You're as cold as ice Performance: YTD P&L: Unch MTD P&L: Unch WTD P&L: Unch My blog title mainly has to do with how cold it could get next week where I live. I live in northern Iowa. I bet you are jealous. Although, in a lot of ways, my portfolio was as cold as ice. In the sense that my P&L didn't move. In the sense that one of my buy and holds took the high honor of being the second worst performing stock on the S&P 500 today. Even with those negative aspects of my portfolio this week, there is still plenty for me to be happy about and, to be honest, I ended this week feeling the best about my portfolio than I have any other time this year. I will get into the "why's" later, but let's look at the negatives first Issue's this week The biggest issue that plagued my this week was that one of my buy and holds ABBV tanked hard on Thursday and Friday. The total loss between these two days was somewhere in the 9-10% range. Ouch. The positive spin on this is that thanks to having a diversified portfolio and strategy, my portfolio completely absorbed the loss and was able to end the week unchanged. ABBV takes the honors of 2nd worst performing SP 500 stock today Positives this week Even though the market didn't give me quite the pullback I had hoped this week, it did allow me to keep my short premium positions open for another week and milk some decent premium out of them. My short QQQ's strangle swung from a large loss to a small profit, and my short XLE strangle went from a small profit to a decent profit. So the positive here is while the pullback wasn't deep enough to maximum profits on the strangles, it did buy me time and as a premium seller time is one of my most precious (and profitable) commodities. I was able to sit on my positions all week until they were ready to roll to the next expiration today. My strategy involves automatically rolling positions to the next expiration once their DTE reaches the teens or low 20's. The reason I do this is to lower gamma and delta risk that start to exponentially pick up in the last few weeks before expiration. I had recognized last week that I has violating one of my most important rules which is to not be over-leveraged, which is greater than 1x leverage on any group of positions. XLE and QQQ had become very highly correlated and my leverage was around 1.4x. When I rolled my positions to the next expiration it gave me an opportunity to let one of my XLE strangles roll off, and now my QQQ + XLE leverage is right at 1X. Perfect! Another thing that I was able to do while rolling was to re-position my strangles. I have complained about this since starting my blog 3 weeks ago, but I had poorly initiated a number of positions in December, and that continued to haunt me all the way until now. The scheduled roll today gave me an opportunity to remedy this issue and get my positioning right. I was finally able to adjust my positions My new positions are now a short strangle in XLE and a short strap strangle in QQQ (2 calls to 1 put). The reason I did a strap is to reduce delta's from my long stock positions. In my mind this position is a strangle with a short call as a proxy covered call to my long stock. My theta is sitting just below 0.1% of my portfolio. I have a lot of capital I haven't put to work, so I may initiate some new positions next week to get my theta closer to my 0.3% goal. My delta's are now slightly positive, but with a delta to theta ratio of 1:1 I consider my portfolio basically neutral. Looking Ahead After making slight adjustments to my portfolio over the past few weeks I now have resolved almost all of the issues and strategy violations I had started the year with. The only part of my strategy that my portfolio is currently violating is the size of my buy and holds. Right now each one of my buy and holds are close to 20% of my portfolio size. I am going to resolve this by simply injecting more capital into my portfolio. I plan on doubling or tripling my portfolio size next month which should bring those positions to around 6-10% of my total portfolio size (my strategy limit is 10%). The other issue I am looking to resolve is not having enough diversified short premium positions and enough diversified buy and holds. This is simply an issue of low capital. Once I have more capital in the account I will be able to add in some more buy and holds and initiate some new, uncorrelated, short premium positions. This should go a long way to further reduce risk, and make it so no single position has too much affect on my portfolio.
MMP earnings were this morning, promptly dropped 4%. The tweets about healthcare, ABBV down 3% after hours. I just can't catch a break here.
