TIB: Today I Bought (and Sold) - An Investors Journal #501 - Marijuana, Fertiliser, Coal, Renewables, Pharmaceuticals, US Industrials, Lithium, US Retail, US Banks, Homebuilding, Crypto, Agriculture

Phase 1 trade deal is signed. Markets continue to push higher in a wave of relief. Earnings season begins with a few stocks penalised and others surging. Quiet moves off the lows in lithium and marijuana. Trade action is mostly buying value opportunities. There will be cash released on options expiry. Will update the expiries next update.

Portfolio News

Market Rally - China Trade Deal

The Phase 1 trade deal was signed. Markets continued their merry momentum almost unabated.

One casualty of the deal was agricultural commodities which had a very volatile week as news leaked and became clear about what China had committed to buy. Try this for a sample chart shared to my Facebook group on January 17.

In my portfolios, winners were in corn (after that chart was posted) and wheat but soybeans came up short.

Climate Change

Australian bushfires calamity has brought climate change to the top of people's minds again. The chilling statistic is that the bushfires have released the equivalent amount of carbon that Australia releases in a normal year.

Germany takes the first big move by a big economy to close down all coal and nuclear power within 18 years at an estimated cost of $45 billion

Bought

The Mosaic Company (MOS): US Fertiliser. Trade of the day idea from CNBC talking heads. Agriculture has been a laggard in 2019 and will be a big beneficiary of the China trade deal. Added a holding in one portfolio and wrote a covered call against it. In the other portfolios bought a January 2021 23/32 bull call spread for a net premium of $1.97. This offers maximum profit potential of 356% from a 52% move from $21.05 closing price. I picked January 2021 as 2022 options were not very liquid (open interest of 17 contracts on strike 22) and spreads were wide plus if the move coming from the trade deal comes it will be close to trade deal signing (with one planting season).

Let's look at the chart which shows the bought call (23) and 100% profit as blue rays and the sold call (32) as a red ray with the expiry date the dotted green line on the right margin The basic shape of the chart is one I like - price breaks the weekly downtrend and then retests a level (the horizontal green line). Of note is the downtrends are very similar (I know as I cloned the left hand one and placed it on the current price move). The maximum profit is below the last cycle highs. the blue arrow price scenario will only deliver 100% profit and the trade is going to need a move like the pink arrow scenario.

Cronos Group Inc (CRON): Canadian Marijuana. Marijuana stocks popped on release of Aphria (APHA.TO) earnings. Doubled position in one portfolio to average down and wrote covered calls against the new position.

Gilead Sciences, Inc (GILD): US Pharmaceuticals. Rounded up holding in one portfolio to average down entry price and to be able to write covered calls.

Canopy Growth Corporation (WEED.TO): Canadian Marijuana. Expecting to have a stock position assigned on a covered call, I bought another small parcel on an up week for marijuana (excuse the pun) and wrote a covered call for February expiry for 5.6% premium with 9.4% coverage. Get assigned and trade makes 15% in 5 weeks.

General Electric Company (GE): US Industrials. Talking heads trade of the day idea suggesting that the Larry Culp driven turnaround is gaining traction plus positive news on China trade. Target price was $20 in 2020. Bought a parcel of stock at $12.04 and a January 2022 12/20 bull call spread funded partially with an October 2020 strike 10 put option. With net premium of $1.48 this offers a maximum profit potential of 440% for a 66% move in price in 2 years. The chart looks compelling. I will write covered calls against the stock as well. Risk in the trade is if price drops below and stays below $10 (down 20%) at expiry in October or does not pass $13.48 (12% up) at expiry in January 2020.

Updated chart shows the new trade as green flouro rays. The pink ray trades expire on the pink fluoro vertical line (rays are drawn too long). The sold put (10) expires at the end of its ray. The chart shows a sad tale of trying to catch the bottom - just failed for the January 2020 expiries

I have cloned across two possible price scenarios - get the pink arrow scenario and the new trade will get halfway to maximum and the pink trades will get past breakeven. A blue arrow price scenario will be needed to get the new trade to the maximum. The sold put level is comfortably below recent price action.

