This report covers trade action in the week leading up to options expiry. It was a quiet week in some volatile trading. Options expiry transactions will be reported in the next report
Portfolio News
In a week where S&P 500 dropped 0.96% after making a few all time highs, my pension portfolio dropped 2.25% driven by big falls in shipping, solar power and marijuana
The market is in an uncomfortable place. It has become nervous about inflation only to be soothed by words from the Federal Reserve and strong retail sales - and then it worried about inflation again. Pandemic did not feature in the sentiment.
Big movers of the week were eSports Mogul (ESP.AX) (+12.5%), Castillo Copper (CCZ.AX) (+10%). Agricultural products all made a bounce after the previous week slides with all improving over 6%. The week was more about fallers with big falls from Navios Maritime (NM) (-27%) - market did not like its debt fund raising, Stem Inc (STEM) (-19%), Sunpower (SPWR) (-19%), Maxeon Solar (MAXN) (-18.6%). Shipping was hit too with falls around 15%. Marijuana drifted with some counters down over 10%.
Crypto busts
Bitcoin price just wanted to go lower all week dropping over 9% and finishing about 8% down.
That buyer zone around the $30,000 level showed its power again with 3 touches on the 4 hourly chart of the top of the zone. This was actually a narrower band of volatility, a bit like last week, than normal
Biggest faller in my portfolio was Polkadot (DOT) down 35%
Not everything went down with NEM (XEM) rising 25% on the week with a rise to peak of 38%.
Most volatile was HIVE with a 32% swing from peak to trough
Bought
Citigroup Inc (C): US Bank. Jim Cramer added Morgan Stanley to the buy list. I did a comparison of Morgan Stanley to a slew of US banks including the main ETF's (KBE and KRE). All I could see was a leader and a bunch of laggards - so I am guessing he is seeing stuff I cannot see. Morgan Stanley mix is different to the other banks but is is well ahead of its most similar rivals JP Morgan and Goldman Sachs.
I used March 2020 as the base. Morgan Stanley (MS) is the top blue line - it just looks to me as if the good stuff is priced in. I added Goldman Sachs (GS - green line) for this discussion. I forget to do it at trade time. Regional Banks (KRE - orange line) are trading in line with overall banks (the bars). Citigroup is the laggard 114 percentage points behind - make up half that gap and the trade could be a winner.
I opted to buy into Citigroup as it re-positions itself to be more of an investing bank than a global retail bank. Wrote an August covered call for 1.2% premium at 5% coverage. I also added in a call spread risk reversal. I bought a January 2022 70/80 bull call spread for a net premium of $2.75 which offers maximum profit potential of 264% for a 16% move in price. I funded part of the premium by selling a November 21 strike 62.5 put option which bought the net premium down to $0.45 and ramps up profit potential to 2122%. Downside price coverage is 10.5% with just over 4 months to expiry on the sold put.
Let's look at the chart which shows the bought call (70) as a blue ray and the sold call (80) as a red ray and the sold put (62.5) as a dotted red ray with the expiry date the dotted green lines on the right margin. Note - the rays start when the trade was created.
Trade set up is simple - take the next strike up for the bought call (70) and trade to the previous highs which has been the top for the last three moves up (80). The sold put (62.5) is comfortable below the recent lows though it is above the last ring low.
United States Natural Gas Fund, LP (UNG): Natural Gas. Last week's trade signal got me thinking about setting up a trading position for UNG. My two target prices were $13.60 and $15. So I set up a short term bull call spread buying August 2021 13/15 spread. With net premium of $0.47 this offers maximum profit potential of 325% for a 16% move in price. I am figuring a record heat wave could well drive a massive spike in natural gas demand.
Let's look at the chart which shows the bought call (13) and 100% profit as blue rays and the sold call (15) as a red ray with the expiry date the dotted green line on the right margin. The price scenarios are from previous summer moves - price needs to follow that to make 100% profit and a bit more to reach the maximum. Price will need to pass previous highs to make the maximum.
Tidewater Inc (TDW): Oil Drilling. Got another partial fill on the Tidewater November 2024 call warrants - it feels like I am the liquidity provider for this market with my 2398 warrants bought out of total daily volume of 3008.
Star Bulk Carriers Corp (SBLK): Bulk Shipping. Will be assigned a parcel of stock on a 20 strike naked put. Averaged down that entry by buying an equal size portion at a 9% discount to assigned price. Sold an August covered call on the new stock for 1.8% premium with 9% coverage.
Sold
NVIDIA Corporation (NVDA): US Semiconductors. Jim Cramer reduced the holding again this time citing the stock split coming up. I reduced my position for a 54% profit since February 2021. My accounting said this was position closing but my account is still showing a small position - I have missed an addition somewhere in my accounting.
Shorts
iShares 20+ Year Treasury Bond ETF (TLT): US Treasuries. With price opening at $146.53, I had the idea to tight the spread on my July expiry hedging ratio spread. I was holding one 142.5 strike put option and was short 3 139 strike contracts. The trade idea is to buy back the 139 strikes and sell an equivalent number of 142 strikes - closer in-the-money but still lower than the bought put. That is the trade that I put on. My broker chose to execute differently - they closed the whole ratio spread - i.e., sold the 142.5 strike puts and bought back the 139 short puts. The short of 142 strikes did not execute but is open as a pending order. As it happens the net proceeds were just positive - no harm done.
With price opening at $146.82 (July 13), I replaced this trade with an August 2021 146/143 ratio put spread. When the inflation numbers came out, price dropped 1% right off. Ratio this time was only 1 for 2.
Invesco QQQ Trust (QQQ): Nasdaq Index. With price closing at $357.60, the 323/310 ratio put spread expired worthless. With a 10% margin, this shows the value of a ratio spread - hedging for a 5 to 10% drop in a cash neutral way with no penalty if stocks rise.
Cryptocurrency
No trades
Income Trades
Only 2 Covered Calls and 2 Naked Puts all in US.
FireEye, Inc (FEYE): Cybersecurity. With price opening at $19.89 I sold an August expiry strike 18 put - more than 10% coverage for a 1.8% to strike premium.
Global X Lithium & Battery Tech ETF (LIT): Lithium. I have a covered call that will be assigned in Friday expiry. With price trading over $80 and looking to go higher (July 13) I sold a July expiry strike 80 put option to get a buy price closer to my assigned price. As it happens price closed the week at $77.20 which is a bigger fall than the premium received.
Currency Trades
I stayed away
Cautions: This is not financial advice. You need to consider your own financial position and take your own advice before you follow any of my ideas
Images: I own the rights to use and edit the Buy Sell image. News headlines come from Google Search. All other images are created using my various trading and charting platforms. They are all my own work
Tickers: I monitor my portfolios using Yahoo Finance. The ticker symbols used are Yahoo Finance tickers. Crypto tickers come from TradingView
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July 12-16, 2021
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