DGI Adventure 09-16-16 Quadruple Witching: Activity Summary and Expiry Discussion


Today is quadruple witching day!! Happy quadruple witching!!!

When in need of a meaningless story, the financial media sure likes to point out when this happens, although, I’m skeptical if it’s really that much different from any other Friday.

Well for our purposes, we know that means it will be a day of reckoning after the market closes for Mr. and Mrs. Wizard’s Roth IRA competition. Unless it’s a really crazy day in the market, it would appear that Mrs. Wizard is thoroughly kicking my ass in all three categories. I’ll give a full update over the weekend once the dust has settled for the week.

Witching or not, volatility has picked up a bit in the last week, and all I can say is, that it’s about damn time. That was a historically boring stretch in July and August, and it was hard to find compelling trades. So it’s refreshing to finally get a little action.

Don’t mistake lack of activity on this blog for a lack of investing activity. I have taken some advantage of the uptick in volatility this week, I just didn’t get around to writing about it yet.

I picked up a stomach bug or something last weekend, and just didn’t get caught up. Rather than my usual practice of detailing each trade in an individual post, I’ll summarize everything at once today.

Of course, quadruple witching is also all about expiration dates for options and futures. Loyal readers will know that we dabble quite a bit in options around here. We have some interesting positions due to expire today, and I think it’d be fun to discuss them a bit.

So without further ado, let’s get all caught up.

Trading Activity – Limit Orders Placed

35 shares of WHG at $47.50/share

I currently own a little over 30 shares of WHG in my Roth IRA. I sold a put after Brexit in the beneficiary IRA that ended up expiring worthless (although barely). Interested parties can find my full investment thesis process in that post detailing the sold put.

The share price has been hovering around my cost basis of $50.76/share. I’d love to average down in the Roth, so I put in a limit order in case there’s a gap down. It’s not a high volume stock, so sometimes it can have outsized single day moves, especially when overall market volatility picks up. $47.50/share would be a great price to add on.

31 shares of VNQ at $81/share

31 shares of VNQ at $83/share

For most of August and the first week or so of September, VNQ had been trading between $92 and $89 per share (ish). So when these were placed they represented about 8-10% of downside.

Everyone has an opinion about why things all of a sudden got choppy this last week, and exactly who or what spiked Mr. Market’s coffee is ultimately a mystery. BUT…the Fed meeting scheduled next week certainly has played a role. There is a non-zero possibility (although still slim IMO), that the FOMC could raise rates.

Rate hike headlines continue to affect REIT stock prices. Of course there’s also been a lot of general activity with the REITs lately because of the recent reclassification in the GICS sector definition. ETFs are in the process of rebalancing, indexes are getting rejiggered, reweighted and reconstituted. In short, there’s weird shit going on in REIT land, and I decided to put in some gaff fishing limit orders in case things got really extra weird.

The orders haven’t been filled yet, but who knows what will happen with the Fed next week? Things could still get pretty whacky.

These orders are in my traditional IRA, portfolio account number 2, which had been in crappy mutual funds at my old financial advisor directed account. I transferred them to a self-directed Schwab account back in May, and I liquidated the mutual funds in July.

I would sell cash secured puts, but Schwab’s options fees are retardedly high. I figure if it’s just sitting as cash, I might as well have some crazy limit orders in place.

Some day soon I will write about my crisis of faith in REITs and how I don’t know how to select one from another. In spite of this, I’ve decided I’d still like some exposure to the sector, and passive index funds seem like the way to do it if you can’t pick ‘em. Right?

Trading Activity – Cash Secured Puts

09/09/16 – VER Sept30 $9.50 strike

I’m continuing to try to transfer ownership of VER out of the taxable account. I may have a crisis of faith with REITs, but I’m not going to give up on the individual ones I’ve already picked…especially this one that has such a long and sordid history in my portfolio. As I mentioned, the REIT space was especially volatile, so the put writing opportunities were ripe. $9.50, would be a great price to pick up shares in a tax advantaged account.

Unfortunately ex-div is 9/28/16, which is 2 days before this trade expires. Oh well. The premium received is only slightly lower than the distribution ($0.1375), and I’ll still get paid a dividend for all the other shares I own.

09/09/16 – SBUX Oct07 $53.00 strike

This marks the third cash secured put I’ve sold against SBUX shares so far.