Sociedad Quimica y Minera de Chile S.A. (SQM): Lithium Producer. Lithium prices have moved off the lows. Added a small parcel to a portfolio with no exposure. Of note is next day this stock was last trade idea on the back of strong rise in Tesla (TSLA) price. I wrote a covered call with 0.97% premium and 12% coverage.

Target Corporation (TGT): US Retail. Target earnings disappointed markets with some disappointing revenue numbers in electronics and toys. Talking heads view was that Target is in the midst of the change programme similar to what Walmart (WMT) has done and that it should get back to the same multiple (20 vs 16). I added a small parcel of stock and January 2022 115/140/100 call spread risk reversal. Net premium on the call spread was $8.92 which offers maximum profit potential of 180% on its own for a 19.7% increase in price for the $116.93 I paid. The sold put covered the entire net premium giving a net entry price of $98.66. Risk in the trade is if price drops 18% and I am forced to buy the stock.

I have looked at sector comparative charts going back all the way to 2009. Target (black bars) has been a strong performer across almost all time comparisons. It is only really in 2019 that its price has a lagged Walmart (WMT). The chart shows the comparison from May 2018, which is when Walmart's price (red line) started moving ahead. Target is well ahead of its sector (Kroger (KR - yellow line), Kohls (KSS - green line)The trade premise is that the market reaction to earnings is an over-reaction and that Target is on track to close the multiple gap to Walmart.

Now let's look at the trade set up chart which shows the bought call (115) as a blue ray and the sold call (140) as a red ray and the sold put (100) as a dotted red ray with the expiry date the dotted green line on the right margin.

This is a blue sky trade which makes it hard to draw price scenarios. The price trajectory is steeper than at any time since 2009 lows. That tells me that management are doing the right thing. Key elements are the sold put is comfortably below the last consolidation range. The recent highs are just above the halfway mark between the bought and sold calls.

The Bank of New York Mellon Corporation (BK): US Bank. Earnings disappointed market and price dropped 5%. I added to my holding in one portfolio to average down entry price.

Lennar Corporation (LEN): US Homebuilding. With a good chance that my holding in DR Horton (DHI) will be assigned on a covered call this week, I bought a holding in Lennar. My analysis after the last purchase of DHI suggested that Lennar was the laggard in the homebuilding sector and had more upside. With the phase one China deal done and a strong US economy and low interest rates, home building remains a solid sector. See TIB498 for the rationale.

Pickens Morningstar Renewable Energy Response ETF (RENW): Renewable Energy. Straight swap from coal to renewables. In time I will dig into the components of this ETF to invest more specifically.

Sold

VanEck Vectors Coal ETF (KOL): Coal. Germany votes to eliminate coal fired power by 2038. Time to hit the exits despite the 9.5% dividend yield. Trade idea originally from my investing coach on a beaten up stock. It just got more beaten up with 49% loss since August 2014. Switched to renewables ETF for the long haul.

Bank of America Corporation (BAC): US Bank. With price closing at $34.71 closed out bought leg (27) of a 27/40 bull call spread for 73% profit since November 2017. The sold leg (40) expired worthless ramping up overall return on the trade to 95%. In another portfolio, I elected to take delivery of the stock as this portfolio has less US bank exposure. I will write covered calls until the stock gets assigned.

Chicago Wheat Futures (WEAT): Wheat. One contract closed with average per contract profit of $10.4 1.86%

Corn Futures (CORN): Corn. Two contracts closed with average per contract profit of $2.95 (0.76%)

Expiring Options

These are the stocks I took action on during the week ahead of expiry.

3D Systems Corporation (DDD): 3D Printing. Price spiked 12.3% during the day to close at $11.22. This took out a pending order put in to preserve some capital for a 72% net loss assuming sold call (22) expires worthless. Disappointing as the close that day for the 12 strike call option was $0.75 vs the $0.11 I got back. Trade set up in May 2018. As it happens closing price for the week was below the strike I closed out.

