Would You Like That in Bitcoin or Ether, Sir?

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The blog posting made below was originally written in November 2017, but never posted. At that time Bitcoin was trading at $7700 and a number of clients had asked about it.  In developing a response for them, I  began the draft of a posting on my web site to send to the larger group of my financial clientele and to friends and family.  I  did not immediately finish the editorial touches and meant to complete  later. Regretfully,  I got sidetracked by other pressing matters, and never hit the publish button.  I hate when that happens…

Anyways, I discovered the old posting today, and was checking how my forecasting had done.  Not too bad. Bitcoin did hit $19000 that year, then went on to  drop to $3000 later that year. By the way, I did go long at $6000. That’s not the catching the bottom, but at today’s $33,000 value,  it’s still a nice return.

So do I still believe Bitcoin and Ether will flourish in coming years. More than ever. It will continue to be a rocky ride, (I expect a continued correction down to $23,000 at the time of this writing.) But given the state of global economies, there is no doubt in my mind that these two cryptocurrencies will be dominant parts of the financial system within less than a decade. I would not even be surprised to see them become the “gold” backing a new global currency when the dollar falls off of its present perch.

***********Draft Posting from November 2, 2017 ********************

Ether (ethereum) and Bitcoin are the leading contenders in the thousand of new cryptocurrencies that have emerged in the last decade. New ones are cropping up almost on a daily basis. As the main financial advisor at Northstar Strategic Investments, I have been watching the evolution of these currencies with great interest, and counseling my clients as to their suitability.

Long-term – over a period of 20 to 50 years, I have little doubt that one of these two currencies will command a permanent place in the global financial system. Prior to that, I think we will see very significant crash-and-burn phenomenon occurring, where mucht of the recent runup of these two cryptocurrencies will reverse.

The recent approval of the Chicago Board of Exchanges to allow for the issuance of futures trading for Bitcoin will surely be followed very quickly by a market for Ether as well. This should have two effects, with contradictory impacts on the currencies’ present trading values

1) On the one hand, the existence of a futures market will allow hedge funds and large financial institutions to hold the currencies while using futures to hedge their downside risks. This will give new legitimacy to the cryptocurrencies, and make them available to millions of traditional mom-and-pop investors. Thus this will greatly impact the demand side of the equation, and tend to positively boost the currencies.

2) On the other hand, the existence of futures markets will allow an easy path to shorting the cryptocurrencies, in other words to bet on their values collapsing. This is difficult if not impossible to do today. That new facility, along with algorithmic programming at the heart of the futures markets, could quickly cause a drop to turn into a rout.

Given the huge bid-ask spreads currently inherent in the present cryptocurrency exchanges, this is not a market for the weak of heart. We are currently not recommending it to our clients, as we believe the runup has been too far, too fast. If anything, once the futures markets are in place, we may place some hedged bets to the downside.

So does that make me a naysayers? Not at all. Take Bitcoin. A maximum of 21 million Bitcoin will ever be produced over time, by the anti-inflationary nature of this undertaking. Right now, a small fraction of the 8 billion people on the planet – 50% to 60% – are actively using ecommerce on a day to day basis, on of those maybe 1 in a 10000 are trading in cryptocurrencies. Gross World Product is around $107 trillion dollars in 2014, according to the CIA World Factbook.

Let’s assume Bitcoin is used by only 1 percent of the present global population, and that they use the crytocurrencies at the same velocity as the US dollar. At that usage, we can expect Bitcoin to trade around $25,238 or 4 times today’s value.

1% x $107 trillion = $1007 billion / 21 million Bitcoin circulating = $47952 / 1.9 (V) = $25238

Ether (or Ethereum) is a more complicated picture, as the communities involved in its creation are in the midst of a huge battle as to its future direction. The issuance model is not fixed yet. There is a general consensus among Ethereum aficionados that the indiscriminate and arbitrary printing of money as practiced by central governments of the world with traditional currencies should not be allowed with Ether. But there is an ongoing discussion whether or not the costs for the consensus needs to be financed by inflation that basically taxes every coin holder or if transaction fees are sufficient.