Commodities vs S&P500 Performance YTD P&L: -$350 Portfolio Overview This past week saw options selling as profitable for my portfolio but my buy and hold positions continue to be a drag. MMP had earnings last week in which the stock promptly dropped by around 5%. This was following ABBV's earnings the week before where the stock had dropped by 15%. Even then my account has only experienced a draw down of less than 2% since the beginning of the year. I think my goal of reducing volatility through diversification and premium selling is working, and this past month has been proof of that. This month I will be adding a decent amount of capital to my portfolio which will allow me to significantly reduce risk on my buy and hold's, and open the door for me to be able to sell options premium in more markets such as corn, soybeans, wheat, silver, etc. Positions Changes I made some changes to my short premium positions this past week. Firstly I bought back my XLE short strangle and replaced it with a short strangle in MU. The reasoning was simply that XLE's IV had dropped to a level that I felt it wasn't paying out enough premium for the risk involved. MU on the other hand has an IV that is about 2.5x that of XLE, and as an added bonus is less correlated to QQQ(0.8 vs 0.7). In addition to this change I also opened a bear put spread in GLD. I wanted to introduce a directional play that had low correlation with my core portfolio. GLD offered a great opportunity to do this as it is currently bumping into some major overhead resistance. The position itself offers a 1:3 risk:reward setup. Max profit occurs at 119 and break-even occurs at 122.75. This position has 40 DTE. Looking Ahead I want to look way ahead this time and decide what sort of portfolio composition I want over the next few years. Last year on my TradingView account I began discussing the GSCI Commodities index vs the S&P500. This ratio has showed how commodities to stocks have cycled back and fourth for the past 45 years. I'm a huge believer in cyclical and mean reversion, so I believe this ratio being at an extreme offers an opportunity to position for the next cycle. I have been thinking about what the correct portfolio should look like to take advantage of this extreme. I have decided on making a few changes to my buy and hold rules. One is that I want to increase my portfolio stock holdings from 65-35 (65% stocks and 35% cash/options) to 75-25. With that 75% dedicated to long term buy and hold stock positions I have decided on the following weightings: When the commodities to stocks ratio is at a cyclical low I want 2/3 in commodities and 1/3 in stocks, and vice-versa when at a cyclical high. That means right now I need 50% of my portfolio in commodity exposed stocks. After I properly capitalize my account this month my current buy and hold's will be about 25%. My plan is to research and choose holdings that are primarily in precious metals and oil industries. I am planning on adding in these positions over the next month.
Plowing on through We got our first real blizzard of the season. Thankfully the blizzard season is coming to an end because I probably can't handle much more of this. Here is me shoveling the pathway to our door for the 4th time this year. This time around the drifts are 6"-8" high. Without further ado Finally made it to the door but still could't open it since I had to shovel a radius around the door so it could open Standing on the drift that I will soon be owning like a boss The human snow blower My work is finished, time to rest For those of you who were willing to read to the end of the post, I do have a trading related update. I have not posted any updates to my trading account for about 3 weeks. The reason for that is because I am going to be changing to once per month updates. Weekly movements in my portfolio, while sometimes fun to watch, are fairly meaningless. I sell option premium on 30 day cycles (I sell them at around 60-45 DTE and buy them back at around 14 DTE). The remainder of my portfolio is long-term buy and hold positions that will gyrate up and down for many years to come. Arguably, even monthly updates are fairly meaningless, but that wouldn't make for a very exciting blog if I only posted an update once a year, so I will stick to monthly account updates. In between I will still try to post about potential trade setups or new positions I have initiated, and try to do that at least a few times a week. With only 1 week left in February that means my next account update will be next week. See you then!
Going for the Gold (and Silver) Performance: YTD P&L: -2% Changes this month The big changes the month was the additional of 3 precious metal miners to my portfolio as well as a roll of my short QQQ strangle and a bear put spread spread on /6EM9. I have also increase the capital of my account by almost 150%. Important Note My unrealized P&L YTD numbers are not showing correctly. I am down -$1000 but it is showing a value of almost -$1,500. That is because after the market's close the futures options spreads get gigantic so over the weekend those positions will show massive unrealized losses. When the futures markets open on Sunday those spreads will tighten and my unrealized P&L be normal again. I will try to remember to take my account screenshots before market's close on Friday. Adding the miners This last month I have added silver and gold miners that now comprise about 30% of my total portfolio value, which is the percentage that I had been hoping to achieve. When looking for miners to invest in I was looking for them to have at least 2 or more of the following characteristic. Silver output is at least 50% of total output Low to no debt Large cash pile on hand AISC below the industry average Annual output is growing, not declining Mid-sized These characteristics are designed to find miners that have nice leverage to the metals, but not be completely wiped out if metals carve out a new low in the future. With those characteristics above I had a difficult time finding even 3 miners that fit the bill. Most small/mid-sized miners in general and particularly silver miners are in rough shape. I was able to identify at least 3 miners that fit 2 or more of the above criteria. Pan America Silver (PAAS): This was the