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PhilStockWorld July Portfolio Reviews – Part 1

Portfolio Review | AltaromaWe're going to get started early this week.

Mostly because I want to be protected as Earnings Season kicks off today but also because my daughters are coming on Thursday and I'll be taking off early on Friday.  We're certainly well-hedged and we had a  test drop last week where the gains in our Short-Term Portfolio (STP) kept up with the losses in our Long-Term Portfolio (LTP) but, overall, the Short-Term Portfolio (STP) is down $58,798 (24%) since our last review as we have once again rallied back and gone higher but also because we got much more aggressively short last month and have not yet added enough longs in our LTP to cover a major rally.  

Short-Term Portfolio (STP) Review: The STP has our hedges and we're supposed to lose money on the way up and the Dow is up 1,000 (3%) and the S&P is up 150 points (3.5%) since the last week of June – and really since last Thursday as well.  If this earnings season doesn't knock us back, nothing will and we'll have to make some more bullish bets to even things out better.  As I noted yesterday, however, at over $2.1M (up 150%) in our paired portfolios – I'd be happier just cashing them out and starting from scratch again.

  • FXP – Ultra ETF against China and it's a 2x ETF with FXP at $32.35 so a 20% drop in China's FTSE 50 would be a 40% pop in FXP to $45.29 between now and September and that would pay $40,000 on the net $10,400 spread so $29,600 of downside protection.

  • SCO – This one is killing us.  2x short on oil but we expected to top out at $75 around July 4th.  If oil goes back to $60 that's down 20% and that would pop SCO 40% from $17.74 to $24.83 and that only put us in the money, so there's no point to leaving this alone.  38 Jan $24 calls at $2.05 ($7,790) can be rolled down to 40 of the Jan $18 calls at $3.30 ($13,200) and we can sell 21 Jan $25 calls at $2 ($4,200) to pay for most of it.  So now we've spend net $1,210 but at $25 we get back $28,000 instead of $3,800 and the new net is $3,825 so we've created $24,175 of downside protection.

  • TZA – This is a 3x ETF so $29.55 becomes $47.28 on a 20% drop in the Russell and that's pretty much goal so no need to adjust this.  It's a $200,000 spread at net $14,500 so about the most efficient protection you can buy for a portfolio, offering us net $185,500 of downside protection!  

  • TQQQ – This is a 3x Ultra-Long ETF for the Nasdaq, which we are shorting and a 20% drop in QQQ would send TQQQ down 60% to $52.30 where the 10 uncovered $130 puts would be about $80,000 and the 10 covered would be $20,000.  Currently net $44,030, so we have $55,970 of downside protection.

  • CMG – Up and up she goes and that's killing our short Sept $1,500 calls, which are new and $21,480 against us, so half our losses are right here.    Actually all of our losses as the rest of the spread was up $37,000 last month and now it's flat so there's nothing wrong with the rest of our hedges – just CMG!  This is why we analyze, right?  We identify the correct problem and don't fix things that don't need fixing.  Still earnings are July 20th and $1,615 is $45.47Bn for a company that will be lucky to make $700M this year so 65 times earnings is very excessive for a fast-food franchise.  We may as well buy back the 4 short Jan $1,200 puts at $16, not because we think they'll be hit but so we have room to sell something else on a dip.   Call this $50,000 of downside protection (getting last month's money back). 

  • SQQQ #1 – Although this is a 3x Ultra-Short, we're down to $8.50 so a 20% drop only gets us to $13.6 and we have the $10 calls although 400 longs at $3.60 is $144,000, what's the point of these compared to the TZAs?  We're going to leave this one in place but adjust #2.  
  • SQQQ #2 – We're going to cash out our 2023 $10 calls at $3 ($60,000) when there's a dip – it's not an emeregency.  We'll buy back the 100 short 2023 $30 calls at $1.30 ($13,000) as we're up 83% on those and that leaves 150 short calls here and 150 short calls above covered by 200 long calls.  We're netting $47,000 and we'll double down on the TZA spread to keep a good cover.  That will add $185,500 of downside protection and 200 longs at $3.60 is $72,000 but let's just say $200,000 of downside protection overall.