Consequently, we cannot be sure if there are disinflationary tendencies built into Ether, as there are in Bitcoin. But judging by rough number of Ether in circulation today, which is 95,607,142 tokens at the time of this writing (November 2017) the same calculation as above gives:

1% x $107 trillion = $1007 billion / 95.6 million Ether circulating = $10533 / 1.9 (V) = $5543

Today’s price is $310, for comparison.

Two factors can propel those numbers much higher. In 30, 40 or 50 years we expect adoption of these leading cryptocurrencies will reach levels far higher than 1%. Levels in the 20 to 40% range are not unlikely at all. So multiply the above figures accordingly. Secondly, the world economy will not remain stagnant. If the currencies above are restricted as to new issuance, as Bitcoin today is and Ethereum might become, their value would have to
increase in line with global growth.

So if you are willing to suffer through an 80 to 90 percent collapse in the value of your cryptocurrency investment over the next year or so, by all means buy it. That investment could be worth 10 , 20 or 30 times what you bought it for. Me? I prefer to wait for the big correction, and load up the boat at that time.

Milking The Cow – Investing in The Time of The Corona Virus

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Let’s face it. These are crazy times. The global economy has fallen off a cliff with the coronavirus pandemic. As I write this, official unemployment is running around 12%, while real life unemployment – counting the severely underemployed gig economy workers – is probably far higher. The airlines have lost 90% of their business, probably for at least a year. Cruise lines are decimated and retail stores countrywide are reeling. The Fed has added $3.5 Trillion in debt since January, or 25% of GDP! This has literally doubled the Fed’s debt in less than 1 year. In the process, the Fed has literally bankrolled any public corporation with a pulse, viability be damned. Before this crisis hit, the number of zombie companies was hovering right around 20%. Who knows how high that count is today?

Yet the stock market is trading close to all time highs, with the Nasdaq surpassing all time highs. Apparently, new small investors have opened brokerage accounts by the millions and have powered marketsd to unheard of price-earnings fueled by pure Fed-induced “hopium”. More and more real time hedge managers are holding their noses and investing based on Fear Of Missing Out…

If you are a conservative investor, you really don’t like the miserable returns you can find on muni-bonds, long term treasuries or investment-grade corporate bonds. Given the enormous money printing of the Fed, you’re right to think that that could eventually result in much higher inflation, which would decimate those bond investments.

There are a few paths that make sense, but the most attractive I have found I have labeled my “Milk The Cow” strategy. The analogy is to a dairy farmer who has to spend a few thousand to buy a decent milk producing cow, but then gets a secure and steady stream of income from the 3 gallons of milk it can produce a day for many years thereafter. In this strategy, my upfront investment in the “cow” is the purchase of a long term call option and a long term put option. These give me the set number of contracts at the strike price I determine, and conversely to sell the same number of contracts at the strike price I determine, for a period of at least one year.

I milk this financial investment by selling call and put options around the current market price each week, and sometimes several times during the week if the market is very volatile. When these sold options become unprofitable, because the underlying security has moved more in one direction or the other than I have collected in premiums, I roll the options towards the new market price, and if needed I roll further out in time, making sure I never become cash flow negative.

Two years have passed since I first explored this idea in my Seeking Alpha article
https://seekingalpha.com/article/1829522-leap-secured-options-writing-the-ultimate-safe-investment-strategy
. Well, back then the concept was just a little seed gnawing at the root of my brain. It made sense to me, and I thought by exposing it to the critical eyes of Seeking Alpha readers I’d quickly identify any weaknesses.

Well, the article was well received and none of the objections raised to it seemed compelling. So I plunged ahead with real money. The strategy has rewarded me well in the two years. producing around an 18 percent annual return. And that’s despite making a lot of rookie mistakes.

How did I fare during the recent roller coaster ride up and down on the Corona Virus Express? Well this strategy kept on plugging along, minting money and allowed me to face the situation with calm confidence.

So what I’ll do today is describe some of the things I’ve learned along the way, that will help an investor to maximize returns, while minimizing mistakes. I encourage you to go back and read the previous posting on this strategy, as well as the numerous comments and feedback it generated.

The reason this strategy makes money is that options cost a lot more retail than they do wholesale. By retail I mean short-term options that expire quickly. By wholesale I mean long-term (LEAP) options that expire 1 to 2 years out.

