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Monthly rollup | September 2023

Stocks Mentioned: Oracle (ORCL), Sibanye Stillwater (SBSW), Newmont (NEM), General Mills (GIS), EuroDry (EDRY)

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Sept 04 2023

Sept 05 2023

Sept 06 2023

Sept 12 2023

I have been talking about cheap volatility for a while now, so I'm throwing this in to emphasize my point. I bought Oracle (ORCL) December 2023 OTM puts two months ago and they were decaying while the stock kept going up. As of yesterday, those puts were down 60%. Today, I sold at a profit. Notwithstanding the earnings vol crush and two months of decay. Granted, it took an outsized move to make that happen. But this is exactly the sort of market in which those outsized moves happen. With volatility priced so cheap, you can afford to make such bets. Why did I sell? I have 19 other put option positions remaining, so all I'm doing is selling down my put portfolio and booking gains.

As hard as it was to do emotionally, I did the trades I talked about here. Today's price action might just be proof that I'm on the right track.

Sept 14 2023

Sibanye Stillwater (SBSW) is bouncing off an extremely oversold RSI reading with a gap higher. Decent long trade here with a stop at $5.31 (3-day ATR and slightly below the 52-week low of $5.46).

Sept 15 2023

Gold miner Newmont (NEM) has likely bottomed, although the most likely direction is a sideways drift. If you like buying cheap and don't mind holding on waiting (as boring as watching paint dry, unless of course you buy it in a long-term account which you rarely check) for the trade to work, this is for you.

I'd use a 2.5 ATR stop, which is 4.4% below yesterday's close, or $37.75. There's a chance that stop gets hit, so this is a trade I'd take again if that happens. Gold is stuck in a range, so adding miners is a way to get exposure while risking little. The flip side is running out of patience, especially when oil is going up every day and the latest semiconductor IPO is making waves.

Sept 16 2023

Sept 18 2023

Last week was triple witching week, with stock options, futures and futures options all expiring on Friday. On these weeks, positions get flushed out and traders start the next week with a clean slate.

The Nasdaq made a nominal new high in July but the RSI peaked in June. Since then, momentum has collapsed (RSI is a momentum indicator) while the price has held up. Chopping around, not going anywhere, but still up close to the highs.

Fundamentally, this market has been a short since March. Technically, it is now an obvious short.

I have been talking about buying OTM puts and taking advantage of cheap implied vol on individual stocks. That still remains true - as long as the market is stuck in a range with low volatility, puts will be priced cheap.

I own puts on the following stocks, with expiries ranging from November 2023 to March 2024.

  • Apple

  • Microsoft

  • Teradata

  • Nvidia (but of course!)

  • Datadog (highly overvalued)

  • Netflix (recession is going to hit them hard)

  • Broadcom (see write up above on the VMWare short squeeze)

  • First Solar (tremendously overvalued and a terrible business - double trouble)

  • Atlassian (great company but ridiculous valuation)

  • Micron Tech (the semiconductor glut is not over, no matter how hopeful management sounds about the bottom being in)

  • Salesforce (not as overvalued as other tech names, wouldn't recommend)

  • Meta

  • Royal Carribean (recession fears)

  • Lam Research (overvalued semiconductor stock)

I've taken profits on Microsoft and Teradata puts and sold my Oracle puts as mentioned earlier. I also have puts on the tech ETF (XLK), Semis (SMH), Nasdaq 100 (QQQ) and the Dow (DIA). I continue to believe in all these trades.

Contrarian trade idea: long EURUSD with a stop at the lower Bollinger Band (1.06184). Sentiment is extremely bullish dollar and negative pounds and yen. Of all the currency pairs, the loonie and euro are the most likely to show strength if we get a turn in the dollar.

Sept 19 2023

Time to repeat the trade. The recession is near, and the flight to safety should benefit General Mills (GIS). Buy General Mills at $65.99 with a 3-ATR stop at $62.55, for a risk of 5.2%.

Sept 21 2023

Sept 22 2023

The euro briefly dipped to 1.06174 and took out the stop. This was a contrarian trade idea, playing for a bounce. Currencies can trend for a long time so I'm leaving this alone for now.

Nothing sweeter than being long gamma on a day like yesterday (21/09/2023 Thursday), with volatility finally picking up and the tech bubble teetering. Puts are still damn cheap, given the macro backdrop and the likely imminent trend change. If you're wondering whether you're too late to the trade, you're not.

Sept 24 2023

Sept 27 2023

Gold miners are a bargain today. I'd stick to the quality names like NEM, GOLD, AEM, FNV and WPM. SBSW, which I mentioned earlier, is in the buy zone as well.

If you can go back to when I went long oil stocks, and the fear in the energy market at that time - I see something similar happening now with gold. Back then, the dollar was tanking on recession fears and taking oil down with it. Now, oil is soaring along with the dollar and dragging gold down.

I think we get a recession that brings down oil (temporarily) and dollar (unsure of whether this will be temporary or long lasting). Gold should benefit from this, especially given the perception of gold as a countercyclical asset. I went long a lot of gold miners today.

Band squeeze breakout in natural gas.

And shipping company EuroDry (EDRY). The company trades at 30% of NAV

Sept 29 2023

Frustrating! No other word to describe it. Economist Paul Samuelson quipped that investing should be as boring as watching paint dry. I think he's the only person who would actually cheer this low volatility up move over the last 4 months. Bulls and bears have been equally frustrated. Bulls have round tripped after showing huge gains, bears have round tripped or been shaken out at the top when the AI narrative was at its loudest.

Is this a healthy market? Most definitely not. Bull markets are born on pessimism, not months and months of flat returns. What we have just witnessed is massive distribution happening beneath the surface, with the smart money using the AI bubble and euphoric sentiment to get rid of their stock allocation without spooking the rest of the market. With this quarter over, and October being the month when crashes happen, expect volatility to go up and some nasty downside moves as buy volumes completely dry up and overvalued stocks finally crash and burn, taking down the indices with them.

There is still time to build a portfolio of put options like I outlined earlier.

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