  • W – Finally took the dip we expected and now we'll see if $300 holds up.  Our target is $250 so you know what we expect.  The short calls are looking good and the spread tops out at $50,000 and currently net $9,810 despite being $25,000 in the money.  $40,190 of downside protection.

If CMG gets realistic we'll be in great shape and there's net $585,435 of downside protection against a 20% drop in the market and, as I noted earlier, we already stress-tested the LTP and it wasn't losing more than the STP was gaining so we can ride out a 20% correction before we have to make any big decisions – that's very comforting.  

The CMG loss was unusual and, if not for that, the gains in the LTP would have given us a net positive month and that's all we're looking for when the market is this toppy into earnings.   Hopefully, we'll find some bargains to add as companies begin to report.

Money Talk Portfolio Review:  This one is easy as we can't make adjustments unless we're on the show so it's mostly a "no-touch" portfolio.  We added GOLD and VIAC on our May appearance and, since last month's review, we're up $1,732 at $199,480 – just under a double from our 11/13/2019 start.  That's very good for a low-touch portfolio.  

  • GOLD – From our "Trade of the Year" collection.  It's a $17,500 spread already losing money for us at net -$375 so $17,875 left to gain on a credit spread seems good for a new trade to me!  

  • IBM – At the money on this $24,000 spread at net $15,120 so $8,880 left to gain.  

  • PFE – Another shot anyone?  Already in the money on our $7,000 spread at net $3,770 so $3,230 (85%) left to gain is too boring for you?   

  • SKT – Deep in the money so we'll get $10,000 back and it's $10,000 now so we'll be killing this one next time I'm on the show.  We did just get a $178 dividend payment, though!  

That is the point of these review exercises.  In looking at our positions and what we have left to gain vs what's at risk, we can easily identify what needs to be changed.  There's no sense in carrying dead-weight positions in your portfolio – you have to move on and re-deploy your captial.  

  • SPWR – Stock of the Decade has 9 years left to run but this trade expires in Jan, 2023 at $15,000 if all goes well and currently it's 100% in the money at net $7,115 so $7,885 (110%) left to gain if our Stock of the Decade doesn't drop $4 over the next 18 months.  I can only tell you how to make 110% – the rest is up to you!  

  • VIAC – Still not getting any respect at $43.44 but we don't care as our target was only $45.  Amazingly, this $30,000 spread is still only net $10,875 so it has $19,125 (175%) left to gain over the next 18 months, which is 10% PER MONTH if VIAC can make it up over $45 (up 3.6%).  If they are just going to leave this money lying around – who are we not to pick it up?  

Notice the trades in the Money Talk Portfolio are not complicated and not very risky.  We are playing solid Blue-Chip companies that we added about once per quarter for the past 18 months and we're up $99,480 over that period and, over the next 18 months, the positions we have now have the potential to make another $56,995 and we are 75% in CASH!!!  

You don't have to take big risks to get big rewards and you don't have to constantly trade.  I'm on the show pretty randomly but about once per quarter and I simply spend the week before the show looking for the best bargain at that moment to add and deciding if anything should be removed (now SKT) or adjusted.  That's it – then we don't touch it for another 3 months.  

Dividend Portfolio Review: $390,607 is up $2,860 since our last review and about half of that was from dividends.  Dividends are a fantastic way to boost your portfolio's performance and here we have a nice, diversified group to choose from.  Most importantly, we cashed out two positions last month and raised our CASH!!! to $163,715, about 40% – and that in itself is a nice hedge to fall back on.

  • Short Puts – Though M and SPG are both up 80%, there's no way we expect that they won't expire worthless so why pay to buy them back?  Short puts are mostly there to remind us we'd love to buy the stocks if they get cheaper – but they also provide a nice income.  
  • ET – We bougth back the short puts on this one, expecting a pullback.  We are miles over target.

  • FRO – This one is right on track, just added.  

  • MO – On target.
  • NLY – On track (note the aggressive put sale).  

  • PFE – Way over target.
  • RIO – At goal. 

  • TWO – On target.  
  • PETS – We bought back the short calls, waiting for them to pop again to sell more.