An example will help. At time of writing, the SPY (S&P 500 ETF) closed at 304.21. Let’s say you think the stock market is dropping and want to make money if that happens. Buying a JOTM (just-out-of-the-money) put of SPY at a strike price of 305, expiring in 9 days on Jun 22 costs $6.72 per share. The same strike on a put option expiring next year on Jun 20, 2021 costs $33.09. Divided by 52 weeks of validity until expiration, the yearly contract costs only $0.64 a week. So as we see the “retail” (weekly) price is around 10 times more expensive than the wholesale rate (1 year option).

Why does anybody buy weekly options then? Well it’s because the initial cost is much lower, and most investors believe they can somewhat accurately predict how long it will take for their security’s anticipated move to happen. If they are off by just one or two weeks, buying the weekly options on 2 or 3 occasions will still cost them less than a one year option. In the example of a bearish investor above, if the drop in the market does occur, but takes 9 months to happen, they’ll have spent much more money than the would have buying the yearly option. In fact, they may have spent so much that they still lose money even though they are right about the direction and strength of the move.

So as an astute investor, you want to be buying at wholesale costs and selling as frequently as possibls at retail. If volatility never changed, and the price of a security never moved, you’d make a cool 1000% return ($645 of income for a $6.72 investment). But I’ve got really bad news for you. That never happens. The strategy is profitable, but nowhere near that profitable. Because securities do move around a lot.

My strategy is simple, but requires steady maintenance. (Remember that cow needs daily milking, and you have to give her her shots…) You begin by buying a long term call and a long term put option to to ensure you are buying wholesale. This limits any potential loss and reduces margin requirements. The you start selling sell both call options and put options on a weekly basis right at the money , where the strike price equals the current price. You do this for the nice fat premiums these pay you.

An example will clarify how your potential losses are limited by the long-term calls and puts you own. I will use an extreme example – which is frankly unrealistic – but that clearly demonstrates the protection and peace of mind the long call and puts provide you.

Let’s say I buy the long-term call and put options right at the money. This is not optimal but it will make the example more easy to follow.

That will cost around $71 per share, buying a jun ’21 305 call and put. At the same time I sell a 305 call and sell a 305 put expiring in 9 days. That brings in $ 12.61 ($7.72 + $4.89) per share.

Imagine that the market were to drop by 70% in a week, to a level of $92 (I know , I know, that big a drop in 1 week is highly improbable, but humor me here).

I would have to pay $213 to buy back my short-term $305 put, before it is exercised on me. Yet I only had only originally collected $6.72 by selling it. That’s a pretty hefty loss.

But wait. The long-term put that I still own at a 305 strike price would have gained more than $213. Given the increased volatility and remaining time value in it, it would probably sell for around $290 ($213 intrinsic + delta + vega + theta). So I could sell the call, use the funds to buy back my short put, at a handsome $77 profit (per share).The sold call would expire worthless, but my long call would still have some small residual value , because it is still valid for another 51 weeks and the market could reverse sharply. Closing those positions would bring in additional funds.

Here’s the sequence of transactions (on a per share basis. multiply by 100 shares in an option):

($72) oringial cost of long options (buying the cow)
+$12.62 revenue from selling short options (milking)
+$77 – $82 closeout of all positions
+$17.62 – $22.62 profit in 1 week
$59.38 cost basis
+30% – 38% percentage return in 1 week
1982% – 1976% percentage annualized

So in such a calamitous event – a so called worse case scenario – I’d still make a fabulous return of over 30% in just one week! The same logic applies to a huge unexpected upside move. I’ll let you do the math.

So now you can understand how this strategy will allow you to sleep at night. In fact, it’s less risky than owning a mutual fund and holding it. Just a few months ago, mutual fund investors faced a roller coaster drop of 40% in many funds, before recovering 30-50%. Many are bracing for the next round of the Corona Virus Express…

Now let me demonstrate the best way to milk this financial cow. The first thing to decide is how far away from the market price you want to set your put and call strikes for your long protective wrapper.

