June 2019

General Comment

It seems yesterday that we set off, wife, baby and myself for Sardinia.

In reality it was the beginning of June, and I remember that uneasy feeling of starting something completely new, like going on holiday with a little baby, something that I’ve never done before in my life.

I’ve done plenty of things, but not this one… Oh well the holidays were simply grand, we loved the time we spent in Sardinia, loved the food, the people, the places. Little Stalflare behaved MARVELLOUSLY, even let us eat at restaurants every night without making a sound most of the times… Certainly need to go on holiday again soon! 🙂

I start with holidays talking about June because there is very little to talk about apart from that.

Markets and economies have had a very good month, compared to the bad setup that we had in May, and at the time of me writing (3rd of July) I can say that a lot of geopolitical tensions that kind of surfaced in June are now distant memories buried under the sands of time.

In a sweep move it seems that North Korea, China Trade wars, Italian debt issues and EU elections have all come down to find their perfect matches, solving crisis and boosting stability. After a bleak May, where hints of a worldwide crisis were more than just idle ideas, June posted a much different picture.

Not having the “usual” crystal ball, it’s hard to say what will happen, my prediction of a “down” year opening to a recession in 2020 so far has been massively wrong. And as we will see this month, lots of things didn’t go “my way” because of that… But as I have repeated more than once, a strategy is something that I feel is good to stick to, changing sides on short terms event does not pay, but neither ignoring major signals. Some adjustment will be needed but my outlook is still bearish.

LH FUND

Explanation of terminology and graphs is HERE.

Let’s see the numbers:

MonthTRYTERNYYoCForex
12.140.00%0.00%0.00%0.00%
12.15-3.33%1.22%-0.13%-1.00%
12.167.06%1.14%1.16%-4.35%
12.179.94%1.04%2.64%-5.94%
12.183.28%1.24%2.70%-3.53%
1.199.76%1.26%2.69%-2.75%
2.1912.02%1.24%2.69%-1.95%
3.1914.86%1.22%2.70%-1.21%
4.1916.86%1.21%2.83%-1.87%
5.1912.73%1.22%2.81%-2.42%
6.1914.41% 1.44%2.64% -3.17%

TR is increasing (vs. previous month) – June was a positive month for the market, so… Up we go!

YTER is increasing (vs. previous month) – Taxes… They kind of ruined the party here, a massive jump due to the tax returns filed for 2018.

Net Yearly YoC is decreasing (vs. previous month) – Taxes and a quite poor month for dividends, ouch…

Forex is getting worse (vs. previous month) – While the Dollar seems to have found some “ground”, the pound is still loosing it against the Euro, currencies are not helping either…

Dividends and Options

June has always been a difficult month for the LH portfolio. Difficult because in the past I used to get a massive coupon from a high yield bond that kind of “drugged” the month-s results (as you can see from the graphs). Now that the bond is gone, it’s back to normal activity. Or has it?!

May ended with a 1706 Euro result.

Dividends accounted for 985 Euro (-34.90% vs.2018) and Options ended up with a 721 Euro score (+700% vs 2018).

Let’s see what got us to these results…

Dividends have taken a massive knock this month. Not good at all. But what happened?

Well the answer is quite simple, and it lies with the Option trading that I am doing to support the DGI strategy that I am putting in place. As I mentioned before my bearish stance in January got me to sell calls very early in the year, believing that there was going to be a slowdown in the markets. After 6 months I can say that the prediction was wrong, and several calls fell In the Money, or to put it simply, I was on the losing side of the trade.

Selling calls implies that I have to give the stocks that I have in order to satisfy the contracts, and pretty much that’s what I had to do with three very high payers this month, namely: Poste Italiane, Snam and Terna.

The calls were executed early compared to expiration, and I lost the stocks just before dividend was paid (this is quite normal).

So here it is, the loss in dividends comes from this side of the trades.

Options on the other hand are showing positive numbers, as I got my options called premium was “fiscally” assigned to me.

List of Options closed in May

Following some comments from the readers I have decided to change the way I am reporting options. I am not reporting the “financial” part anymore, but rather the “money management” part or it.

By doing so I managed to add the information on the Price when the option was opened.

A little explanation needs to be given, on some options you will see that there is a “tick” next to the ticker. This means that that option has been rolled.

In order not to make mistakes when rolling I close the original option assuming that i buy it at the same premium as sold it for. I then open a new line with the same opening date as the former option, but new expiration date, and new premium (I usually roll for credit).

DCA/Increased Positions

Bought 100 BME:ENG @ 23.85 EUR

Enagas went exdiv on the 1st of July, so this was a last minute trade on the 30th. Spanish utility/energy provider, solid dividend payer. I had to reinvest some of the proceeds that I’ve got with the forced sales due to my Covered Calls, and Enagas is a classic move for a DGI portfolio.

New Positions – Sold Position

Sold 1000 BIT:TRN @ 5.4 EUR

Sold 1000 BIT:SRG @ 4.4 EUR

Sold 100 CINF @ 80 USD

Sold 500 BIT:PST @ 8.4 EUR

Sold 100 MDLZ @ 44 USD

Five sales this month, it’s a record! As mentioned before, all of them are due to calls that ended ITM and that I couldn’t roll or simply I did not want to roll.

A refresher on my strategy is needed. ALL the Covered Calls I sell are sold at strikes that are at least 20% higher than my average price. This is done to ensure that on top of collecting at least 25% of the annual dividend in premium, if the call goes DITM and I cannot protect the stock, then I must see the shares go, but I profit at least 20% from it, plus premium.

So despite the fact that DGI-wise, selling these stocks was not recommended (and I did not want to sell them), the result is still a pretty good gain from this activity, gain that I can use now to wash some losses and look for other companies. I don’t cry over spilled milk, need to move on, plus if I managed to sell stocks at 20% over the average price all the time probably I wouldn’t need the DGI approach at all… In a way the result is pretty good.

Conclusions

So here it goes, July will probably bring more stability? Who knows, for sure major drivers to volatility seem to have lost a lot of speed. The recent selloff of stocks means that I get back quite a bit of cash to invest, so I hope I can beef up the options gains with some puts (although in this market prices are very high and I don’t have lots of ideas right now), or simply I’ll wait on the sidelines to see what happens. Summer also brings less volumes, more people are on vacations, the markets are in holiday mode, but I’ll be ready if some opportunity comes my way!

What is sure is that the LH Portfolio will gain exposure to Preferred Stocks pretty soon, I am researching this instrument now, but I am positive to add it as a permanent feature of the composition of the index.

Advertisements

2 thoughts on “June 2019

    1. Ciao Bier, Enagas è uno dei miei piu vecchi titoli a PF. Nella pochezza europea dei dividend payers sicuramente è uno dei piu stabili. Purtroppo si guadagna poco per via della doppia tassazione ma ha senso in un’ottica di differenziazione.
      ciaociao
      Stal

      Liked by 1 person

Leave a Reply to bierlollo Cancel reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.