Bought to open HNNMY

action

Bought 2,500 shares of Hennes & Mauritz (HNNMY) at $6.095. Total cost after commission was $15,245.45, or $6.10/share.

price target

First target is around $6.40, the support level of mid-January, which was also resistance during the past month. Assuming that the stock can recapture that level, soon, my next target level would be $7.70, the October 2015 peak.

stop loss

Even though H&M is one of the world’s biggest apparel retailer, since it is not officially listed in New York, its ADRs are somewhat illiquid, which makes them more volatile than I’d expect for a company of this size. ATR is 11.25¢. Adjusting this to a weekly measure (x sqrt(5)), I see 25&cent as a typical move. HNNMY closed at $6.11, so I will sell if the stock drops below $5.87 on a closing basis.

time frame/catalysts

As long as the stock doesn’t knock out the stop, I am willing to be patient. Quarterly sales updates were quite encouraging. A near-term catalyst could come from the August revenue metrics, to be reported on September 15, and from the earnings call on September 30th. The monthly sales growth number in particular offers a chance for a nice headline, since August 2015 was a rare month of lackluster performance for H&M (+1% sales growth).

rationale

Apparel retail has been struggling, obviously. Everyone who doesn’t live under a rock knows that the malls are dying, that there’s too much retail space in the US, that consumers are suddenly more interested in experiences” than in stuff”, and that the only retailer left standing in a few years, will be Amazon. Right. Whatever.

People will always need clothes. They want them to be fashionable, and not too expensive. H&M checks those boxes. Also, H&M’s store fleet is heavily weighted towards Europe, and not the US. In fact, H&M stores in Germany seem to have twice the average revenue as stores in the US. In addition, H&M has a big growth opportunity in Japan, where its online presence just went live.

August 30, 2016 at 6:29pm · HNNMY · buy to open · stock

Sold to close LB

action

Sold 200 shares of LB at $76.42. This closes the position originally entered on 5/13 at $67.73. Total return less commission was $1,721.10. Return per share after commission was $8.61.

rationale

I was frankly hoping for more from L Brands. I thought this might become a long-term holding of mine. But I got spooked by

  1. The price action over the past few days.
  2. Comments by Macy’s CEO Terry Lundgren on CNBC, during which he points out that the US has roughly 5 times the retail floor space per person as other developed countries, and that significant reductions in store counts are inevitable, as internet retail takes an increasing share.
  3. Comments heard on the web and from the female half of my family that bralettes” (clasp-less, underwire-less, unpadded bra replacements made from stretch fabric) are getting more fashionable and cost only 1/3 of what a Victoria’s Secret padded bra costs. This just cannot be good for margins at LB
August 30, 2016 at 6:01pm · LB · sell to close · stock

Bought to open CORN 10/21 expiration $17 strike calls

action

Bought 5 contracts of CORN 10/21 expiration $17 strike calls at $1. Total cost including commission is $511.70, or $1.02/share.

strategy

Its web page describes the CORN ETF as follows:

The Teucrium Corn Fund (NYSE: CORN) provides investors unleveraged direct exposure to corn without the need for a futures account. The Teucrium Corn Fund was also designed to reduce the effects of backwardation and contango.

The investment objective of the Fund is to have the daily changes in percentage terms of the Shares’ Net Asset Value (“NAV) reflect the daily changes in percentage terms of a weighted average of the closing settlement prices for three futures contracts for corn (“Corn Futures Contracts”) that are traded on the Chicago Board of Trade (“CBOT), specifically (1) the second-to-expire CBOT Corn Futures Contract, weighted 35%, (2) the third-to-expire CBOT Corn Futures Contract, weighted 30%, and (3) the CBOT Corn Futures Contract expiring in the December following the expiration month of the third- to-expire contract, weighted 35%, less the Fund’s expenses.”

My rationale to buy CORN can be summed up in one chart: Monthly Chart of CORN, from Finviz.com

Corn (like wheat) is highly oversold. Both grains trade at multi-decade lows. I am taking a stab at it at this price. Because I am looking to contain my risk and because implied volatility is relatively low, I am doing this with options.

August 30, 2016 at 5:23pm · CORN · buy to open · options

Bought to close XBI 9/16 expiration $63 strike calls

action

Bought 2 contracts of XBI 9/16 63 strike calls at $.97. This closes the short position originally entered on 8/24 at $1.72. Total return after commission was $131.10. Return per share after commission was 66¢.

rationale

I really don’t like the XBI vehicle I am using to gain exposure to the biotech sector. I should have gone with IBB vehicle, instead, as it offers weekly options expirations. I bought back the calls, expecting that the ETF would appreciate and that I would be able to close that leg of the covered call at an additional profit. Not yet, though: XBI fell back some more, before the close. So I continue to hold it. I am not too worried, but obviously this whole trade was poorly designed and executed.