In the two graphs below, you can compare the initial margin requirement of placing the strikes right at the money to further away. In the first graph the initial outlay is $62.74 per share or $6274 for one contract. The initial margin requirement in $0 , with a maximum lifetime margin of $6274.

SPY LEAP Straddle

SPY LEAP Straddle

spy_straddle_leap__volatility_unchanged_expiration

SPY LEAP Strangle

In the second graph the initial outlay is $3651 and the initial margin requirement in zero.

Now let us consider the effect of selling weekly options. To illustrate this, I simulated the effect of a huge drop in volatility that accompanies a doubling of the underlying indexes price in less than a week. Again this scenario is extremely unlikely, but it allows us to simulate a worse case scenario,

spy_straddle_volatility_collapse_price_surge
Compare that to the more expensive straddle:
spy_strangle_volatility_collapse_price_surge

You see that with a strangle, although the initial margin requirement may be zero, when you add in the sold options it will not remain a zero, and can actually expand a lot.

Because a strangle only becomes profitable as the outer strike points are breached, it requires more margin than a straddle would. A long straddle immediately starts gaining in value, but a strangle does not.So in the case of a strangle, you usually will require a lot less capital, but you could be subject to a margin call. Be aware of that and make sure you have sufficient funds at all times.

Other things being equal, it’s more profitable to buy a strangle (out-of-the-money-strikes) , rather than a straddle (at-the-money-strikes). Both offer you good protection to enable you to sell short term options safely. Regardless of which you buy, you’ll make the same amount of revenue selling and rolling those weekly options for income. However, the return on investment is much higher if your base outlay is lower:

$1200 (arbitrary sample weekly income) / $3651 (LEAP cost) = 32.84%
versus
$1200 (arbitrary sample weekly income) / $6274 (LEAP cost) = 19.12%

As far as choosing the strike levels at which to sell the weekly options, I prefer to place these right at the money, in order to maximize the premiums. Options close to the money have higher “vega” – the amount by which their price will increase or decrease for any percentage increase in the underlying – and thus command a higher premium.

While this brings in more money, it also means that I will have to perform more transactions of rolling the premiums. If you’ve sold options bringing in $12.00, and the underlying moves in one direction or the other by $4.00, you could choose to do nothing. You’re still $8.00 ahead and perhaps the underlying will reverse in the other direction. It would have to move in that same direction by another $8.00 before you start losing money on the weekly positions.

At that time, you could roll out the option for a later dated option, selling that one at the money to bring in more revenue, and rolling the opposite side – call or put – also to maximize revenue.

My preference is to roll frequently and every time the stock moves by an amount I consider “significant”. In the case of SPY this is $1.00. I have just one rule of thumb: never roll at a loss of premium, when taking both puts and calls into consideration. At times this will require you to move out 2, 3 or even 4 weeks in time. Try to keep the dates as close to the current date as possible. And if you have been forced to move out in time, another price swing in the opposite direction may allow you to move forward in time at the same strike price without giving up already collected premiums.

By the way, it is interesting to note that sold options that come into the money will rarely be called prior to expiration. I’ve been doing this strategy for two years on 6 different stocks and ETF’s. I’ve only once been exercised twice before the Friday 4:00 pm bell. So I always roll my options at 3:30 pm, to maximize the loss of time value, unless the stock has moved significantly.

But what happens, you ask, if you are still exercised on one of the short options?

Say the stock drops to $297 overnight, and the put options are exercised against you. You are suddenly the proud owner of 100 shares of stock at a cost of $305 per share. Yet they are selling for $297, an $8 difference. Even after subtracting your $6.72 premium you’ve still lost money on the short put. No problem.

You first sell the shares, losing $8. Then you sell another put, 1 week out, at the new lower strike price of $297. This brings in around $6.50 (option price has gained in volatility but lost in time value). Then you buy back the short call for a cost of usually no more than 1 penny, and resell a new call at the lowered $297 strike, bringing in another $5.50 or so.