The first trade’s post contains my full investment thesis process, and was a slightly lower strike price ($52.50). The second trade was at a slightly higher strike price ($53.50).

In both cases, I enjoyed slightly more downside protection and juicier annualized premium yields. Still, I’d be happy to own SBUX for $53/share, and 13.34% annualized with 2.5% downside isn’t too shabby. I’ll take it.

Ex-div isn’t expected until early November, so this should expire comfortably before that, and the premium is nearly triple the distribution ($0.20/share).

09/13/16 – WFC Oct21 $44.00 strike

One of the few posts I did manage in the last week was a link to an article about Wells Fargo being dumb. I’m not sure if my opinion is colored by Matt Levine’s perspective, or if I really see things differently than everybody else, but I have to admit, that I didn’t think this would be as big of a scandal as it’s turning into. I certainly didn’t think a $185M fine would have any kind of impact on the share price. But people are pissed. And analysts think this matters…no really, like, just ask the retarded and illiterate robot “named” Rachel Aldrich.

Okay…I’m giving “Rachel” a hard time…someone at UBS felt like this scandal justified skimming $5B off in market cap, which might be arguably more retarded and illiterate.

Anyway, when I sold my first put against WFC shares, one of my key arguments in favor of them over the other big banks, was that they seemed like “the least evil”. That narrative, if you ask the mainstream media, might be in question considering the bank is now under federal investigation.

But if you ask me, this scandal isn’t evidence that Wells Fargo is evil. Dumb, maybe…but not evil. 

As someone who’s been subject to unrealistic sales goals for 10 years, I do not have any sympathy for the ex-employees who are now complaining about the “pressure cooker” environment they were subjected to. Welcome to sales in general my friends.

The “bankers are evil” narrative is really quite remarkable, but how this has any impact on the actual valuation of the company is totally beyond me.

So I sold a put at a very attractive strike (if reached it would represent a 3.5% yield based on the current dividend and a 3 year low for the share price).

Ex-div shouldn’t be until early November and the premium exceeds the distribution by nearly a factor of 2.

Options Expiry Discussion

I have four cash secured puts expiring today, two of which are very much “in play”:

Position # 1 -1HCP $37.50 strike – this put was sold on September 1st, and represents my continued efforts to transfer ownership of REITs out of the taxable account. It looks like I’ll be successful on that front, considering shares closed yesterday $0.47 in the money. I suppose shares could rally over 1.34% today, but that would be a pretty big move for a single trading day. I expect to get assigned, and will wait 31 days for wash rule issues to clear before selling the shares in the taxable account.

Position #2 – SCHB $52.00 strike – this put was sold on August 30th, and I said at the time:

One thing seems likely though, if I get fed up with waiting and just go long, I’m sure some volatility will precipitate. So when everything goes haywire in couple of weeks…you’re welcome. We can all blame this trade for getting the ball rolling.

Well sure enough, some volatility precipitated. Now it remains to be seen if I’ll get assigned. Shares closed yesterday at $51.89 which is a tantalizing 0.21% in the money. Mr. Market had a pretty optimistic day yesterday, so we’ll see if that mood corrects or continues. Should be fun to watch.

Position #3 – BEN $35.00 strike – this put was also sold on September 1st. This represents my second option sold against BEN shares. I made the first trade back on Brexit day, and that post details my full blown investment thesis on the company. It looks like I will likely get another chance unless shares drop 2.1% today. That’s not totally out of the question given the volatility that’s surfaced recently, but it would be pretty surprising

Position #4 – GRC $25.00 strike – this put was sold waaaaay back when on June 13th. At the time I was a little worried I might have been trying to catch a knife falling from the $30 range. It doesn’t feel like the share price has done much of anything over the last 94 days, but it is down overall, and it was awfully nice to have that 9.1% of downside protection.

After yesterday’s closing price of $25.94, I still have 3.62% of buffer, so it seems unlikely I’ll get assigned. My original investment thesis from June hasn’t changed, and I would love to reopen this position when the cash frees up next week, but the options market on this particular stock is thin, so I’ll have to wait and see.

So there you go. That gets us all caught up with limit orders, options trades and a lively expiry discussion on quadruple witching day.

I decided to summarize everything in one long post rather break it up into a bunch of individual posts. I did this primarily because I realized the week was almost over and it seemed like the easiest way to catch up.

But I can also appreciate if it’s a lot to read at once. Feedback would be appreciated. Do you like this summary format or prefer things broken up?

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