August 30, 2016 at 5:13pm · XBI · buy to close · options

Sold to close BRSS

action

Sold 400 shares of BRSS at $28.63. This closes the position originally entered on 5/10 at $27.10. Total return less commission was $595.30. Return per share after commission was $1.49.

rationale

I received dividends of 3.75¢ per share twice on those shares, in addition to the profit stated above. Still, this stock didn’t deliver the kind of return I was waiting for.

The stock dropped very hard today on significant volume, after gaining nicely last week. Over the medium term, say the last 3 months, it has just not gone anywhere. I am in a portfolio pruning mode, right now, where I am looking to eliminate positions that are not contributing to portfolio return. This is one example for that.

BRSS still scores well, so if it had some kind of technically interesting setup, I might get interested. For now, I am out.

August 29, 2016 at 3:18pm · BRSS · sell to close · stock

Short XON 7/22 expiration, $25.50 strike calls expired worthlessly

action

My short position of 1 contract of XON 7/22 expiration $25.50 strike calls expired worthlessly. This closes the position originally entered on 7/18 at 75¢. Total return after commission was $71.25. Return per share after commission was 71¢.

parting thoughts

This trade was executed as entered, but not as intended. I wanted to cover my entire position of 500 shares of Intrexon, but wound up getting a partial fill. I have mentioned in the post about the entry the positive aspect of Fidelity’s pricing in this case. Now I must mention the negative aspect:

Fidelity does not allow penny increments on low priced option contracts. If I am not mistaken, the minimum increment is for options priced under $3, and 10¢ for options priced above $3. In this specific case, let’s say the contract is bid at 20¢ with the ask at 30¢. As a seller, I can do one of three things:

The irritating issue here is that with the limit order options, one might find oneself without the yield enhancement/risk protection of a short option in a covered call/covered put scenario. Alternatively, if accepting the 20¢ bid, one gives up the that would otherwise usually be achievable: If I were to enter a trade like this at TD Ameritrade, I would enter it with a limit of 23¢ and I would be quite confident in receiving a fill. 23¢ vs. 20¢ is a very meaningful 15% difference!

July 25, 2016 at 11:01pm · XON · options · expiration

Short SCO 7/22 expiration, $187.50 strike puts expired worthlessly

action

My short position of 2 contracts of SCO 7/22 expiration $187.50 strike puts expired worthlessly. This closes the position originally entered on 7/15 at $3.10. Total return after commission was $610.55. Return per share after commission was $3.05.

final thoughts

I already replaced this position on Friday. Rolling down and out.

July 25, 2016 at 10:03pm · SCO · options · expiration

EBAY 7/22 expiration, vertical put spread expired worthlessly

action

On 7/19 I entered into a EBAY put vertical spread with 7/22 expiration. The spread consisted of a long leg of 15 contracts with strike $25.50 bought for 42¢, and a short leg of 15 contracts with strike $24.00 bought for 13¢. That spread has now expired worthlessly. Total loss including commission is $463.95. Loss per share after commission is 31¢ (In case of ratio’ed spreads, I always calculate per share profit/loss based on the size of the more expensive leg).

final thoughts

EBay had a very convincing earnings report this week. In hindsight, I should have had more confidence in the original long position.

July 25, 2016 at 9:47pm · EBAY · sold to close · options · expiration · vertical

Bought to open GPL

action

Bought 6,000 shares of GPL at $1.34. Total cost after commission was $8,028.15, or $1.34/share.

price target and time frame

The stock dropped sharply on 7/7 on the announcement of a capital raise with dilution. I think the company has been a good operator, and will convince the markets that they can generate a decent return on the capital they raised. In the shorter term (by end of September) I am hopeful that the stock can at least fill half the gap it created on 7/7. That should take it to $1.74.

stop loss

It’s a volatile stock, so I am going to give it 10% room to move. For now, I won’t sell unless it closes below $1.20.

rationale

The UK vote to leave the EU is already renewing calls for additional monetary policy accommodation in the UK and Europe. The Bank of Japan seems to never run out of excuses to debase the Yen, and the Fed’s commitment to raise rates seems highly suspect. The demand for a currency that cannot be debased is not going away. Meanwhile, with USD11 trillion in global fixed income yielding negative interest, the fact that gold has no yield seems to weigh less heavily.

