Smile Just Got A Bit Wider
Thanos snaps his fingers and half the multiverse population disappears.
TTI snaps his fingers and US ROI doubles.
Yea, if u haven’t figured it out, TTI is a fan of Thanos.
Avengers? Bleh. I don’t understand why is Thanos the villain. I know I’m the odd one out cos when I discussed my views, none of my friends agree.
Yet, why exactly, is he the villain? He just wants to balance the universe. He’s not doing it for personal gain, he doesn’t gain anything. The glove’s destroyed after he used it btw. Yes, it looks like population genocide, but hey, the guys just… disappear. They don’t writhe in pain and explode or something like that. I mean…. he’s thinking at a higher order. And he had to sacrifice his own daughter. And he was REALLY genuinely mourning. It hurts. Yet, he did what he had to do.
I really don’t see why he’s the bad guy. BTW, the movie probably didn’t emphasize this enough but Thanos is a super genius too. So… yea.
My last post was barely a week ago:
Then, the global/US portfolio ROI year to date looked like this:
What a difference a week makes, esp when my options are spot on.
Cos after just a week, at the halftime mark of 2018, US options portfolio YTD ROI looks like this:
Money Weight Returns almost DOUBLED from 1 week ago. (not quite, but almost)
11.16%. I’d be happy if the entire portfolio ROI ended 2018 with this.
Here’s the kicker though:
Overall portfolio ROI didn’t change much. (Yes, I double and triple checked). All thanks to a corresponding drop in the SG portfolio.
It still broadens the smile on my face a bit as it reaffirms my thoughts and strategies. Now I just need to double down on my strengths and competitive edges.
Since my last post, I got a few emails from folks who now wanna get on the volatility train.
Let me be absolutely clear here:
The returns are NOT because of my volatility bets. Not solely anyway.
I repeat, NOT VOLATILITY.
I take no responsibility if anyone’s portfolio blows up cos u decide to jump onto something that gives supposed out sized returns.
As the saying goes… the ______ does at the end, what the ______ does at the start.
Fill in the blanks with the words “fool” and “genius”
I utilize volatility derivatives as a hedge. It took me some time to figure things out, but I think I now get the erm…. nature of it. Not sure if I’m describing it accurately. The feel of it.
Underlying my positions is my belief that, and I’ve stated this numerous times, that I don’t think we’re going to get new highs for this year.
Unless the Fed goes crazy and reverses course and starts pumping liquidity again. That’s a scenario that’s akin to Saudi Arabia winning the world cup. (Gosh, did u see them play in the 1st game?! I thought they were Geylang United with their green jerseys!)
I read somewhere that 7 out of the last 9 rate tightening cycles led to recessions. That’s pretty good odds. So… structure your thoughts around that.
Instead, the bulk of the returns come from equity positions. Either direct equity holdings, or positions held in the form of options, both on the long and short side of it.
So here’s a quick breakdown of stuff I own or am looking at. Some positions are big, some are really puny. Things are very liquid though, and the overall nett effect is that I can switch from a nett long to a nett short position and vice versa very rapidly.
Valeant – I own zero shares currently, having taken profit fully at it’s recent high. Swung to selling put options as I still think the company’s undervalued. Debt problems are temporarily contained all the way till after 2020, giving Joe Papa adequate wiggle room to figure out how to grow it’s cashflow yet further to pay down debt. It’s a classic turnaround play. I sold out via selling call options as the share price was going ballistic, and even though I’m optimistic about the company… well, unless they figured out a way to cure all cancers permanently…. nothing goes up in a single straight line. Ever.
Chesapeake Energy – Again, took profit from the massive rise recently, with the recovery in oil. My view is that oil prices are not going to stay elevated. OK, I won’t act like I’m an expert who did intense DD on this. My view is shaped by my interactions and discussions with some oil executives. I think they know exactly how the industry is headed. A Syrian patient turned buddy told me some years back how the market is going to turn, and thus far, he’s been spot on. He should know what he’s talking about, his entire family across 3 generations is in the oil industry. His family owns oil assets and even then, he’s highly pessimistic. And yes, he predicted this recent upturn in oil prices. In his view, things are going to turn rosy, before it turns south again sometime in 2020 or so, and after that, it’s not coming back. Oil is really going the way of the dinosaurs.
Disney – What can I say. Fantastic franchises. Great brand, and ever lasting moat. Will Mickey Mouse ever be replaced? My young kids are crazy about Mickey, and I’d be spending some $$$ in their theme park in Paris in 2 months.
