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TCF Club - Silos & Option Trading Techniques

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TCF Club - (cash flow) Silos & Options Techniques

JOIN us & maybe see your wealth grow fast / courses coming ?

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Charged air - to help visualize Options valuations ... More on this later

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RISK WARNING : Options trading, and especially SELLING of options Short, is very Rsky.
If you do not fully understand these strategies, I suggest you do extensive "paper trading"
Before any actual trades which may put your money at risk.
(( more: No crystal ball. And when you buy an option, your entire premium may be at risk.
If you sell Call short, you may lose multiples of the premium you collect/))

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LINK to here : https://tinyurl.com/tcfclub

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"The Cash Flow Club" / For TCF Members

+ The main idea is to generate Reliable Cash Flow, which will grow over time, & also stand ready to make occasional Options trades, when strategic options trades come along.  If there are no good options trades for several months, funds will still remain deployed, earning money

+ I believe in the idea of Diversifying risk, so I want to organize the main part of my Investment portfolio into smaller mini-portfolios, which I call "Silos"

The idea here is diversification where the assets in a single silo are unlikely to be contaminated by any loss in another silo.  There should be a low correlation between the assets in one silo and those in the others.

+ The Size of a Silo could be roughly a standard size, like P5Million (US$100K), or P10Million (US$200k). At an 8% pa return, a P 5M/$100K would generate an return of $8,000 per annum. That's P400K, or just over P1,000 per day. When an investor has built up enough strong and performing silos, he or she might consider becoming a full time investor whose "job" is managing their own money.  But this may take some years. (BTW, there would be nothing wrong with having Silos of different sizes.  But if you put all your assets in a single silo, you do not get the benefits of diversification.  But this may be unavoidable when an investor is starting out.)

+ Option trades will also be a part of the overall portfolio, but only a minor part, such no more than 1/5, 1/4, or 1/3.  This way, if some options trades go badly, they will not wipe out a major part of the investor's wealth.  The account set up should be arranged with a large stable financial firm which can give credit.  This way, Options portfolios will NOT require cash funding, but will be assembled through the use of Buying Power from the "stock part" of the investment portfolios. (I will explain this in more detail later.)

+ When an options trading strategy goes well, it might be a sort of "seed" growing over time to a point where it can become another productive, cash flow generating Silo if trading goes well.

EXAMPLES, of three Silo. mini-Portfolios, from Real Life to follow (Sizes & Returns are approximate)
 

 

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TCF SLIDESHOW below     == Old #1 : old 2X silos :

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== Maximizing The Return in a Silo... "HK-quoted Property Shares" / HK10 : All-data : thread :

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HK10 / Hang Lung Group: priced at below $20, was identified as excellent value, with a 4%+ dividend yield
/ see: HangLung thread / as Originally presented:  Oct.20, 2018 /

(*returns below are accurate, but the actual order of magnitude may be different)

+ I invested HK$800,000 at less than HK$20 per share
+ I sold about 10% into the initial rally to $22, raising about $85,000 in cash
+ Reinvested the cash between $19.50-20, when the price fell back
+ On the latest rally to over $21.50, I have so far sold about 15%, raising more cash again
+ The overall Silo value, including cash is NOW UP 12%! (in under 4 months)
+ My mid-term target will be to sell 50-100% if HK rises to $31+, a 50%+ gain from $20.

image.png

Initial Portfolio (Oct. 2018)
HK10 : $19.50 x 41,000 shs = $800k > US$100.k > P 5.3M

At $21.60, early Dec.
HK10 : $21.60 x 37,000 shs = $800k
Cash held ,  sold 4,000 shs >  $ 85k
Total: HK$885K (+ 10.6%)

At $19.50, early Jan.
HK10 : $19.50 x 41,435 shs = $808k

At $21.60, this week:
HK10 : $21.60 x 36,000 shs = $778k
Cash held,  sold 5,435 shs. >  $117k
Total: HK$895k (+ 11.9%)
That is > US$114.k > P 5.95M, up from P5.3M : +12%

 

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Creating an Options Portfolio, without needing actual Cash

(A core part of my investing approach.

You do will need "Buying Power" in your account to do this part !)

These strategies assume some knowledge of Options & Options trading techniques.
If you do not have that, I will provide more Options material later.
This is to give you a quick glimpse at the kind of Options trading  idea that I am aiming for...