  • SIG – Only $45,000 out of $50,000 so no point in getting out early.  
  • T – Waiting for them to pop back to sell short calls. 

TWO – We liked them enough to buy them twice.  Just took a big hit but fine as our position was conservative.  

It seems like a boring way to invest but the money keeps rolling in.  The reason we're up so much is we made an aggressive adjustment in March, 2020 and caught that nice bounce higher – that was unusual but we made $2,860 on $226,893 in positions last month and that's 1.2%/month – beats money in the bank!  

 


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  1. Good Morning.


  2. Morning. Any idea why TWO is down 10% today?  IB mobile app is not providing news for some reason


  3. Comment content omitted because it is too long.


  4. Good morning!  

    TWO/Jeddah – They offered 40M shares at $6.50 to raise $260M.  The market cap was $2.2Bn before the fall ($8/share) and they issued 20% more stock for over 10% of the market cap in cash so shareholders are effectively diluted by 10%.  Of course, we don't give a crap because we sold the Dec $5 calls in the Dividend Portfolio on position #1:

    TWO Two Harbors Investment Corp. 2000 6/11/2021 32 $15,060 $7.53 $-0.94 $7.53     $6.60 $-0.74 $-1,870 -12.4% $13,190
    TWO Short Call 2023 20-JAN 7.00 CALL [TWO @ $6.60 $-0.74] -20 6/11/2021 (556) $-2,000 $1.00 $-0.40     $0.60 $-0.27 $800 40.0% $-1,200
    TWO Short Put 2023 20-JAN 7.00 PUT [TWO @ $6.60 $-0.74] -20 6/11/2021 (556) $-3,000 $1.50 $0.38     $1.88 $0.48 $-750 -25.0% $-3,750

    Don't get carried away with your positions.  When you go in you have a target and, unless something Fundamental has changed – you respect your target and sell or cover when your position at your target.  There's no point to making gains if you never lock them in.  You can't let greed overtake your trading plans.  

    TWO Two Harbors Investment Corp. 1000 5/1/2020 438 $4,300 $4.30 $2.30 $2.53     $6.60 $-0.74 $2,295 53.4% $6,595
    TWO Short Call TWO 2020 18-DEC 5.00 CALL -10 5/19/2020 (0) $-1,000 $1.00 $-1.00     $0.00 $-1.00 $1,000 100.0% $0
    TWO Short Call 2023 20-JAN 7.00 CALL [TWO @ $6.60 $-0.74] -10 6/21/2021 (556) $-1,150 $1.15 $-0.55     $0.60 $-0.27 $550 47.8% $-600

    We a added this May 1st and again, we made the conservative cover and sold short calls when it got toppy.  If we're lucky, it stays down here and we can roll the short calls.  Our plan was to buy 1,000 more shares to cover on the dip but we'll see what happens first. 

    And what PMan said! 

    The market tried to take a dip at the open but it didn't work out – except for the Russell, which is still down 1%.

       

    Yet another chance to go for the gold at $1,800 and /SI $26.

     

    Lumber Wipes Out 2021 Gain With Demand Ebbing After Record Boom


  5. Sorry, it was 10, not 20 short calls on TWO.  Fixed it in the portfolio.


  6. hi phil,

    The IEA is flooding the news with the warning of tight global oil supply if opec does not increase production leading to higher oil prices.

    Do you think this is spin and that oil is still more likey to weaken?

    thanks


  7. CMG review- I think you mean buy back 4 putters , not 10?


  8. Elon Musk to face second day of questioning in SolarCity trial


  9. IEA/Tommy – Well it is true that, IF demand increases and IF OPEC doesn't supply more and IF the US and other countries don't step up production then, when we have gone through some portion of the 1.9 Billion barrels we have in storage – then supplies will be tight.  Last week we burned 9Mb so, at that pace, we'll eat through 10% of our storage capacity in just 22 weeks!  

    World liquid fuels production and consumption balance

    West Texas Intermediate (WTI) crude oil price

    It is, on the whole, manipulated BS – but it works (over the short run) because the oil companies pay traders at the NYMEX to use any excuse to drive up prices.

    CMG/STP, Pstas – Yes, should have said buy back 4 short CMG $200 puts, we don't have 10 – thanks.