The company does has it’s challenges though. The take over of Fox seems to be proceeding smoothly, but Fox’s share price is at a premium to Disney’s new improved offer, indicating that the market is expecting a bidding war to continue. Disney has the upper hand now over Comcast, as they have regulatory approval, and they certainly have the financial firepower to nuke it out. I don’t like it though, cos it means Disney may end up over paying. Yup, that’s the effect bidding wars have. Yet, there isn’t any other assets out there that’s as complementary to Disney in it’s bid to go into streaming and challenge Netflix.
VIX/VXX – Like I said, they have been very effective hedges such that over the past week, when indices are green, my US portfolio NAV increased. When indices are red, the NAV increased even more! It’s really not quite as straightforward as going long volatility and leaving it there though. I’ve done that previously and it was suicidal. The contango kills u. So I’ve tweaked my strategy a bit to make it a mixture, depending on when I think there’s pricing misallocation. And… you’d be surprised. It does happen quite often.
Diebold Nixdorf – The chink in my armor. The weakest link. Of all my US positions, this has been the most unexpected. I say unexpected, not the poorest. I don’t mind if a company does poorly… as long as I can expect it. Cos if I analyze the company and I can expect it’d do poorly, I’d do very well (aka I can short it in a variety of ways, depending on conviction levels). Perhaps it’s the integration after the merger. That adds a huge chunk of assumption and many uncertainties that I cannot understand. Diebold is also not suitable for an options strategy as the IV is relatively low, and there are only monthly options, so my hands are tied.
Visa – Small, indirect, long position. Don’t really want to write too much about my DD here for now.
Centurylink – Another star performer. My dividend yield at 1 point was around 14%! Obviously the markets are expecting a dividend cut. The share price has since recovered strongly. This has been the easiest to construct an option strategy. It’s pretty much common sense really. I postulated that if the yield is that high (it really was 14% at 1 point!), then when it comes to XD, obviously you’d expect the share price to drop, at least somewhat. The reverse is true: if it’s CD, you’d expect some stability in the share price, cos… well, how much higher can the yield go? 15%? 18%? And the thing with an options strategy is that I don’t need to get it precisely right. I just need to be approximately right.
SPY/IVV – The lowest IV of the lot, and that means, option premiums are quite pathetic. Yet, they provide a very nice “counterweight” to my volatility derivatives, so I deem them to be a necessity. If one wants to choose an ETF for a direct equity position to match the global markets, I’d say IVV is much better than SPY, cos fees are lower. Over time, if you’re holding it, the fees do add up and impact on performance. Using options though, SPY is much better because of the narrower spreads, and higher liquidity.
LIT – An extension of my previous DD that I’ve done when taking up a position in Alliance Minerals (AMAL). Not a large exposure as the LIT ETF actually includes many lithium related companies that are NOT producers. In fact, they are actually users. Like Tesla. It’s like they can’t find enough lithium producers with significant size and liquidity, and yet die die wanna create an ETF, so they had to rope in anything that has a faint link to lithium. Weird ETF. (I still own some via options as they have exposure to lithium assets that I can’t get direct exposure to. Plus the option premiums give me a very nice safety net)
Lastly, this is the what transpired on Friday:
The premiums for the options that have expired in the past week add up to a grand total of US$ 4,182.32. Thats $4k USD every week, which is pretty much consistent as per my previously documented options activities, I think.
I also sold options on GE (oh wait! I forgot to mention GE above!).
GE’s way oversold IMO. Yet, the turnaround will be long and tough. I have had a front seat view with my experience in Valeant. Turnarounds aka U-turns can be short and sharp, it can be a wide U, aka long and tedious.
In my experience, if it involves cutting/managing excessive debt taken on previously, the turn around is the latter. A looooooong, wide and fat “U”.
So I’ve been careful with my GE stake. Put options are only sold after a series of many “red” days, and are a bit further OTM. Thus far, while GE has been burning other stake holders, my GE stake has been green pretty much since day 1 of owning it, thanks to nice premiums collected.
FYI, Valeant took something like 2.5 years or so to show signs of a turnaround so yea. No kidding about the big fat U.
Every position I initiate, plays a role in overall portfolio management (in US at least)
For example, the sale of GE put options above is obviously a long position. On paper at least. It means I think the share price will go up or stay the same. (In reality, I wouldn’t mind if it drops cos I want to buy more GE at $13, and I’m paid $0.23 in the meantime)
The sale of VIX put options though, is a short position. That provides some balance to my positions. And if my conviction level in any position goes high enough, I double down by adding some nice calls. I do own some VIX and VXX calls currently, amongst other calls. Conversely, I’m also not immune to selling naked positions. Prior to the recent market mini correction, I actually sold several naked SPY calls. Most have expired, and I still own some naked positions, but they’re so far out of the money that I can cover those positions right now for 1 bip. Yup. That’d cost like errr US$5 or something. LOL. So I consider those effectively expired.
Alright. That it. I’m on a flight out so that’s all. Short, sweet and sharp.