========

a. Build Silos inside of a US$ Stock MARGIN Trading account
b. Buying Power might be 30-50% (or more) of the Market Value of "eligible assets"
c. Sell Options (normally naked Puts, or Calls against a long position) to Raise cash
- To do this, you will normally need "excess buying power" of maybe 30-35% of the

Face Value of Options sold.

Example: If you sold a $20 Put when the stock was $14, you will

get $6 cash, and you will need BP of $6, + maybe 35% of $14, so: perhaps $11 BP.
d. Use the Cash from these Options sales, to buy other options
e. Be alert for opportunities to Buyback the option sold "short" at a profit
f. Cash for buybacks might come when you sell the purchased options at a profit

Essentially, you can think as the Sale of Options, as a Loan.  If the option you Sold loses value,
then the amount of cash you have to pay back on the "loan"  is Less than you "borrowed" (!)
In other words, you might make a profit on both the "long" & "short" sides of the Options Trades

Example:
I sold these OIH puts (Jan'20- $20 put)  at about $6, when OIH was over $14
- and bought them back under $4, when OIH was over $16

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Here's what happened to the underlying share price: OIH / Oil Service etf :

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It is rather nice to "borrow" money in this way, pay no interest, and only have to repay less than 2/3 of the original amount.
(Especially when the funds were used to buy some cheap Calls, now worth 150% or more of what I paid for them.)
However, for this to work, I have to get my stock select right, and also have good execution. Often, that is not easy!

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Ckk9d9p.pngA short quick DIVE Into Options theory

The Big Picture of the TCF strategy is:
Invest most of your Wealth in good Cash Flow producing Silos.
And use the "Buying Power" from your stock positions to create
Virtual-Silos using PUT options Sold, to finance the purchase of CALLS.
(Good option trades will not be available every day. Maybe just 2,3 or 4x each year.
Having the Silos there, generating good cash for you every day, is critical.)

To give the Options-side of the overall strategy a clearer explanation,

I want to dive into some of more Detail on the Options side

... more coming ...

The first thing to realize is that Not all stocks have the same expected volatility
(or anticipated day-to-day change in price.) High beta stocks will move more than low beta stocks.
And this is why a 1-year at the money call (for example) will have a higher cost for a high beta stock
than a low beta stock...

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With this Concept in mind. Let's consider what options are.

The usual basic definitions of options follow:

CALL: is the Right to Buy (or call) a stock at a Fixed price, for a fixed period of time

PUT : is the Right to force another to Buy (or Put away) a stock at a Fixed price, for a fixed period of time

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 Obviously, if you expect a stock to go up, you want to own a Call.
And if you expect it to drop, you want to own a Put.
If options were free, everyone would want them all the time.
But they are not free.  So what do they cost?

Option Premium = function ( P, X, T, V, R )

"Greeks" : delta, theta, gamma

Ckk9d9p.png

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(as posted on the Viber chat)

The SILO strategy in HK Property stocks is going well.
I aimed to make 4% a year (in HKD).
But I am now seeing 3-4X that return in just 3 months, so I have begun
To shrink the “HK Silo” portfolio, moving into cash.
For those who are interested in what I am doing, and some successful Options
Trading strategies that I am using…
With I.’s permission, I might go beyond the 20-30 minutes Teazer that I gave
To 3 people last Saturday,
Perhaps I could talk for an hour or so this Saturday or the Saturday after.
The idea is to pass on some of the lessons I have learned over more than
Four decades of stock and options trading

Hang Lung Properties / HK101 is rising fast... HK10 is lagging (recently by 3%, about $0.65)

HK10-etc ... 10d / Last: $21.95 ... hk101-$16.64 x 1.369= $22.78! /$21.95= 103.8%

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HK10-etc ... since 9.1.2018 / hk10: 21.95/19.12= 114.8% / hk101: $16.64/13.90= 119.7% … hk101+4.9% more

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Hang Lung ... updated to 10/12/18 midday:

Symbol : Co.----- : Price-- /hk101: tBkVal: P-BV. : PE-R. : Yield% : Div. ? : Earn? :
87001  : Hui Xian- :  03.08 : 21.6% : # 4.71: 65.4% : 11.85 : 9.09% : #0.28 : #0.26 :
HK10-  : HL-Group: $19.50 : 1.369 : $62.87: 31.0% : 5.000: 4.10% : $0.80 : $3.90 :
HK101 : HL-Prop. : $14.24 : 1.000 : $30.59: 46.6% : 7.867 : 5.26% : $0.75 : $1.81 :
HK778 : FortuneR : $ 8.67 : 60.9%: $14.07: 61.6% : 10.84 : 0.00% : $0.00 : $0.80 :
H2823 : A50china : 11.40  : 68.5% :
=====> Data-WSJ :

Hang Lung ... updated to 1/29/19 midday:

Symbol : Co.----- : Price-- /hk101: tBkVal: P-BV. : PE-R. : Yield% : Div. ? : Earn? :
87001  : Hui Xian- :  03.29 : 19.8% : # 4.71: 69.8% : 12.65 : 8.51% : #0.28 : #0.26 :
HK10- : HL-Group: $21.95 : 1.319 : $62.87: 34.9% : 5.628: 3.64% : $0.80 : $3.90 :
HK101 : HL-Prop.: $16.64 : 1.000 : $30.59: 54.4% : 9.193 : 4.51% : $0.75 : $1.81 :
HK778 : FortuneR : $9.75 : 58.6%: $14.07: 69.3% : 12.19 : 0.00% : $0.00 : $0.80 :
H2823 : A50china : 12.44 : 74.8% :
=====> Data-WSJ :

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In the US : The nation’s newest hot housing market — Philadelphia
> https://www.marketwatch.com/story/the-nations-newest-hot-housing-market-philadelphia-2017-05-24

(I feel pretty lucky since: some months ago, Philippines was the hottest property market globally.
And now Philadelphia is the "hottest new market" in the US.
Those are the two I invested in.  What led me to these two? High yields.
Lesson: in the end, YIELD MATTERS.  & that is good for the Silos. Haha.)

 

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Update - on the New Silo that I created, using just "excess" Buying Power

/ I call this a "Split Package Option Trade" (SPOT): > further update (scroll)

I SOLD $20-Puts on OIH, the Oil service etf, in order to:

BUY Calls on three high-beta components, all Oil Drillers, when they were cheap.

My OIL SECTOR PORTFOLIO, which is now up $21,495, about 40%

Sym. / Price :  x-Qty: $-Value: Strike : Pmt.: $Surplus -Cost-: Profit :
RDC  :$12.02 : x2500= 30,050 : $6.C : $15.0K: $15,050: $7,275: $7,775 - sold for $6,225 profit
MDR : $ 9.14 : x2500= 22,850 : $5.C : $12.5K: $10,350: $6,400: $3,950
ESV  : $ 4.59 : x5000= 22,950 : $2.C : $10.0K :  12,950:  $8,400: $4,550
Total: =========== > 75,850 : ==== : $37.5K :  38,350 : 22,075 16,275

OIH  : $16.78: x3700= 62,086 : 20.C : $74.0K : (11,914) 21,120 $9,206 : $25,481

$9,206/3700: $2.49: $14.29
I value this Portfolio against a Notional 3,700 shares of OIH at b/e $14.29 = $52,873
So +$25,481, is like a 48.2% gain in just a few weeks - on a portfolio "funded" by excess Buying Power
BUT,
I need to adjust for Time Value slippage on the OIH puts.
In fact, I have already bought back ALL of the 37x$20 OIH puts for $14,350,

'making a profit on OIH Puts of $6,770, rather than the $9,206 shown above.

The overall profit so far is $12,995-taken + $8,500-potential = $21,495, or 40.7%
======

(in edit, after Tuesday's trade... only one option position is left):

I sold my MDR May $5 calls yesterday at $4.35 x 25 = $10,875

A nice profit on MDR ...  $4475 / $6400 = +70% Gain on cost

Now, with only ESV calls remaining...

ESV  : $ 4.46 / Jun $2C : @$2.50 x50ctx are worth = $12,500 -  $8,400 = $4,100

The overall actual profit is $17,470-taken + $4,100-potential = $21,570, or 40.8%

That 41% gain is on the Notional portfolio value.

