Addendum To Previous Post…

This is an addendum to my previous post (which was just yesterday actually):

TTI Bought >$100K Worth Of Equities In July… Howard Marks’ Memo Better Don’t Come True Right Now!

I’ve received quite a number of queries regarding options, particularly on how I structured them. While I’ve replied every email and comment, I’d just summarize and clarify some points in this very quick and short addendum.

With regards to the Brazil ETF (EWZ), well, I guess I’d just take the lazy way out and cut and paste what I wrote on IN on the 9th June 2017:

https://www.investingnote.com/posts/125750

592) IN post on EWZ.jpg

Now, with regards to how to structure a position… all I can say is: Just use common sense!

There are many many “strategies” with damn fancy names: Long Straddle, Strangle, Covered Collars, Iron Condor blah blah blah.

I used to study each in detail until I realized, hey this is a total waste of my time. A lot of what’s in the strategy is just simply common sense.

So to all those of you who have emailed me with fancy strategies… you’re wasting your time. In fact, I can’t even remember off-hand the bulk of it, except the very common ones.

So what was my options strategy when it came to EWZ?

Read the post above and maybe you can tell me, cos I don’t know any name for it. (There probably is a name for it)

All I know is that my nett entry price is US$33 and right now it’s at US$37.5 and I’m exiting tonight. The excitement and fear from the scandal has since died down. (No channelnewsasia article on it anymore!)

To conclude: I don’t have a single all powerful strategy that will put you on the road to riches!

It’s really funny how the worlds of finance and healthcare are similar in this aspect: We all like to try to complicate things and give complicated names for something very simple.

I remember back when I was doing my training, once, when faced with a case with complications, an instructor told me and my partner (we have to pair up for clinics) to “change track and utilize an intensive, stepped-up chemo-mechanical holistic approach to treat this case”

We both looked at each other and wondered what new gadget do we have to use that we haven’t heard of. Or perhaps it’s a new medication? A new treatment modality?

Turns out she meant to tell us to continue doing the same thing that we’ve been doing, just do it for another 15mins longer.

zzzzzzzzzzzz

She could’ve just said “ok, just keep at it for another 15mins.”

But then, it wouldn’t sound as impressive.

Also, I’d have to keep emphasizing, that personally, I believe all options strategies still require a fundamental analysis, with an eye towards value. This is something that’s easily forgotten. Afterall, who wants to do the bloody hard work that FA entails. But THAT, is really the key. Can’t emphasize it enough.

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9 comments

  1. Dear Sir,

    I’m a fan of yours and really impress by the way you analyse a company which till now I still have not master it.

    Looking at your return by trading option, wondering if you ever written an article about that or if not perhaps you can write one to educate people like me who wish to learn more about it.

    Thank you and have a nice day.

    Jeffrey Ong.

    Like

    1. Hi Jeffrey

      Sometime ago I wrote a very basic guide on options:
      https://thumbtackinvestor.wordpress.com/2016/09/19/ttis-basic-guide-to-stock-options/

      It’s nothing fancy, just something i wrote off the top of my head. I reckon you’d be able to find something similar, and probably more comprehensive, in most relevant books.
      Along the way, in various posts, I have also posted actual data, complete with the date and other relevant data detailing every activity so if you’re hardworking enough, you’d be able to figure out what was done.

      I haven’t written a specialized, detailed post aside from the basic guide because…. well it’s hard to elucidate concepts just by writing it down. It’d likely be too long, and I’d also probably describe it wrongly if I just write it down.
      Also, actually, I did promise not to share specifics regarding my options strategy so I can’t.

      Regards
      TTI

      Like

  2. Hi TTI,

    “We all like to try to complicate things and give complicated names for something very simple.”

    Funny example you got there. This week, my colleague wanted to do a 2 x 2 x 2 x 2 x 2 x 2 between-groups ANOVA analysis when a simple t-test could have answered the research question.

    “Unique” people, eh?

    (I realized this is the first time I’m commenting on your blog!)

    Cheers
    UN

    Like

  3. Hi TTI,

    You mentioned that your nett entry price is $33, but that happens only when all the put options you sold get exercised, and you are forced to buy them right? Also, you mentioned you will be exiting tonight. What does exiting mean? Hope you can shed some light as I am new to options. Thanks for all your sharing so far, very enlightening indeed.

    Best,
    Jun

    Like

    1. Hi Jun
      As stated in the post, I sold in-the-money put options at $35 (it was deep ITM when I sold them), and they got exercised. So my entry price would’ve been ($35 – $1.48 the premium) = $33.52

      On top of that, I sold further out of the money put options. I believed those were unlikely to be exercised as all the bad news was out then, unless the scandal took a turn for the worse, much worse.
      The premiums for those options weren’t as high, but still, they brought the overall nett price to be around $33.

      So to answer your question, no.
      It’s not “only when all the put options you sold get exercised, and you are forced to buy them”
      but rather, it’s quite the opposite. When the fall OTM options expire.

      Exiting means I’m selling.
      Sometimes I opt to sell by selling ITM call options. In this instance, I opted to sell the equity directly as I wanted the funds to deploy into other options. (Mainly VRX and DBD options)
      So I sold at around $37.5 (At the time of writing)
      As you can see, the price has now crossed $38 and is now sitting pretty at $38.3
      I don’t get to buy at the bottom, or to sell at the top. Hardly happens.
      Which is fine.
      I still get a substantial chunk of the meat.
      It’s a very nice return, considering it’s been just under 2 months since I initiated the position.
      Hope all this helps you.
      Regards
      TTI

      Like

      1. Hi TTI,

        Thanks for your explanation! I have a much better understanding now :) Btw, which broker do you use to trade options? I am currently using Phillips Securities for equities but I don’t think they offer options.

        Regards,
        Jun

        Like

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