Not only does your situation not worsen. It has improved. You had originally collected $12.60, but now your collected an additional $4.00. Congrats, you’ve milked your first proverbial cow. Let’s do the math:

($6.72) sale of 305 put
($4.89) sales of 305 put
$8.00 loss on sale of exercised put when stock at $297
($6.50) sale of 297 put
$0.01 buy back of 305 short call
($5.50) sale of new 297 put
($15.60) premium credit cash flow

Another important thing to consider is the general volatility at the time you are putting on the trades. The greater the uncertainty, the greater the volatility of prices and the higher the premiums on options that can serve to hedge that volatility. If volatility is at a relatively low level compared to history, it is likely to rise, and conversely if it is at a very high level it may be likely to fall. The higher the volatility remains over the entire year period, the more profitable this strategy will be.

With current volatility levels around 40% on the SPY – unusually high – the strategy is unusually profitable. It would seem to pay for all initial costs within about 6 weeks. At that point you have developed a “riskless” trading situation in which all further sold premiums over the next 46 weeks are pure profit. Unlike with a mutual fund that has risen in value, you no longer can lose money as long as you keep milking your cow.

In a more normal period, the volatility will range in the low teens. Your long calls and puts will be cheaper, but you can still expect that it will take longer – perhaps 10 to 12 weeks, to reach profitability.

I currently expect that volatility will remain at elevated levels over at least the next 6 months to a year, until such time as a vaccine for the corona virus has been developed and is in widespread use. And even then, many aftershocks to the global economies will persist.

Instead of milking the cow, you might liken this strategy to insurance underwriting. An individual investor may be richly rewarded for a one time hurricane hit, but most insurance buyers pay out more than they collect, and its the underwriting company that wins big on average. Don’t believe me. Just check the profit margins on those insurance stocks you had been meaning to buy…

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Additional disclosure: Investing in options can be a risky proposition, especially for the novice investor. Consult with a professional broker or RIA before attempting any of these strategies.

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Bitcoin and the Next World Order

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Over the last five years I’ve been watching the Bitcoin movement flourish into the chaotic maelstrom of a thousand cryptocurrencies, Some see Bitcoin as the Second Coming, while others liken the movement to the Tulip Mania bubble of the 1600’s, when the price of tulips was bid up in a frenzy of speculation to valuations of over $300,000 (in today’s money) for a single bulb.

After giving this movement a lot of thought over the last years, I’ve come to the conclusion that the majority of cryptocurrencies will die a quick and painful death, but that a few dozen – possibly more – will not only thrive but come to be the dominant money order of the future. Bitcoin, Ether, EOS, Litecoin, Monero and a dozen others will be likely survivors.

I believe a $1000 investment in Bitcoin today stands about a 10% chance of being worth $0 (Zero) in 10 years time, versus a 90% chance of at least doubling and a 70% chance of increasing more than 10 fold.

In a series of articles on this site over the next few months, I’ll be providing my reasons why, and disarming the arguments against these developments one by one. In the meantime, for those of my readers who want a jump start on those articles, here’s a great interview of Eric Vorhees, founder of one of the most successful cryptotrading platforms on the internet. In it, Mr Vorhees provides an extremely coherent explanation of many of the intricacies of this budding new world of money

Listen to it, and I’d love to hear your feedback. Think he’s crazy – and by default me too – no problem! Let me know why. Interested in knowing more about one aspect or another? Let me know, and I’ll try to respond authoritatively.

A Brief Divergence into Politics

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Rarely does this blog venture into the slippery and dangerous roads of politics – as divisive as this area has become for American political culture. Yet the following intelligent post by Ray Dalio makes me feel duty-bound as an American to past this article on to all of my readers.

Like Mr Dalio, I think we are rapidly approaching a critical juncture in our nation’s history, and one that is fraught with risk. Read the article for yourself. If nothing else it will arm you with better data with which to bolster your political pursuits. If you are as impressed as I am, please refer the link along to many friends.

Why and How Capitalism Needs to Be Reformed

Confronting our Worst Fears

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In this interview, Stan Druckenmiller, legendary investor and founder of the hedge fund Duquesne Capital provides a bone-chilling, yet thouroughly realistic synopsis of the state of the American economy in 2019.

What America faces today (but also most of the developed world, including Britain, Spain , England, China and Japan) is a crisis of staggering proportions which politicians and the electorate have refused to address in any serious fashion. For good reason: the prospects are dire and the solutions politically noxious.