Income Trades

Naked Puts

Started to write naked puts for February expiry as there are quite a few January contracts which will expire safely in my favour. This is a different type of income trade which I am exploring more and more. The idea is to identify stocks that I would like to own at a lower entry price or I am confident will not go down far. Some of these have become regulars - this is the slate for this month. The main risk in doing this is a major market correction that then drives a big demand for capital to cover the purchases (or losses on buying back the contracts)

McDonald's Corporation (MCD), Apple Inc. (AAPL), 3D Systems Corporation (DDD), Apache Corporation (APA), Roku, Inc. (ROKU), Cisco Systems, Inc. (CSCO), The Walt Disney Company (DIS), Deutsche Bank AG (DBK.DE), ENGIE SA (ENGI.PA)

Covered Calls

Bought back contracts in Marvell Technology Group Ltd. (MRVL) (50% - strong upside in 5G), and the others to give more time to recover => L Brands, Inc. (LB), Fluor Corporation (FLR), Deutsche Bank AG (DBK.DE). LB trade was profitable even after the buy back. On Deutsche Bank, I sold a 7 strike naked put to recover the premium differential on the buy back.

Started writing February covered calls earlier than normal with a few written on new holdings. 11 contracts written at an average premium of 1.54% and coverage ratio of 10.46%. Final average for January contracts after adjusting for buy backs was 0.84% with coverage ratio of 7.8%

Cryptocurency

Bitcoin (BTCUSD): Price range for the week was $1149 (14.3% of the low). Price pushed ahead hard at the start of the week and then made two inside bars and propelled ahead again through resistance at $8891 once the US-China trade deal was signed.

3 contracts closed with average per contract profit of $272.77 (3.31%)

Ethereum (ETHUSD): Price range for the week was $36 (25% of the low). Price tested resistance at $146 for one more day and pushed ahead harder than Bitcoin for a test of resistance at $177, where it is holding maybe for another day. That short term uptrend line I drew the week before last was a good indicator.

9 contracts closed with average per contract profit of $12.66 (8.68%). With price moving up 25% in the week, an average trade win of 8.68% seems light. Two factors going here - some of these trades have been open since November and December 2019 opened on the way down AND I have been trailing stop losses. With high price volatility, trades close on the trailed stop loss before price reaches up to the profit target.

Ripple (XRPUSD): Price range for the week was $0.04490 (21% of the low). Price moved through $0.21 comfortably at the start of the week and raced through to test $0.25 with a pull back to support at $0.22 and ending the week testing resistance at $0.24754. This is an important level.

9 contracts closed with average per contract profit of $0.01029 (4.68%)

CryptoBots

Profit Trailer Bot Nine closed trades (1.97% profit) bringing the position on the account to 10.60% profit (was 10.34%) (not accounting for open trades).

Dollar Cost Average (DCA) list now at 7 coins

Pending list drops to 9 coins. PT Defender have released a new version - will implement in the week.

New Trading Bot Trading out using Crypto Prophecy. No closed trades

Currency Trades

US Dollars (AUDUSD): Sold US Dollars to raise Australian Dollars to cover expenses.

Outsourced MAM account Actions to Wealth closed out 32 trades on AUDUSD, UK100, EURCAD, AUDNZD, EURCHF, XAUUSD, USDCAD for 0.62% profits for the week. Trades open on UK100, XAUUSD (0.87% positive)

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. License to use power plant photo by Creative Commons Zero - CC0. 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

Charts: http://mymark.mx/TradingView - this is a free charting package. I have a Pro subscription to get access to real time forex prices

Bitcoin: Get started with mining Bitcoin for as little as $25 http://mymark.mx/Galaxy

Tracking: Keeping track of your crypto trades is a whole lot easier with CoinTracking.info. Get 10% off all your account upgrades https://mymark.mx/CoinTracking

January 13-19 2020