  10. Hi Phil,  Thanks for reiterating the hedges.  I looked at the Jan 22 30/Jan 23 50 TZA spread.  Even though I have a portfolio margin account, it is a buying power hog.  It uses up $1565 in buying power per spread.  Do you have a TZA hedge suggestion for those of us who do not want to commit so much buying power to the hedge?  Also, with regard to the 2023 short side of the spread, please review your thinking in terms of how to manage it if the market really falls apart for an extended period.   It is pretty clear that we will need to keep rolling the long side.  Will the margin requirement for the short side surge as we get closer to 50?


  11. TZA/John – That's from the date differential but seems excessive.  Here's what TOS has for it:

    The Jan $22 $30s are $6.30 and the 2023 $50s are $7.50 at the moment, so it's a credit spread – I though it was a debit above.  

    As our target is $48 the 2022 $30 ($6.30)/$54 ($3.50) bull call spread at $2.80 ($28,000) is fine on a $150,000 spread and, when the $30s get down to $3 (what you paid for the spread), it will be time to roll them to the 2023 $30s, which are now $10.50 and that will be $7 ($70,000) but then, once the 2023 $50s expire (or you could roll them too), the 2023 $50s are now $7.50 and let's say they are $4 ($40,000), so you'd then be in the spread for another year for net $32,000 on the $150,000 spread – hopefully better.  Not bad for 18 months' protection.

    • Adam Schwartz, founder and chief investment officer at Black Bear Value Partners, said in a fund letter that he sees a long-term fundamental supply/demand imbalance in the housing industry, leading the fund to make a big bet on the sector.
    • Black Bear currently has holdings in NVR Inc. (NYSE:NVR) and two other housing-related stocks that the company declined to identify, according to a fund letter released this week.
    • Schwartz argued that underproduction of new homes and a "challenging" environment for mortgage financing in the wake of the Great Recession has created a lack of supply.
    • At the same time, the housing market faces a generational shift, as millennials "enter the family-phase of life and desire more space," he noted.
    • Recent conditions have also fueled a hot housing market, the Black Bear CIO said, with rates hovering near historic lows and the work-at-home trend prompting many homeowners to seek out larger houses.
    • Still, Schwartz warned against getting overly concerned about trending headlines. He said attempts to trade on short-term news was a "futile endeavor" and recommended a focus on "long-term dynamics."
    • NVR posted gains early in the year and added to that advance through April and the first half of May. This brought the stock to a 52-week high of 5,308.48.
    • Shares rallied again in late June and into early July. NVR approached its 52-week high during this advance, but halted short of the peak, selling off those levels in the last few days.
    • In Tuesday's midday trading, NVR slipped about 2% to $4,859.72. Still, the stock is up about 22% year-to-date and higher by about 52% since the same time last year.

    • For other ways to tap into the housing market, check out the following ETFs: SPDR S&P Homebuilders ETF (NYSEARCA:XHB), the iShares U.S. Home Construction ETF (BATS:ITB), Direxion Daily Homebuilders & Supplies Bull 3X Shares (NYSEARCA:NAIL) and Hoya Capital Housing ETF (NYSEARCA:HOMZ).
    • For individual housing stocks, you can also track Home Depot (NYSE:HD), Lowe's (NYSE:LOW), Lennar (NYSE:LEN), Toll Brothers (NYSE:TOL), KB Home (NYSE:KBH) and D.R. Horton (NYSE:DHI).
    • Black Bear isn't the only fund manager convinced NVR has a bright future. In its fund letter, Vltava Fund also disclosed holdings in the stock.

