Weekly Option Report – July 3, 2015

June 27, 2015 (today) ASHR ETF price has dropped 25% since I purchased the put option on June 12, 2015 (Strike price $50, expiration date January 15, 2016).  I am now in the money for my $50 put option and Implied Vol. (IV) and delta has been increasing (which it should).  My gain is 180% (delta and IV has increased a lot over the last week). Not a bad 3 weeks. My gain would be higher but the US market is closed today but the CSI loss another 5.4% last night (gain would be around 200%).

When do I sell? At 300% gain? What do you think?

Note. The total China capital market loss over the last 3 weeks is 12x the total Greece GDP.

GLW

My June 19, 2015  $21 put was in the money and I purchased 4000 shares of GLW (I sold 4000 for $23 late in 2014 and have sold 4 different puts since January 1^St this is the first one to finish in the money). I am since trying to sell my 40 (4000 shares) call options at $21 or $22 30 or 60 days out. This will continue my wheel of fun strategy with GLW.

I am still trying to do a covered combination option strategy next week.  For example sell a GLW put at $20 and a call at $22 when I am long the stock.  It was something I was considering to add to my wheel of fun option strategy.

COP

COP stock went under $62 and I sold a August 21, 2015 $60 put for $1.90 when the stock price was at $60.21 on Thursday July 2, 2015 (current stock price $60.51) to re-start my wheel of fun option strategy.  Think of if as getting paid for a limited order.  I love the stock so purchasing the stock at $60 (minus 1.90) would not be a problem. At the cost of $58.10 the dividend would be around 4.9%.

Currently I own 1000 shares of COP and I write calls when the stock price goes over $67.50.

Other ides:

I am looking to short the Japanese market by shorting a large Japan index ETF. I need to decide if it will be a currencies hedged or non-hedged ETF and the timeframe.  The government continues to purchase Japan stocks by using pension funds and loans and driving the Yen down (so there company can export and have higher profits). How long can it continue?

I am putting together a spreadsheet of Japan ETFs.  It will include the following information:

ETF Name

Symbol

Index

Hedged Currencies

Net Assets

Dividend

Bid / Ask Ration - Option

Option

Option Liquidity

If you are interested I can send you the spreadsheet (using Google docs).

If you are interested send me a note and I will send you my wheel of fun option strategy (using Google docs).  I am looking for people to review it and me input.

Until next week and have a great week trading.

Paul

Option Trades - June 26, 2015

ASHR ETF price has dropped 19% since I purchased the put option on June 12, 2015 (Strike price $50, expiration date January 15, 2016).  I am now in the money for my $50 put option and Implied Vol. (IV) and delta has been increasing (which it should).  My gain is 141% (delta and IV has increased a lot over the last week). Not a bad 2 weeks.

I decided to sell 40% of my put option Friday June 26, 2015.  I decided to let the other 60% ride since the cost of trade has been paid (it now pure profit).

Josh thanks for talking about the China mainland stock market and how over priced the stock are (was around 250 EPS).

GLW

My June 19, 2015  $21 put was in the money and I purchased 4000 shares of GLW (I sold 4000 for $23 late in 2014 and have sold 4 different puts since January 1^St this is the first one to finish in the money). I am since trying to sell my 40 (4000 shares) call options at $21 or $22 30 or 60 days out. This will continue my wheel of fun strategy with GLW.

I may try a covered combination option strategy next week.  For example sell a GLW put at $20 and a call at $22 when I am long the stock.  It was something I was considering to add to my wheel of fun option strategy.

COP

I am still looking for COP to go below $62.  When it does I will be selling $60 puts to re-start my wheel of fun strategy on COP. At $60 COP pays a 4.50% dividend.  Currently I own 1000 shares of COP and I write calls when the stock price goes over $67.50.

Other ides:

I am looking to short the Japanese market by shorting a large Japan index ETF. I need to decide if it will be a currencies hedged or non-hedged ETF and the timeframe.  The government continues to purchase Japan stocks by using pension funds and loans and driving the Yen down (so there company can export and have higher profits). How long can it continue?

Until next week and have a great week trading.

Paul

Option Trades - June 19, 2015

ASHR stock price has dropped 12.6% for the week.  I am now in the money for my $50 put option and Implied Vol. and delta has been increasing (which it should).  My gain since I purchase the put is 59%. Not a bad week.

Josh thanks for talking about the China mainland stock market and how over priced the stock are (was around 275 EPS).

GLW

My June 19, 2015  $21 put was in the money and I will be buying 4000 shares of GLW (I sold 4000 for $23 late in 2014 and have sold 4 different puts since January 1^St this is the first one to finish in the money). Early next I will be selling 40 (4000 shares) call options at $21 or $22 30 or 60 days out. This will continue my wheel of fun strategy with GLW.

COP

I am still looking for COP to go below $62.50.  When it does I will be selling a %

$60 put to re-start my wheel of fun strategy on COP. At $60 COP pays a 4.50% dividend.  Currently I own 1000 shares of COP and I write calls when the stock price goes over $67.50.

Until next week and have a great week trading.

Paul

Option Trades - June 12, 2015

I shorted the main land China market - CSI 300 today by buying a put on the ASHR ETF.  Today was a record high of $55.17.  It has been up 151% since June 16, 2014.

Details of the put:

• Strike price - $50.00
• Expiration date - January 15, 2016
• Cost 4.50

Other details:

• I used 10% of my option year to date trading profits to buy the put.
• Implied vol has decreased from 64.42 to 41.63 since June 9, 2015 (increase in the price).  This is very good if you are buying an option.