easiest choice to make of the 3. This month it became the worlds largest primary silver produce when it acquired Tahoe Resources. They are a low debt company with a solid amount of cash-on-hand and a low AISC producer. If there is a new lower low hiding out there in silver prices I could see PAAS buying up other distressed silver miners in a fire sale, further strengthening the company. First Majestic Silver (AG): This silver miner is a bit more risky in that it doesn't have a tremendous amount of in-ground reserves left, but it has been aggressively exploring with some promising results. It also had one of the strongest quarters of the silver miners and is rapidly increasing it's production output. The have a weaker balance sheet than PAAS. IAMGOLD (IAG): This is primarily a gold producer. What I like about them is that they have a fairly low AISC, a decent balance sheet and tons of growth potential. This stock gives me a little bit of diversity so I am not too bound to silver prices, since I consider silver more of an industrial play. Overall Overall I like the prospects of silver. Silver supply has been dropping for a number of years and with silver down around the $13-$15 range the supply could really start falling off the map. While demand is also down slightly, the drop in supply has matches or exceeded that causing a continued deficit. I think there is a definite possibility of price retesting recent lows or even potentially carving out one more new low, although I don't think those levels will last. I am fully aware of the volatility of small/mid tier and particularly silver miners. In terms of probability I think there could be a 20-30% drop in the miners still hiding out there. I am accepting that possibility in the short term for the much larger long term potential. This is all a play on the GSCI cyclical low trade, so getting my portfolio heavy on a number of commodity revolves around this. Once the GSCI vs. SP500 swings the other way, I would plan on shifting some of my holdings away from commodities and back to technology, healthcare, defensive, etc. Short Premium Roll Last month I rolled my short QQQ strangle to the next monthly expiration since the current position was nearing 14 DTE. I was able to roll for a credit. Per my rules I will roll all short premium positions nearing the 14 DTE to reduce gamma risk. This new position is 2 short calls at 178 and 1 short put at 161, with break evens at 181 and 156. Bear Put Spread An inside bar/pin bar fake out formation occurred on /6EM9 Euro-Dollar futures. This formation occurred right at the 50% retracement of the last swing high.. These types of patterns, when forming with the prevailing trend, can be very powerful. There are 2 ways to trade these, waiting for a break of the mother candlestick or the more risky waiting for at least a 50% retracement of the pin bar. I opted for a retracement entry and chose to enter at the high of the mother/child candle range. Price did push up to the high of the mother/child candle, I entered short, and price immediately began to drop. Price closed out the day as a second pin bar, so the pattern is now an even more rare inside bar/double pin bar fake out. My risk is somewhere around the 0.25-0.5% and I am aiming for a profit of around 2%. I will be waiting for this setup to resolve, one way or the other, early next week. I may post more detailed analysis about it in a separate post. Looking Forward Overall I am pleased with the composition of my portfolio now. I have a good mixture of buy-and-holds which comprise of energy, defensive, precious metals, and healthcare. None of these categories are larger than 30% of my total portfolio value. My plan is to continue to sell options premium, made candlestick pattern trades, and overall keep things diversified to help reduce risk.
Big Portfolio Changes Are Coming Performance: YTD P&L: -0.8% General Comments In the past week I was able to recover most of my losses for the year. There were two primary reasons for this. The first is that my mining stocks had a good run up. The second reason was due to a really nice short on the EURUSD. I was up 1.2% on the week which puts my YTD P&L loss at less than 1%. I am basically 1 trade away from being back in the green for the year. The Big Changes This past month life happened and we ran into a very sudden and unexpected medical emergency. Without going into too many details, there was a surgery that was involved and a very large medical bill that will follow. Due to this need, I had to go in an liquidate almost all of my stock positions. I will likely need to withdraw somewhere between 50-65% of my account. Once these bills are taken care of I will begin refunding my account, and should have it back to where it was within a few months. What that means is that I will not be able to test my 3 prong portfolio (stocks, options selling, candlestick trading), since I had determined it takes a minimum of $50,000 to be able to run that kind of portfolio. I have actually come to believe it would take closer to $100,000 to $150,000 to properly diversify the way I would like What that means is that with the remaining capital I am going to be switching to an option selling and candlestick trading only portfolio. This is actually doesn't bother me at all since options selling and candlestick trading is much more in my wheelhouse than stock picking. Future Blog Posts This change means the nature of my blog posts will change. Since I will no longer be doing the 3 prong portfolio, I have decided to begin a candlestick study. With the study I will be tracking candlestick trades I take and looking at a large number of metrics for each trade. I hope to then aggregate that data and hopefully improve my trading performance. Out of stock picking, option selling and candlestick trading, I have been candlestick trading much longer than the others. For that reason I am very excited to do this study. My blog posts going forward will then be a lot more focused on candlestick/price action trading and posting trade analysis. I also still plan on doing monthly portfolio updates, but again, this will focus much more on short term options and candlestick trades. For many of you TA traders that follow my posts, you will find this much more interesting.