The catalyst for gold miners to appreciate is that gold is appreciating. That won’t really stop, unless a true global expansion sets in. As long as global growth remains challenged, this should be a reasonable trade.

Great Panther Silver is a Canada-based Silver and Gold mining company with operations in Mexico. They have significant expansion potential at a reasonable all-in sustaining cost (AISC).

I was looking for some exposure to precious metals, and based on historic gold/silver ratio (see below), there’s still some catch-up potential for silver.

gold/silver price ratio, from Tradingview.comgold/silver price ratio, from Tradingview.com

July 22, 2016 at 4:36pm · GPL · buy to open · stock

Opened UCO covered put (7/29 expiration, $9.50 strike)

action

Sold to open 2,000 shares of UCO for $9.79, and sold to open 20 put contracts with $9.50 strike price expiring 7/29 for 25¢. Total proceeds after commission are $20,049.10, or $10.02/share.

rationale

I now carry covered puts on both UCO and its inverse sibling SCO. The rationale is twofold:

The basic idea is to be always short at least one of the two, and where the future path of oil becomes very difficult to predict, both.

July 22, 2016 at 2:03pm · UCO · sell to open · covered put · options

Sold to open SCO 7/29 expiration, $93.00 strike puts

action

Sold short 2 contracts of SCO 7/29 expiration $93.00 strike puts at $2.00. Total proceeds after commission were $390.55. Proceeds per share after commission was $1.95.

rationale

The existing short put on the covered put position opened here is expiring. I am losing money on the ETF, so far, but I am making some of it up with the options. In the long run, given the decay in the ETF, I will make money on it. So, all I need to do, is to stay persistent with the put selling. That’s what I am doing, here. I am simply rolling down and out with the puts.

July 22, 2016 at 12:16pm · SCO · sold to open · options

Day Trade in SCO

Did a quick day trade in SCO, as oil continued to drop. I am short SCO, and intend to stay short. However, I anticipated a continued drop in oil, so I temporarily covered the position at 92.87/sh and sold it again later at 93.85. Total profit after commission was $178.07, or 89¢/share.

This will basically result in a wash sale, since the SCO short was in a loss position, and I re-established it within the 30 days (or, in this case within a couple of hours). The gain from the day trade therefore just reduces the loss in the position I am carrying forward.

July 21, 2016 at 7:07pm · day trade · SCO

Bought to open NUGT covered call with 7/22 expiration, $136.00 strike

action

Bought to open 200 shares of NUGT for $136.31 and sold to open 2 call contracts with strike $136.00 expiring 7/22 for $4.40. Total cost after commission was $26,399.48, or $132.00/share.

rationale

Following the big drop in gold prices yesterday, stocks of gold miners rebounded today. I think the potential for further strength in gold is limited, given the overall solid earnings season we are seeing so far. On the other hand, for gold to drop significantly, we would likely need more strength in the US Dollar. Without Fed tightening (which I believe is unlikely) I see little scope for further dollar gains.

Consequently, this is a bet that gold miners will be relatively range-bound. The IV in NUGT is simply too high to pass up, here. Effectively, I am getting more than 3% of downside protection on the long position, for less than 2 days of exposure.

July 21, 2016 at 6:41pm · NUGT · buy to open · options · covered call

Initiated SPY vertical put debit spread

action

Bought 10 contracts of SPY $198.00 puts expiring 11/18 for $2.52 and sold 20 contracts of SPY $180.00 puts expiring 11/18 for $1.06. Total debit after commission was $438.40, or 44¢/share (per share debits and credits always reflect the contract count of the more expensive leg.)

rationale

I had mentioned previously, that I would be looking to reduce the drag created by my hedges. Compared to previous hedges, this one is very, very cheap. But it has two central weaknesses:

These are severe limitations, to be sure. But I feel justified in taking this risk: First, in order to push this position into a significant loss position at expiration, SPY would need to sit below the lower break-even price of $162.43 at expiration. The likelihood of such a 25% drop happening by 11/18 is about 1.5%. A more moderate drop that would bring the position into a profit position would need to see the SPY fall below it’s upper break-even point of 197.57. This has a probability of 7.6% — still remote, but not out of the question. And this is the exact scenario that I am looking to guard against.

I am not sure that this will be the model for all my future hedging. But I will give this a try for now. Ideally, such a ratio put spread should probably be used with a shorter time to maturity to minimize the potential for the short leg to gain much value, following a swift market drop of 10%, say. But in this case, the risk I am most concerned about is a global trade war leading to a global recession in a Trump presidency. That risk won’t even really start to impact the market until September or October, unless by that time the polls indicate that the race is lost for the Donald.