    • Italy banned cruise liners from entering Venice as has been expected for a long time.
    • The government finally made the decision official after  UNESCO threatened to put Italy on a blacklist for allowing cruise line ships into the city canals.
    • A formal decree was announced by Italy's culture minister.
    • The ban will take effect on August 1 and covers all  ships weighing more than 25K tons.
    • Carnival (CCL -3.4%), Royal Caribbean (RCL -3.0%) and Norwegian Cruise Line Holdings (NCLH -3.4%) are tracking lower as COVID developments continue to trend in the wrong direction for the industry.
    • Compare value, growth and profitability marks on cruise line stocks.
    • While JPMorgan Chase (NYSE:JPM), Goldman Sachs (NYSE:GS) trade lower post earnings reported yesterday, banking stocks Bank of America (NYSE:BAC), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) are scheduled to announce Q2 earnings results on Wednesday, July 14th, before market open.
    • While JPM and GS had reversal in credit loss, First Republic Bank (NYSE:FRC) allocated $16M on loan growth.
    • In the latest monthly market update webinar from ARK Investment Management, Cathie Wood stated in reference to the price of oil: "My guess is they are not going to much higher.” Wood continued to mention, “Oil is the outlier in terms of commodity prices, but in our view, the longer the price goes up here the bigger and faster the demand destruction.”
    • Wood said she is watching to see if oil will be able to recapture its recent highs of $77/bbl. If they cannot, then it will be another lower high, and ARK won’t be on the long side of oil.
    • Aside from oil prices, Wood also discussed how markets previously over-indexed itself on durable goods and now believes it will have over-indexing on services. “Our guess is we are seeing the beginnings of a significant inventory overhangs brewing.”

    • San Francisco Fed President Mary Daly sees inflationary pressures easing as the economy returns to more normal patterns, she said in an interview on CNBC.
    • That puts her fully on board with Fed Chair Jerome Powell's view that the current hike in inflation is due to "transitory" factors like supply chain snags and the base effect of weak prices a year ago.
    • Earlier today, the Bureau of Labor Statistics reported that the June core consumer price index rose 4.5% from a year ago, its biggest jump in almost 30 years.
    • The economic recovery remains strong enough that the Fed may be in a position to reduce the pace of its asset purchases, possibly near the end of 2021, Daly said.
    • "It is appropriate to start talking about tapering asset purchases, taking some of the accommodation that we have been providing to the economy down," she said in the interview, adding that the central bank's policy will remain very accommodative by keeping the federal funds rate low.
    • "My own view is we'll probably be in a good position to taper at the end of this year or early next."
    • The Fed is currently purchasing at least $80B of Treasury securities and at least $40B of mortgage-backed securities each month.
    • At the beginning of the month, her colleague Philadelphia Fed President Patrick Harker said he'd like to begin tapering the asset-purchase program this year.
    • Treasury Secretary Janet Yellen expects that U.S. companies themselves will back the G-20's movement to adopt a global minimum corporate tax of at least 15% and that they'll urge U.S. lawmakers to do the same.
    • "To the extent that the Republican side is going to be looking to business and trying to protect business interests, my guess is that businesses are going to be saying to members of Congress, please approve this," Yellen said in an interview in Brussels, Bloomberg report. The statement comes at she ends her week-long trip to Europe.
    • At the G-20 meeting, 132 nations approved a preliminary agreement to rework how and how much the nations tax multinational companies.
    • She said in the interview that many multinational leaders have expressed support for the deal as it would give them more certainty on tax rules and rates.
    • The establishment of a global corporate minimum tax rate is important for the Biden administration, as it will help pay for its ambitious spending plans.
    • Yellen is hoping that the minimum tax part of the agreement, known as Pillar Two, will be incorporated into a fast-track budget bill that Congress will vote on later this year, which doesn't require Republican support.
    • The part of the pact that deals with how to divide the profit taxes on the biggest multinational companies, or Pillar One, is likely to present more challenges from the legislative viewpoint.
    • It's still not clear if that will need approval from two-thirds of the Senate, which would require at least some Republican support. Yellen still sees potential for enough Republican support to pass a bill.
    • "A year or so from now if Pillar One comes along and needs some congressional action, I would not start with the assumption that it would be impossible to get that on a bipartisan basis," she said.
    • In addition to hurdles in the U.S., three European nations, including Ireland, still haven't signed on to the agreement.
    • G-20 leaders are hoping to finalize a deal at the G-20 summit in Rome in October.
    • In June, G-7 finance ministers committed to adopt a global minimum tax of at least 15%.

  12. Good morning. Here is the link to today's webinar.

    https://attendee.gotowebinar.com/register/262160272269372944