TIB: Today I Bought (and Sold) - An Investors Journal #503 - Semiconductors, Marijuana, US Banks, US Automotive, US Homebuilding, Cloud Computing, Oil and Oil Services, India, China, plus more

Catchup post for trade action coming through options expiry ion two portfolios - one update still to come. A few exercises, a few assigned and some hard lessons about options trading and time.

Bought

ENGIE SA (ENGI.PA) French Utility. Bought specifically to write covered calls.

Valaris plc (VAL): Offshore Oil Driller. This trade is a mess following the merger of Ensco plc (ESV) with Rowan to create Valaris and a 4 for 1 split. I was assigned 75 shares on a strike 5 sold put with closing price of $5.68. Now there was a 4 for 1 split - hence 75 shares instead of 300. Strike price assigned was $20 (=strike 5 X 4).

I have learned that whenever there is corporate action like this is to close out any options trades and replace with contracts on the new underlying. I now have a small holding in a stock in a sinking sector - will Valaris survive is the question? If I think it will I will average down aggressively and get out.

iShares MSCI Emerging Markets ETF (EEM): Emerging Markets Index. With price closing at $46.23 Strike 45.73 call option exercised. Breakeven for the holding is $48.31

Sold

Assigned on covered calls.

Canopy Growth Corporation (WEED.TO): Canadian Marijuana. 23% blended profit since November/December 2019. Income (covered call) added 2.56%

D.R. Horton, Inc (DHI): US Homebuilding. 4.1% profit since December 2019. Jim Cramer idea. Switched horse in US homebuilding onto Lennar Corporation (LEN)

Twilio Inc Cloud Computing. 2.8% blended loss since May/September/October 2019. Trade set up in error at strike 110 - should have been 115. Would still have been assigned but at a profit.

Shorts

General Motors Company (GM): US Automotive. Close of $35.60 for 36/33 bear put spread leads to exercise to go short at $36. Breakeven for the trade is $34.98. This trade was a short term trade to trade the impact of the strike on earnings (see TIB480). The updated chart shows that price did react to the strike story and kept pushing lower but not enough to hit the maximum and then started bouncing

As it happens price came up with the earnings announcement which coincided with the end of the strike. Price action since then has more to do with China and other news than the impact of the strike. The challenge is to decide whether to keep the short position and face having to fund the dividend (4.36% yield).

Invesco QQQ Trust (QQQ) and SPDR S&P 500 ETF Trust (SPY) hedge trades both closed out-the money. These are cash neutral ratio put spreads which are fine to expire worthless.

Expiring Options

Long list of options expiring out-the-money with 4 big themes failing - China trade war resolution, tariffs helping steel and aluminium producers, oil prices affecting oil services especially and shale oil and rising interest rates to help regional banks. Add in a few old time sectors falling on hard times.

Oil and Oil Services

Chesapeake Energy Corporation (CHK): US OIl. $0.66 close for 4/7 bull call spread - ouch story of a darling of oil shale gone wrong.

Alerian MLP ETF (AMLP): US Shale Oil. $8.84 close for strike 11 call option

VanEck Vectors Oil Services ETF Oil Services. (OIH) $12.67 close for 26/35 bull call spread.

Transocean Ltd. (RIG): Offshore oil driller. $5.97 close for 10/20 bull call spread. Offshore oil drilling has been a tough sector to invest.

Emerging Markets and China

WisdomTree India Earnings Fund: India Index. (EPI) $25.64 close for strike 30 call option. India options trades started in July 2016 and have progressively rolled up profitably with this trade the first loss

CEMEX, S.A.B. de C.V. (CX): Mexican Cement. $4.21 close for strike 10 call option. Another casualty of US trade tariff wars (only resolved after expiry) and sliding oil price.

Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR): China Index. $3.12 close for 33.71/43.71 bull call spread. This trade was set up before the US-China trade dispute began and expiry has come too close to the signing of the Phase 1 trade deal to make enough impact.

Of note is that one set of call options on Emerging Markets did arrive in-the-money

Steel and Aluminium Tariffs

Century Aluminum Company (CENX): US Aluminium. $7.18 close for 20/30 bull call spread. Updated chart to show how tariffs did not work.

I wrote in TIB303, when the short term trade failed

Trades set up when steel and aluminium tariffs were announced expired worthless. Lesson from this is 7 months might not have been enough time for the effect of tariffs to work through. A step back to the charts tells me that the market never believed that the tariffs would make a difference, especially in the case of aluminium. Price basically collapsed directly the tariffs were announced

I got that right - sadly the price action got worse and I could not escape. The big question is have we found the bottom? If we get some economic growth we could well now there is a Phase One deal in place. Technicals show a higher high and a higher low - one could even argue an inverted head and shoulders has formed.

AK Steel Holding Corporation (AKS): US Steel. $3.12 close for 4/7 bull call spread.

US Regional Banks

My investing coach was always keen to keep his options trades out-the-money. He would rollup and scale in progressively to be sure to back the winners. This works just fine while prices keep moving ahead BUT it does run the risk of becoming a momentum trade. There comes a time to apply trade management to exit rolled up trades to preserve hard won capital = lesson learned - 3 examples here in regional banks.

KeyCorp (KEY): US Regional Bank. $19.59 close for Strike 25 call option. Rollup from a profitable trade in March 2018 with this last trade wiping out all the gains.

Huntington Bancshares Incorporated (HBAN): US Bank. $14.71 close for strike 17 call option. Long series of losing options trades with only one winner

Zions Bancorporation (ZION) $50.74 close for 55/65 bull call spread. Rollup from a profitable trade in June 2018 with the overall sequence of trades 254% profitable

Others

General Electric (GE): US Industrials. $11.81 close for 15/20 for bull call spread. Recovery is happening but not in time for this trade.

Applied Optoelectronics, Inc. (AAOI): US Semiconductors. $14.12 close for 45/65 bull call spread. Another example of a break out failing in this case to find new lows not seen since listing in 2014. See TIB243 for the original trade. The chart also shows signs of bottoming.

I did write in TIB243 that financials at teh time (mid 2018) show strong growth in revenues, solid operating margins and a modest debt to equity ratio. Time to check again.

American Airlines Group Inc. (AAL): US Airline. $28.40 close for 40/60 bull call spread. Growing economy was helping US airlines until the Boeing 737 Max grounded most of American's medium range fleet. In TIB291, I wrote that I was looking for price to break back up to 2018 highs. The updated chart shows a sad story of a succession of lower highs with China trade and Boeing groundings and later a pilot strike getting in the way.

The good news is the trade was funded from Delta (DAL) profits

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. 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

January 17, 2020