Our levels of debt are so large that the government cannot continue its present policies and meet its promises to its citizenry. Our debt burden, totalling over 200 trillion dollars, is about 33 times the size of our federal budget, or 10 times our Gross Domestic Product. The size of this debt is so large we cannot honor it.

To try to pay these obligations through taxation, Druckenmiller explains, would require increasing every form of federal taxes by 55% on every man, woman and child – but that would cause such a decrease in productivity and growth that it would collapse the economy. Alternatively, we could decrease all government expenditures for other items by 36%, permanently.

Addressing it through growth is possible, but very difficult:
it would require us to grow our economy by more than our rates of interest on the debt, measured at the interest on long term government bonds. Currently, that is around 2.7%. Unfortunately, in the last 10 years, the US real GDP growth rate has lagged below that rate, so our indebtedness is growing instead of shrinking.

The US did achieve real growth rates as high 6% in the late 90’s. See the Mercatus analysis of those years here. If we can achieve that again, there’s a way out of this mess. To achieve that, we should learn from history, taking a look at the 90’s and seeing what we did right back then.

Unfortunately, that was a period we had the winds at our backs, with very favorable demographics. Our situation today is the polar opposite. Since we cannot boost our productivity by throwing more young bodies at the economy, we will need to look at technological breakthroughs to increase our productivity while medical improvements extend the lives and abilities of an aging workforce.

Hedging Your Fund Against The Next Big Crash

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Includes: SPY

by: Serge d’Adesky

Summary

Protecting your portfolio against a sharp market drop is essential for today’s investor.

3 percent of your assets can hedge 100% of your portfolio.

Use options to ensure your portfolio will thrive in the next crash.

At the risk of being labeled a perma-bear, I will again repeat that it’s time for investors to revisit their hedging strategies. I won’t go into the reasons here. Instead, I’ll show you how you can cope with the risk of a 20% to 70% drop in the stock market without being crushed. This strategy can’t save you from all losses, but it can keep those losses small, without notably affecting your upside in case this prognosis is wrong.

Let’s assume you’ve got around $100k invested in a mix of growth and income companies paying you a great dividend – earnings you expect to be around 3% a year, with good prospects of moderate long-term growth and little chance of bankruptcy.

If you are in your 60s, 70s, or 80s, you might not be so sanguine about waiting out a 60-70 percent drop in the market.

So here’s how you can use options on a major index in order to sleep well at night.

First step: sell about $4,000 of your least performing investments in order to raise cash for this hedge. The hedge will cost you around $3,700 or 3.7% of your portfolio and will give you profits in a large drop in the markets as well as a continued market rise. It will limit your losses to a tolerable 6-8% in a moderate 10% to 20% drop in the markets.

Invest your money in what I label as a lopsided butterfly. Specifically, using today’s market values (April 15, 2018), you could spend $3,739 to establish the following positions:

Contract Position Average Cost Value
SPY DEC. 20 ’19 210 Put 8 $7.68 $6,148
SPY DEC. 20 ’19 100 Put 10 $0.39 $390
SPY DEC. 20 ’19 150 Put 15 $1.87 -$2,799

So how would this options play be affected by different market outcomes? Take the following 3 graphs with a pinch of salt. The first shows possible value ranges at 6 months, the second at 12 months, and the third most important graph at expiration of the options contracts on December 20, 2019, roughly 22 months out from today.

State after 6 months

State after 12 months

State at expiration after 22 months

Why the pinch of salt? Because we’ve not varied the volatility from its present value. This would introduce too many variables and just confuse the reader. True, on stark market drops, the volatility is likely to increase. Since this particular option setup is vega positive, it benefits from a rise in volatility. So actual profits would likely be higher than shown in the graphs and in the subsequent summary table. On a rising market, volatility is likely to decrease and the losses would be the same as shown in the tables below.

Our intention is to hold the options hedge to term, so the intermittent graphs are only important to give the investor an idea of how the options portfolio’s value is likely to fluctuate over time. If you know what could happen, you’re unlikely to bail out of the hedge too early.

