Back around August 30, 2013 for the sake of curiosity I bought one ounce of Gold. Taking the US Dollar (USD) benchmark price from them cost around $1412.90USD while the Canadian to US (CADUSD) exchange rate was 0.94993. This meant purely from exchange it cost $1487.37CAD per ounce of Gold. To calculate this take the cost of gold in USD and divide by CAD USD: $1412.90USD/0.94993 = $1487.37CAD
Fast forward to January 29, 2016 and gold slid -$296.80USD (-21%) to $1,116.10USD. This was a terrible loss, but look at this: CADUSD tumbled -0.23443 (-24.67%) to 0.7155. Taking the same calculation above for the CAD price of gold: $1,116.10USD/0.7155CADUSD = $1559.888CAD. That is RIGHT. The cost per ounce of gold in CAD since August 30, 2013 actually INCREASED $72.518CAD (4.8755%) to $1559.888CAD.
The question is whether this was a good investment on my part as the gold provided a meagre 3 year cumulative gain of 4.8755%. Annualized, that is around 1.6251%, which is about the same rate of return from a savings account. However, if you look at gold not purely as an investment, but as "money" or a form of "currency" you've actually done what many have touted it to be: a protection of your purchasing power. In my case, this was because CADUSD crumbled 24.67% since August 30, 2013 reduced what my Canadian Dollar could purchase. Although Gold which is priced in USD tumbled 21% the actual currency of USD increased in value. This in fact protected and increased the value of my ounce of Gold. Truly, this is a curious situation of distracted investing.
Saturday, January 30, 2016
Monday, January 25, 2016
Hedge-Lite: Writing Covered Calls
I'm remain net long as I seek to achieve my goal of $50,000 in yearly distributions. However, it really is painful to see the market value of my portfolio take a beating. Seriously painful. One strategy that works in a stable or declining market is writing Covered Calls to effectively create a small and limited hedge of my positions.
Writing a Covered Call means you are selling the right for another entity to Purchase shares that you own at a set Strike Price. This occurs if the share price is above the set Strike Price and works in a stable or declining market because the likelihood of expiry of the Call Option increases as share price decreases below the Strike Price (Out of the Money).
Expiry is the best outcome as it becomes free money in your pocket without further commissions. The Premium also generates a greater buffer for your shares, albeit it can be small one depending on the duration of the Call. The second best outcome would be buying back (Buy to Close) the Call options at a lower price. However, this makes more sense if you believe the market will rebound. The third best outcome might actually be the release of funds locked into the stock, which allows you to go and re-deploy the cash into another investment. An additional boost would be if any dividends are paid out during this time period until expiry of Buying to Close.
What are the hindrances to executing this strategy?
Writing a Covered Call means you are selling the right for another entity to Purchase shares that you own at a set Strike Price. This occurs if the share price is above the set Strike Price and works in a stable or declining market because the likelihood of expiry of the Call Option increases as share price decreases below the Strike Price (Out of the Money).
Expiry is the best outcome as it becomes free money in your pocket without further commissions. The Premium also generates a greater buffer for your shares, albeit it can be small one depending on the duration of the Call. The second best outcome would be buying back (Buy to Close) the Call options at a lower price. However, this makes more sense if you believe the market will rebound. The third best outcome might actually be the release of funds locked into the stock, which allows you to go and re-deploy the cash into another investment. An additional boost would be if any dividends are paid out during this time period until expiry of Buying to Close.
What are the hindrances to executing this strategy?
- Belief that the market will rebound by the time of expiry
- Thinking the market will go back up after you write the Covered Call may cause you to think twice before writing the Covered Call. This certainly could happen, but the vital piece of this strategy is that the Call is Covered by actual shares you own.
- Commissions
- Depending on your brokerage the cost of buying/selling an Option is higher than buying actual shares. Also, you may need to consider the additional and much higher commission of Assignment, or when the stock is above the Call's Strike Price and hence must be sold.
- Matching a good expiry date with a worthwhile Premium
- Does the Premium compensate you enough for the risk of having your shares sold and the time spent to wait for expiry?
- Does the Premium accommodate commission costs if you were to either Buy to Close or get Assigned?
- Seller's Remorse
- You write a Covered Call then the share price goes up, which makes it more likely you'll be assigned and the actual price of the Call will go down.
- Limited inventory of a stock
- A higher number of shares will allow you to extract more Premiums and to spread out the Commission costs, which increases the cash potential.