P/L chart for SPY put vertical ratio spreadP/L chart for SPY put vertical ratio spread

July 20, 2016 at 12:18am · SPY · buy to open · options · vertical

Initiated EBAY vertical put debit spread

action

Bought 15 contracts of EBAY $25.50 puts expiring 7/22 for 42¢ and sold 15 contracts of EBAY $24.00 puts expiring 7/22 for 13¢. Total debit after commission was $463.95, or 31¢/share (per share debits and credits always reflect the contract count of the more expensive leg.)

rationale

This is a flyer, doubling down on the rationale expressed in the previous post.

July 19, 2016 at 3:06pm · EBAY · buy to open · options · vertical

Sold to close EBAY

action

Sold 600 shares of EBAY at $26.46. This closes the position originally entered on 6/1 at $24.05. Total return less commission was $1,430.10. Return per share after commission was $2.38.

rationale

Among all US retailers, eBAY is the most exposed to the UK, with 15% of its sales originating there. The revaluation of the British Pound following the UKs vote to leave the EU will have an immediate negative effect on this business. I expect there to be a secondary negative effect, as British shoppers will curtail the import of discretionary goods via eBay, as their purchasing power has diminished.

Secondarily, while I applaud the efforts made by management to become more competitive with Amazon, by offering standardized product descriptions and reviews, I have to wonder if these efforts aren’t too little, too late, to stem the gradual erosion of mindshare that eBay has suffered over time.

The company will report earnings after the close tomorrow, and since I am not bullish on that event, I am going to take the opportunity to walk away with about a 10% return over the 7 week holding period.

July 19, 2016 at 1:41pm · EBAY · sell to close · stock

Sold to close AUPH

action

Sold 3,000 shares of AUPH at $3.02. This closes the position originally entered on 6/1 at $2.88. Total return less commission was $404.10. Return per share after commission was 13¢.

rationale

Aurinia Pharmaceuticals (AUPH) is a small development stage biotech company that is both unprofitable and dangerously low on cash. To turn around its fortunes, the company will need a successful conclusion of the current Phase 2b Trial of its lupus nephritis drug voclosporin. Top line data from this trial is expected in Q3, which is why I expected the stock to show some more positive response going into the readout.

Given that the stock seems at best range-bound, I have to conclude that the expectations for it are very muted. A negative readout would almost certainly spell the end of this company, and since my track record with predicting binary events is not great, I am going to throw in the towel, here.

July 19, 2016 at 1:10pm · AUPH · sell to close · stock

Exercised FITB 7/15 expiration, $18.00 strike calls

action

Exercised 8 contracts of FITB 7/15 expiration $18.00 strike calls. This closes the position originally entered on 3/2 at $1.15. Basis including commission for this position is $15,341.90, or $19.18/share. Given that FITB is currently priced at $18.54, the position is starting with an unrealized loss of $509.90, or 64¢/share.

rationale

Last week I reduced the original long call position, anticipating that it would end in the money. I continue to view Fifth Third as a strong regional banking franchise, which should do well following earnings report on July 28th.

July 18, 2016 at 8:51pm · FITB · call exercise · options

Sold to close CF

action

Sold 600 shares of CF at $26.49. This closes the position originally entered on 5/31 at $27.64. Total return less commission was -$707.46. Return per share after commission was -$1.18.

rationale

Clearly, this is a miss. On Friday I still bought back the calls to stay in CF Industries, thinking that it might break through its 50-day SMA. Today, it seems decisively beaten back. I didn’t see enough of a struggle at that boundary to make me believe that the stock will mount another run at this declining trend line in the next few days. So, as much as I hate doing it, I am giving up on this one.

If there’s a positive aspect to this, it’s that I at least sold calls twice against this position, and that at least the profits from those trades offset the loss I realized today.

July 18, 2016 at 6:18pm · CF · sell to close · stock

Long EWU 7/15 expiration, $16.00 strike calls expired worthlessly

action

My position of 13 contracts of EWU 7/15 expiration $16.00 strike calls expired worthlessly. This closes the position originally entered on 6/21 at 45¢. Total loss including commission was $602.70. Loss per share after commission was 46¢.

rationale

This was expected ever since the Brexit vote. As I had mentioned here, there was little chance that these calls would regain any value, following the Brexit vote. The purpose of this leg was to protect the upside to the short EWU position I had initially established to hedge against precisely the Brexit scenario that has come to pass.

Overall, the covered put I entered on 6/21/16 was profitable. Next time, I just have to watch out for dividends in my short ETF scenarios!

July 18, 2016 at 3:05pm · EWU · sold to close · options · expiration

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