Market Performance S&P 500 -40% -30% -20% -10% 0% +10% +20%
After 6 months +16% +12% +5% +0% -3.7% -3.7% -3.7%
After 12 months +17% +12% +5% 0%

-3.7%

-3.7% -3.7%
After 22 months +40% +35% +10% -3.7% -3.7% -3.7% -3.7%

Now let’s map the effect of various market scenarios on your growth and income portfolio. We are assuming that these holdings drop a little less than the overall S&P 500, but also rise a little less. Also, remember the assumption that you now have 97% of money in dividend paying stocks paying 3% dividends

Core Portfolio Value -35% -30% -18% -5% 0% +10% +15%

Dividend Income

(22 months return)

+5.5% +5.5% +5.5% +5.5% +5.5% +5.5% +5.5%

Total Return Entire Portfolio

Adding in Options Return

+10.5% +10.5% -3.5% -3.2% -3.2% +11.8% 16.8%

As you see, this hedge provides great protection against a big drop in the market, allowing you to reap around 10% profits even in the case of a market meltdown. Yet, it still does well in a market rise. Unfortunately, the trade-off is in the case of a small market swoon in the 0% to -20%. Here you lose around 3% overall, including your dividend income.

For most investors though, that is something they can live with.

Disclosure: All investments involve risk. In particular, options hedges are complicated products and should only be undertaken by knowledgeable investors. This is not a solicitation to buy or sell.

Disclosure: I am/we are long SPY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

A Paradigm Shift – Oil Displaced

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They say a picture speak a thousand words. In that case this video speaks volumes. Take a 15 minute dive into the next paradigm shift: the end of oil’s dominance in global economics. Enjoy the video, courtesy of Bloomberg. Oh, and if you happen to be an oil sheik – this would be a good time to start trembling.

Yasukawa Finally Corrects – Now We Like It

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As readers of my blog know, I’m a big believer in the growth of Robotics, the rationale for which you can view here. One of the best companies in this sector is Yasukawa, but the last time I discussed it, I suggested waiting for a better price as the company had been overbought.

Since then, the stock has dropped to $87.50, a 21% drop, where it seems to have found support. I previously suggested buying in at prices of $91 and lower. That time is now. What caused the drop? Here’s the take from the Nikei Asian Review:

Yasukawa, one of last year’s strongest-growing components on the Nikkei Stock Average, beat most peers to releasing earnings for the nine months through December, publishing its report after markets closed Tuesday. The showing was strong, with consolidated net profit roughly doubling year on year as the company seized on demand for factory automation in labor-short markets like China.

But in maintaining a forecast of 39 billion yen ($357 million) in net profit for the full year through March, the robotics company fell short of market predictions of 40.4 billion yen. It fell victim to “the market’s overly high expectations,” in the words of Yasuhiko Hirakawa at Sumitomo Mitsui Asset Management.

Remember the adage of buying when others are fearful? Now’s the time. Here’s what my technical crystal ball shows:



Click to enlarge

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Disclosure: The material presented on this site is for illustrative and educational purposes only. and is not personal investment advice to any specific person for any particular purpose. Be sure to read our disclosure page located in the right hand menu item.

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Micron – Riding the Artifical Intelligence Wave

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How do you benefit from the likely growth of AI (Artificial Intelligence), Gaming, assisted reality applications, and driverless car technologies? Buy the companies that produce the technologies at the heart of these applications.

As one web commentator put it succinctly, this market is dominated by a few players. “Intel and Micron are the only companies that have the know how to manufacture 3D Xpoint… DRAM market is controlled by Samsung, Micron and SK Hynix.. … this sector is totally controlled by just few players and no one else is even close.”

This post makes the case for Micron.
1) NAND will be the backbone storage system for the avalanche of new data produced by the Internet of Things. Other technologies will play important roles, but NAND will be dominant over at least a decade.
Projected NAND growth
2) NAND supply will seriously lag demand, forcing prices higher, and richly rewarding leading NAND producers.

3) Micron is will poised to dominate this sector, along with Samsung and 5K Hynix.

I want to give credit to one of my Seeking Alpha colleagues “Truth Investor” for his great analysis of this stock : DRAM strength and Micron Be sure to read more on this company there.

Disclosure: All investments involve risk. This is not a solicitation to buy or sell. Please read our full disclosure on this site.

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