let’s be honest, this shit is downright fun to do!

 

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 – 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 – May update

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

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

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?