I never spent any cash, or actually put at risk that amount of money

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Another Split Package Options Trade (SPOT) Trade was  initiated the last day of 2018*

- And my Risk was shrunk down to zero today, thru a buyback & sale of half the calls

NGD $1.17 - Newgold Calls $0.65 / SIL $27.09 - silver shars Puts $2.30 / update :

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==== : orig.12./31
Short: SIL.July.$28p : $4.03x 30= $12,000 : BBack at: $2.30= ($6,900) = +$5,100 : Completed
BOT : Ngd.Feb$.50c : $0.30x200= ($6,000) : Sold at :  $0.65= $13,000 = +$7,000 : Completed
BOT : Ngd.Feb$.50c : $0.30x400= ($6,000) : Open@ :  $0.65= $13,000 = +$7,000 : OPEN
====
Profit: Completed:$12,100 + still Open:$7,000 = $19,100
Face Risk: $28 x3000= $84k : (if SIL went to Zero - Impossible!)
Equiv. to  : $24 x3000= $72K : Profit $19.1k/$72k = 26.5%

Am considering selling the following, and may exercise the still open 200x NGD Feb.$0.50 C

(Note: Income: $0.25 / Cost: $0.30 + $0.50= $0.80 > 31% "income" +/- G/L on NGD)

NGD- Jan'20-$1.50 C ... update : 25-30 cents

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===

* (I explained a Timing issue for this Trade in an entry in my Diary):

BUYING NGD/Newgold Feb.$0.50 Calls was an end of the year trade. A bit like the Oil Service stocks*.
(I thought we would see a shift from selling to buying in NGD, because it was :  Biggest Loser of 2018, among Gold Miners: -73%.)
Many were Selling during December to lock in Tax Losses. That pressure ends completely in the new year.
And those who sold earlier may re-enter the stock, locking in a tax loss, and to establish a new position at Lower cost.

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I went ahead with the Sale of the NGD Jan.2020 $1.50 calls (as suggested above)

Creating the Following attractive Payoff potential ... update NGD chart to Jan.2020 expiry : J20-$1.50C :

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I exited Half of my position at 65 cents vs. 30 cent cost - that's +116% in 3 weeks

By retaining half of my Feb.$0.50 calls, and selling $1.50C against them. I have attractive potential returns.

My ultimate breakeven is now just 55 Cents = 0.30 + 0.50 - 0.25, Max. profit = +172% to Jan.2020

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HIGH RETURNS are Possible ! (you need to dig deep & analyze!)

A banker turned Investor in HK has made over 20% pa. for decades

How Activist Webb Earned 20% a Year (since 1995) Investing in Hong Kong Stocks

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David Webb, activist investor who has earned about 20 percent a year from his personal investments in Hong Kong shares since 1995, explains why has advised readers of his widely followed website to avoid more than 75 of the city’s publicly traded companies -- several of which subsequently became targets of the largest-ever raid by the securities regulator. He speaks with Rishaad Salamat and Yvonne Man on "Bloomberg Markets: China Open."

> link: https://www.bnnbloomberg.ca/investing/video/how-activist-webb-earned-20-a-year-investing-in-hong-kong-stocks~1578383

David Webb is a former chairman of Mensa, and I have had several interesting chats about investing with him (at Mensa events)

One of my own small accounts has done even better, but over a much shorter period

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(This was once my "high risk" trading account, and it had huge ups and downs prior to 2016.)

I don't have the official figure for the end of Jan.2019 yet, but as of 2/4/2019 the account had a value of $13,593 (+$432 for the day)

It presently holds four key positions, mostly Mining related: Cash, WM.t, ROXG.t, AAU and GZZ.v.

YE '15: $  1,444: start
YE '16: $  6,164: + 327% p.a.
YE '17: $  6,845: + 11.0% p.a.
YE'18: $10,857: + 58.6% p.a.
01/31: $13,371: + 23.2% ytd
02/08: $13,879: + 27.8%

02/15: $13,386: down week

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TOP 4 / are Not Option trades... Here are my Top 4 Positions right now.

GCM.t - is still #1 (by far), though I have done some selling in recent days

Top4: WM.t / Wallbridge, GCM.t, GZZ.v, MUX.t ... update :

3UEGPT1.gif

I am not happy with the recent performance of MUX... but the others have been superb

Do not think MUX will suddenly "take fire".  It might, but I cannot promise that. I looks weak now.

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