“The best we can do to put odds in our favor at any given point is to invest in the direction where the most signs are pointing to from a fundamental, technical and structural perspective” – Not sure
In general, I don’t think there is much in the way of value plays left to be found.
Bottom feeding at the 52 week lows can yield some results but beyond oil and gas and other less liquid commodities, there is not much long left to be had.
With that, I’ll start documenting my weekly cash trades here.
I am long UNG at a partial position and expect a pull back to $1.7-1.9 in the very near term and a relatively benign saunter back to the mean at $3-3.5 in the long term…barring a 9/11, a hurricane season like 2005, and so on.
In the same vein I anticipate a pull back in oil over the near term. I’m not sure how the oil overhang will effect natural gas with its overhang.
I am sifting through core companies I can hold forever. Google is trying to cure cancer, Amazon wants to put every brick and mortar out of business. Facebook accounts will eventually be something you leave in your will to your kids. I would be okay with a bear market that gives me those and my core dividend list at blue light special prices. Until then I remain with cash, O&G companies, and commodities plays…largely.
My natural gas write up has turned into a behemoth. I guess learning how to digest the volume of information, marry macro and technical views, and spit out a readable product is all a part of the learning process. Perhaps since I am now putting my view on the line for all 4 of my readers to see, I want the quality of the write up to be too clean.
I’ve had a very small JJC (and WEAT) position for a while. I view O&G (but also commodities in general) as the trade of the year.
Perhaps Gold isn’t played out like I thought it was. It seemed overbought too quickly so I exited not too long ago.
I guess it would reason that if I am overall bearish then I should follow through on the other half and buy gold along with my SPY 1/2 ratio put spread hanging out as the overall portfolio hedge.
Trading my cash position as a long term value guy
Rules (sort of) for trading my cash position:
- I’ll trade anywhere from weeklies to 8 weeks out.
- Defined risk trades with high probabilities only.
- I’ll manage 7-11 and 15-18 deltas on the spreads.
- Profit will be taken on each leg at a pre-defined point
Monday I opened a vertical bear call spread on the SPX at $55 gain per contract on the sale and with maximum $440 per contract at risk. Risk defined trades on cash position.
Yesterday I closed it at $15 per contract for a net $40 per contract take.
I then immediately sold a vertical put spread on the SPX at 2000/2005 yesterday after closing the call spread for net premium intake of $45 per contract with 81% chance of expiring OTM on Friday. I’m up 32% right now in the overnight futures trading on the short put and down 30% on the long put side.
I can’t close the winning side of a short spread early because there is no guarantee that the long losing side will come back before expiration. If it doesn’t and expires worthless then it will erase the gains you made by scaling out of the winning short side plus the premium for putting the trade on.
I would only consider closing the short side early if its in the green on a long spread. This requires the market going against you.
Example you sell a bull call vertical on the SPX
Buy the 200 strike and sell the 205 strike. This requires you do be directionally bullish.
If the market moves down against you then both calls become less expensive. In this case you gauge a likely pivot point and buy back the short call for a gain and hang on to the long call in hopes of winning the lottery.
I would pretty much never close the long side early with the short still open on a short spread. That opens me up for complete wipeout if 08 happens again tomorrow and the likelihood of losing my gains.
It works the same on the put side. In this case you are salvaging being wrong on your direction by taking the gain on the short side and hoping for a swing on the long side.
I don’t consider myself a trader. I much prefer to dig through the financials and filings of a company and hold for the long term than trade short term, but I view trading a cash position on volatility with risk defined plays as being yet another arrow in the larger investor quiver.
My view is that a great investor can find value in currencies, commodities, distressed assets, debt, common stock, convertible’s, any number of derivatives and any number of physical assets. They can trade anything, and they can manage risk at a level others can’t.
I think that’s a flaw in the cultural shift to passive indexing and the repeated bashing of the institutional money world as a whole.
But I digress…
Another arrow that I’ve been doing deep dives on is Convertible Arbitrage.
Drastic swings like CHK has experienced, new convertible offerings, and so on present another profit opportunity to the astute investor.
I’m on the lookout for a good CBA opportunity and will write about it on this blog a bit more as I gain more experience and knowledge on the matter. Always be learning!
I am on the quest to build positions in companies I would hold for a lifetime. I have an overall portfolio hedge in place via put spreads, so getting creamed on a down crash or prolonged bear market is not the worry. Up or down I’ll make money.
I want core companies that can hold capital forever and at least have a stable dividend yield.
Thoughts from my loyal readers?
For growth possibilities I am looking at UA with a $27 target.
Core dividend is fairly played out in the blogosphere:
KKR, BX, NOV, LVS, MAT, T, F, GM, VZ, CAT, VLO, CVX, XOM, KO, WMT, MSFT, MCD, and so on.
I like what FB is doing and the cultural roots it has dug with a spectacular grip on its target market share. Like I said, I am sure I will eventually be passing on my profile to my kids in my will. Another growth look. Not sure on an entry just yet.
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