Example:
BNS
Current Price $52.92
Average Cost: $56.3952
Covered Call: BNS 2016APR15 56.00
Premium: $1.0278 (after commissions)
This means when April 25, 2016 rolls around and the share price does not reach $56.00 then I will pocket the $1.0278. In addition, there is a limited hedging aspect. I would consider the $1.0278 as a buffer for potential losses. In effect I am protected as if my shares' average cost is $56.3952-$1.0278=$55.3674. When the Call options expire it will not impact the actual average cost; merely the cash that is now mine.
Looking at Buying to Close, the last indicated trade price was $0.87. This would mean $1.0278-$0.87=$0.1578. A much smaller buffer than if waiting for expiry.
As mentioned above, in this case there is a benefit with receiving an additional dividend before expiry date. BNS has an upcoming ex-dividend date of April 1; for an as of yet un-announced dividend of $0.70. This will provide an additional buffer the any downside of the share price.
Looking at Buying to Close, the last indicated trade price was $0.87. This would mean $1.0278-$0.87=$0.1578. A much smaller buffer than if waiting for expiry.
As mentioned above, in this case there is a benefit with receiving an additional dividend before expiry date. BNS has an upcoming ex-dividend date of April 1; for an as of yet un-announced dividend of $0.70. This will provide an additional buffer the any downside of the share price.
The question is what if you own; in my case approximately 700 shares? Would I write a full 7 contracts or less? That is not as easily answered and depends on your needs. I wrote a post about Building Inventory For Covered Calls as a guide for myself of what portion of my share holdings I would be willing to part with via Covered Calls.
Tuesday, January 19, 2016
Loonies flying away: Getting more for less and Bank of Canada's Big Decision.
The Simpsons visited Canada back in 2002. Check out this scene from Season 13, Episode 280 (2002): "The Bart Wants What It Wants"
Security Guard: We're closing in 5 minutes.
Homer: Would a US Dollar change your mind?
Security Guard: American Currency! What time would you like your breakfast, Sir?
Keep in mind 2002 actually appears to be the lowest point of the Canadian Dollar to US Dollars: 0.6179 USD.
My friend was talking about going on vacation to the US in a month with her significant other. We collectively breathed through our teeth as I grabbed a quote for Canadian Dollar (CAD) to US Dollar (USD) from YahooFinance. As of that time it was 0.6833 CADUSD, meaning for every $1.00 CAD you would receive $0.6833 USD. This makes a vacation to the US very expensive indeed. It feels so long ago back in 2013 when were were at parity with the US Dollar and trips there really didn't cost as much.
The first question I asked was her budget, which was a generic $1,000 USD. Making a quick calculation for conversion, we discovered she would need to budget at least $1,463.4860 CAD. (Calculation: $1,000 USD / $0.6833 CADUSD) This would not include conversion fees of which I have some preferential rates, but it would not help very much at such a low volume.
The other question is how would she convert it? The thought that came to her mind was hoping for the rate to improve and to have me notify her when it went higher than 0.6833 CADUSD. I wish I could say with certainty the exchange rate would improve in our favour, but that's just too difficult to be entirely certain. All, I could say was that tomorrow Wednesday, January 20th will be the Bank of Canada's Interest Rate and Monetary Policy announcement at 10:00am ET.
We're looking at an ugly situation with the BoC stuck between a rock and a hard place balancing between an oil and commodity crash that is negatively effecting Alberta and other provinces and that of increasing inflation due to the devaluing Canadian Dollar.
Here are the typical options:
1) Cut rates further? (Negative rates eventually?)
2) Hold the line and leave it open-ended for further rate cuts?
3) Alternative Stimulus Efforts? (ie. Quantitative Easing)
4) Bite the bullet and raise rates? (Less likely, but still an option)
Given the significance of tomorrow's BoC event; there is too much uncertainty of the Canadian Dollar and the decision tomorrow will have a significant impact on Canada. All I could tell her was; if you don't know, why not change some every week until vacation time? At least this seems better than dumping it all on a guess.
Time will tell; and hopefully the exchange rate does reverse its course, if only for a moment before my friend goes on vacation to the US.
Security Guard: We're closing in 5 minutes.
Homer: Would a US Dollar change your mind?
Security Guard: American Currency! What time would you like your breakfast, Sir?
My friend was talking about going on vacation to the US in a month with her significant other. We collectively breathed through our teeth as I grabbed a quote for Canadian Dollar (CAD) to US Dollar (USD) from YahooFinance. As of that time it was 0.6833 CADUSD, meaning for every $1.00 CAD you would receive $0.6833 USD. This makes a vacation to the US very expensive indeed. It feels so long ago back in 2013 when were were at parity with the US Dollar and trips there really didn't cost as much.
