There are two companies that I am currently invested in – I own shares in both companies, and will most likely increase holdings over the next 12 months. Both companies met w/ analysts recently and both had very clear strategy narratives, imho. They were explicit, easy to understand and map to my IOT product experiences.
I presented at short view on “Plan for Proft” for a local Chamber of Commerce Lunch event this week. A framework to help people start thinking about the needed clues to create a plan to meet their unique and individual profit goals. http://plansandclues.org/files/PlanforProfit-2.pdf
Caveat: These slides are not that helpful for people who were NOT in the talk itself – this is not a “leave-behind, stand on its own” collateral.
I looked at some scenarios based on current prices as of Friday, Nov 2 to identify if there is a compelling covered call platform to derive medium risk income. I selected 3 companies that I would consider owning for their long term prospects, but would not cry a river if the position was taken at a profit: HBAN, CY and NOK. Other criteria included: a good dividend, predictable, sufficient option volume and stable pricing over the next 3-6 months (as the market goes so will these).
Here is the simple comparison
HBAN Price at analysis 14.29 Cost basis 500 @ 14.29 ($7145) Possible 1. $14 Call Dec 21, 2018 $0.62 a. Outcome with 500 shares (5 contracts) i. A - Calls sold but not assigned - $310 gross (4.3%) ii. B - Calls sold and assigned - $155 gross (2.1%) 2. $15 Call Dec 21, 2018 $0.25 a. Outcome with 500 shares (5 contracts) i. A - Calls sold but not assigned - $125 gross (1.7%) ii. B - Calls sold and assigned - $480 gross (6.7%) CY Price at analysis 13.51 Cost basis 500 @ 13.51 ($6755) Possible 1. $14 Call Dec 21, 2018 $0.60 a. Outcome with 500 shares (5 contracts) i. A - Calls sold but not assigned - $300 gross (4.4%) ii. B - Calls sold and assigned - $545 gross (8.0%) 2. $15 Call Dec 21, 2018 $0.27 a. Outcome with 500 shares (5 contracts) i. A - Calls sold but not assigned - $135 gross (1.9%) ii. B - Calls sold and assigned - $1424 gross (21.0%) NOK Price at analysis $5.80 Cost basis 1000 @ 5.80 ($5800) Possible 1. $5.00 Call Dec 21, 2018 $0.85 a. Outcome with 1000 shares (10 contracts) i. A - Calls sold but not assigned - $850 gross (14.6%) ii. B - Calls sold and assigned - $0 gross (0.0%) 2. $6.00 Call Dec 21, 2018 $0.17 a. Outcome with 1000 shares (5 contracts) i. A - Calls sold but not assigned - $170 gross (2.9%) ii. B - Calls sold and assigned - $320 gross (5.5%)
The CY purchase and $15 Call with these assumed prices appears the best idea. This idea fits my objectives of increasing greatest cash flow in worst case scenario (i lose the position) as well as the probability of losing the position (lower w/ CY @ $15) … not a recommendation to execute this trade, but a look at how it might be done and how I came up with the idea.
A very short thought on data analysis and the use of data to make decisions. I often hear people in different domains reference “data based decision making”, “data driven business”, and the list goes on …
But what so many people follow is the “Spray and Pray” approach of data analysis. They collect as much data as possible, they spray it on the wall for everybody to see and pray that something meaningful surfaces.
What they miss is that any data analyst worth their salt would do the following:
Identify the most important data
Explain why that data is important
Relate what that important data means and its shortcomings / limitations
Recommend what actions should be taken based on that data (non action is appropriate response as well)
A recent experience and additional observations have created a very jaundiced view of a group of traders who take advantage of less experienced folks. They are poachers with all the negative connotations of that term. Let me explain with an example
I had a short position in RUTH. I stupidly placed a stop lost / limit order to protect my capital from a price increase above my limits. I absent-mindedly left that stop loss order open over night … it was snapped up first thing when market opened at about $0.25 above the next trade. I looked at RUTH trading history and there are several of these very odd very early trades way above the market … Poachers taking advantage of stupid people like me.
Not to self: Never leave stop loss orders open overnight and especially in thinly traded stocks like RUTH.
After a very difficult trading month so far in October and a couple of interesting SA posts (Jeff Miller’s weekly trading post) and a new author for me posted I have finally figured out a way to describe the change: the tides have turned and the winds have shifted. Mary Poppins like …
Previously, the trading tides were pushing upward so trades were easily identified with consolidation at support points and falls from strong resistance. The winds were blowing upward so lower values on dips made sense … and consolidation support points held – they were the floor.
It seems that the tides have turned now after watching support levels break down consistently … the dips are now hard to stop (supports are like false bottoms). The trading tactic now looks to be waiting for consolidation bottoms and upward lifts with volume and strength through weak resistance points. This may reduce potential gains on the upside (longs) … shorts are also complicated as there are no support levels below (what can i logically expect for exit and profit)?
While I fully admit that i am not an expert technician and use fundamental DCF valuations as the filter for my trades, for me at least, the tides have turned.
A provoking post on Seeking
Alpha this morning that prompted deep thinking on the money flows from the
large changes in oil prices over the last 5 years. The basic gist which
totally makes sense is that the oil profits are not as important as the consumers’
total cost for oil. The lower their costs, the more they spend elsewhere
in the economy. The inference then is that higher oil prices are totally
deflationary – they reduce broader consumer purchasing … it doesn’t really
matter if the oil profits end up in US, Canada, Russia or Arabian Peninsula.
I have been talking about
this for several months, maybe even a year or so, but not to the technical
depth that these two people are this past week. I think this is worth
considering and baking into your long-term risk management variables.
My pontifications have been more cultural evolution derived but these
guys are helping me understand the investment implications.
GDP ‘3rd’ estimate was released this morning. One paragraph i found most interesting: “The acceleration in real GDP growth in the second quarter reflected accelerations in PCE, exports, federal government spending, and state and local government spending, as well as a smaller decrease in residential fixed investment. These movements were partly offset by a downturn in private inventory investment and a deceleration in nonresidential fixed investment. Imports decreased after increasing in the first quarter.”
I bolded the points i focused on. Government spending was a key catalyst in the figures – debt spending in great degree (?)
Point – risks continue to grow globally across mutliple asset types. there are short term plays but they contain complex variables and winning hands are beyond average investors (myself included). i am comfortable with my recent moves taking more and more capital out of equities and placing in short-term treasuries (<6 months). Might i miss out another 5% of S&P upward melt? sure … but as somebody posted last week (can’t remember who): i want a return OF my capital, not just a return ON my capital.
Reminder: i’m semi-retired with short runway to acquire additional capital
I woke up early this morning and reviewed overnight market results and became momentarily optimistic … maybe all this trade tension has released, and we can go back to normal investing / trading.
Alas … that’s how daily news distorts things and invites us to relase our well thought out strategies. I am often reminded of something smart people taught me long ago: a single or couple of data points do not make a trend. Plans and strategies are based on a set of clues (trends) not single data points.
Here is the key single data point that i found burried in https://barchart.com daily update: “China’s Shanghai Composite climbed to a 2-week high on signs that state-sponsored funds entered the market and bought blue chip stocks.” – that diffused some of my news based optimism earlier.
My bearish move money to Treasuries and wait for better value entry points (in US and Asia) remains intact.