I can make profit 2 ways

• Price drops to $45.00 at expiration (I can sell to close at any time)
• If implied vol. increases.  If the price drops, or bad news comes out of China, etc the implied will increase.

Paul

Option Trading Volatility - How to Profit by Using Volatility

Please review and comment on my option trading presentation:  Option Trading Volatility - How to Profit by Using Volatility.

Foreign Bond Funds: To Hedge or Not to Hedge (Unhedged)

Continuing with a theme I started in my last installment, if you are an investor who wants to diversify your investment portfolio outside the US dollar without using the foreign exchange market (forex), consider investing in unhedged foreign (international) bond funds. Foreign bond funds can have two types of returns, from the bond itself and from currency fluctuations. If the bond fund hedges against currency fluctuations the bond fund return will come only from the bond itself. When the bond fund uses foreign currencies hedging, it removes the currency risk from the bond fund and acts as a normal fixed income investment. If the bond fund does not hedge against the foreign currencies, you will also receive the benefit of the currency fluctuation return. It is important for you to know if the bond fund hedges or does not hedge against foreign currency fluctuations.

If the foreign bond fund is unhedged you are investing in the weakness of the US dollar versus the foreign currency of the underlying bonds. When the US dollar strengthens the fund will go down. When the US dollar weakens, the fund will go up. If you don’t want the volatility of the foreign currency market you need to buy foreign bond funds that are hedged in the local currency.

Examples of unhedged and hedged foreign bond funds:  PIMCO has both unhedged and hedged foreign bond funds. 

PIMCO Foreign Bond Fund (Unhedged) - PFUIX: The fund invests in intermediate maturity non-U.S. fixed income securities instruments. The return of the fund has been the following:

1 year              3 Year              5 Year

18.94%            8.82%              9.06%

A comparison of PFUIX versus UUP (tracks the performance of Deutsche Bank long US dollar future index) using charts shows it is the inverse of performance. Since UUP is bullish on the US dollar, when the performance strengthens, PFUIX will show weakness. When UUP show weakness, PFUIX will strengthen.

PIMCO Foreign Bond Fund (U.S. Dollar Hedged) - PFORX: The fund invests in intermediate maturity non-U.S. fixed income securities instruments. The return of the fund has been the following:

1 year              3 Year              5 Year

4.47%              8.39%              6.63%

It is very important that you understand whether the fund is hedged or unhedged before investing in a foreign bond fund. If you are adding the investment to your fixed income portfolio you want the foreign bond fund to be hedged. If you are also interested in diversifying your investment outside of US dollars you want the foreign fund to be unhedged. Investing in unhedged foreign bond funds is only a good investment strategy if the US dollars declines versus the foreign currencies the bond fund is invested in.

Do you think the US dollar will continue to show weakness against foreign currency? Is investing in foreign bond funds that are unhedged a good investment strategy? Please chime in with your comments.

© 2011

Paul Cusick

Foreign Currency Certificates of Deposit (CDs)

If you are an investor who wants to diversify your investment portfolio outside the US dollar without using the foreign exchange market (forex), one way is to invest in foreign currency CDs. Another is through foreign stocks or Exchange Traded Funds. I currently have several foreign ETFs in my portfolio (for example VEU and VWO) as well as Canadian energy company stocks (such as AAV and PWE) which help to diversify my portfolio outside the US dollar. Foreign exchange rate changes can have a significant effect on foreign stock returns over short-term periods. A weaker dollar versus the foreign currency of the country that you are invested in will lead to higher returns for the US investor. Foreign stocks that grow in local currency are worth more when converted back into cheaper US dollars (a strengthening dollar will have the opposite effect – it will lead to lower returns).

With all the issues presently barraging the US dollar and economy – large government and trade deficits, the credit crunch, etc. – investing in foreign currency CDs may be a way for my investment portfolio to diversify and hedge against the US dollar. After googling “Investing in Foreign Currency CDs” I found that one US bank, EverBank, offers Federal Deposit Insurance Corporation (FDIC) insured foreign currency CDs. Please note that the FDIC insurance will cover loss because of bank failure but not currency fluctuation losses. Like any investment strategy there are risks and rewards.

So what are the advantages and disadvantages of investing in foreign currency CDs using EverBank?

Advantages:
• Diversify your investments outside the US dollar.
• You don’t need to open a bank account outside the US to invest in foreign currency CDs.
• FDIC insurance
• Multi-currency CDs. For example, the Commodity Basket CD includes the Australian dollar, Canada dollar, New Zealand dollar and South African rand. Using index currency CDs helps to diversify the currency risk versus the US dollar.
• If you allow your CD to renew, you will not be charged a currency conversion fee.
• Available in IRA accounts.
• Gives you access to emerging countries’ currencies, for example, Brazilian real, Indian rupee and South African rand.


Disadvantages:
• Currency conversion will be within 1% of the available market rate for the selected foreign currency.
• Risk of loss of principal due to changes in currency exchange rates. For example, if you invest in the Canadian dollar CD and Canada’s currency exchange rate decreases versus the US dollar, you would lose some of your principal investment when the CD reaches its maturity should you decide not to renew and it is converted to US dollars.
• Examples of EverBank’s 3 month CD interest rates (as of May 6, 2011) are the following: Brazilian real interest rate is 3%, Swiss franc interest rate is 0% and New World Energy CD (Australian dollar, Canada dollar and Norwegian krone) interest rate is 1.1%.

Please remember there is no free lunch. The interest rates will be higher when there is more risk in investing in the foreign currency.

After reading this, what do you think I should do? Should I invest in EverBank CDs to diversify my portfolio? What foreign currency CD should I buy? Should I buy single or multi-currency CDs? Please chime in with comments.

© 2011
Paul Cusick