The first question I asked was her budget, which was a generic $1,000 USD. Making a quick calculation for conversion, we discovered she would need to budget at least $1,463.4860 CAD. (Calculation: $1,000 USD / $0.6833 CADUSD) This would not include conversion fees of which I have some preferential rates, but it would not help very much at such a low volume.
The other question is how would she convert it? The thought that came to her mind was hoping for the rate to improve and to have me notify her when it went higher than 0.6833 CADUSD. I wish I could say with certainty the exchange rate would improve in our favour, but that's just too difficult to be entirely certain. All, I could say was that tomorrow Wednesday, January 20th will be the Bank of Canada's Interest Rate and Monetary Policy announcement at 10:00am ET.
We're looking at an ugly situation with the BoC stuck between a rock and a hard place balancing between an oil and commodity crash that is negatively effecting Alberta and other provinces and that of increasing inflation due to the devaluing Canadian Dollar.
Here are the typical options:
1) Cut rates further? (Negative rates eventually?)
2) Hold the line and leave it open-ended for further rate cuts?
3) Alternative Stimulus Efforts? (ie. Quantitative Easing)
4) Bite the bullet and raise rates? (Less likely, but still an option)
Given the significance of tomorrow's BoC event; there is too much uncertainty of the Canadian Dollar and the decision tomorrow will have a significant impact on Canada. All I could tell her was; if you don't know, why not change some every week until vacation time? At least this seems better than dumping it all on a guess.
Time will tell; and hopefully the exchange rate does reverse its course, if only for a moment before my friend goes on vacation to the US.
Random Thoughts and Generating ideas (Shorting $CCL.B)
Sometimes you need to bounce ideas off someone else and you never know that crazy idea might bring you to another one as you refine it though discussion.
As one of my goals is to try shorting a stock; I've been looking for a good target. I've been thinking of shorting CCL.B and not for any real reason other than it has gone up enormously and analysts have pumped it over the last year. We'll see if I follow through on this though, at over $200 / share it's iffy.
On Monday, January 11 last week I started to look at whether I could short XIU.TO the iShares TSX 60 Index ETF. Although I put in the order I chickened out and cancelled it. Turns out since that time, it would have been a good idea.
On Monday, January 11 last week I started to look at whether I could short XIU.TO the iShares TSX 60 Index ETF. Although I put in the order I chickened out and cancelled it. Turns out since that time, it would have been a good idea.
From:
Sent: January-15-16 4:23 PM
To:
Subject: Conversation with
Sent: January-15-16 4:23 PM
To:
Subject: Conversation with
G,Y [3:48 PM]:
ahahaha do we have 100 basis to cut?
Me [3:48 PM]:
take us negative!!!
G,Y [3:48 PM]:
though to be fair who would invest in bonds in any case
leverage yourself and start making risky bets lol
Me [3:49 PM]:
ok!
You said it!
G,Y [3:50 PM]:
lol your increase in risk tolerance should be 5 times the rate cut
in terms of percentage swings
Me [3:56 PM]:
it doesn't matter
just DO IT
JJ [4:01 PM]:
potential stock to short... CCL.B
it's shot up a lot over the last year
after they acquired avery labelling
and media has been pumping it
G,Y [4:03 PM]:
ccl eh
lol logic here being that bad economy = lower labelling and packaging ie amazon shipping less and so on = lower sales for packages?
or just that they are over pimped?
JJ [4:05 PM]:
over pimped
G,Y [4:06 PM]:
fair enough
im just happy this recession is actually keeping home prices even now and not drastically falling
though i dont know if Toronto real estate will ever crumple anymore
but just kinda meander upwards slowly
forever
Me [4:08 PM]:
possibly
what is it called
stagflation?
G,Y [4:09 PM]:
in a much broader sense exactly lol
where economy is stagnant but inflation keeps on trucking
Me [4:10 PM]:
yeaaaaa
Sunday, January 17, 2016
Psychological Threshold: Portfolio Turning Red (Mid-January 2016)
Well, it's been a bumpy ride, but it isn't the worst that things could get. These last few months have been marked by volatile and declining markets, which have given me reason to slightly pause from my current path. However, since New Years the declines have accelerated and this past week of January 11, 2016 marked a turning point: my primary non-registered portfolio crossed over into the Red.
Leading up to the New Year my portfolio was in the green $10,000 then declined further as we crossed into 2016. By January 11 all the paper gains evaporated and on that first day it seemed fine with an overall ~-$100 loss. As the week wore on it accelerated and has now closed -$5,160.79. My other portfolios were already in the Red for some time, so they have not been of any surprise.
What does this mean? Having gone through superficially the Internet/Dotcom bubble and the 2007-2009 "Financial Crisis" there is a certain amount of fear in my mind of the potential declines. My portfolio and strategies have evolved since that time, but so has my experience. I discovered long ago that trading and timing is definitely not my forte so the route of passive income and growth was how I geared my portfolios. Hence, I've created my DRIP'd Report and 50K Report in order to keep track of my income goals and to stay on track.
A couple factor have added to some uncertainty; my extreme home bias and the declining CAD$. Both of which I will need to fix, although it is late in the game and buying USD at these low CAD rates is definitely not preferable.
Looking forward, I am absolutely expecting a lot more pain in the markets as it feels the declines within the peripheries of the global economy have crept deeper in the core areas. This Wednesday January 20, 2016 will be another Bank of Canada "Interest Rate announcement and release of Monetary Policy Report", it is expected that we move towards another rate cut. The BoC also noted they have in their back pocket the ability to do Quantitative Easing and Negative Interest rates. In their back pocket for extreme circumstances and regardless of whether they will pull those tools out; they are now in the back of our minds.
Leading up to the New Year my portfolio was in the green $10,000 then declined further as we crossed into 2016. By January 11 all the paper gains evaporated and on that first day it seemed fine with an overall ~-$100 loss. As the week wore on it accelerated and has now closed -$5,160.79. My other portfolios were already in the Red for some time, so they have not been of any surprise.
What does this mean? Having gone through superficially the Internet/Dotcom bubble and the 2007-2009 "Financial Crisis" there is a certain amount of fear in my mind of the potential declines. My portfolio and strategies have evolved since that time, but so has my experience. I discovered long ago that trading and timing is definitely not my forte so the route of passive income and growth was how I geared my portfolios. Hence, I've created my DRIP'd Report and 50K Report in order to keep track of my income goals and to stay on track.
A couple factor have added to some uncertainty; my extreme home bias and the declining CAD$. Both of which I will need to fix, although it is late in the game and buying USD at these low CAD rates is definitely not preferable.
Looking forward, I am absolutely expecting a lot more pain in the markets as it feels the declines within the peripheries of the global economy have crept deeper in the core areas. This Wednesday January 20, 2016 will be another Bank of Canada "Interest Rate announcement and release of Monetary Policy Report", it is expected that we move towards another rate cut. The BoC also noted they have in their back pocket the ability to do Quantitative Easing and Negative Interest rates. In their back pocket for extreme circumstances and regardless of whether they will pull those tools out; they are now in the back of our minds.
Monday, January 4, 2016
The 50K Report - Income Jump (Q4 FY2015)
Q4 FY2015 (October, November, and December)
- $50,000 passive income target. (eg. $1,000,000 at 5% will yield $50,000 per year.)
- Calculation of Total Book Value Required: $50,000 / % yield = Book Value (eg. 4.31% = $1,160,092.81)
- Current Target Book Value @ 4.65%: $1,074,949.34
- Next major update: End of Q1 FY2016 (January, February, and March).
Investment Goals:
Distribution Changes:
- Distribution income jumped higher from Q3's $11,321.85 to Q4's $15,176.50. +$3,854.65 or +34.046%
- Represents highest potential yearly distribution ever.
- "First goal post" moved further out to $17,550. Effective October 1, 2015 Ontario Minimum wage was increased to $11.25/hour.
- Explanation of "First goal post" Minimum Wage: Number of Hours (Min. 30 hrs) 30 x # of Weeks 52 x (Minimum Wage: $11.25) $11.25 = $17,550.
- Achievement of reaching the Minimum Wage Goal is now at 86.47% with $2,373.49 outstanding.
- Revision for Q3 FY2015 50K Report, minimum wage:
- Here's how it has been coming along as of Q4 FY2015. (Values represent potential full year cash flow.):
- $50,000 passive income target. (eg. $1,000,000 at 5% will yield $50,000 per year.)
- Calculation of Total Book Value Required: $50,000 / % yield = Book Value (eg. 4.31% = $1,160,092.81)
- Current Target Book Value @ 4.65%: $1,074,949.34
- Next major update: End of Q1 FY2016 (January, February, and March).
Investment Goals:
- Add to higher quality large cap equities.
- Looking for opportunities to slim down number of holdings within portfolio.
- Conversely, looking to broaden portfolio by sector.
- Focus more on stocks that can be DRIP'd.
Distribution Changes:
- Distribution income jumped higher from Q3's $11,321.85 to Q4's $15,176.50. +$3,854.65 or +34.046%
- Represents highest potential yearly distribution ever.
- "First goal post" moved further out to $17,550. Effective October 1, 2015 Ontario Minimum wage was increased to $11.25/hour.
- Explanation of "First goal post" Minimum Wage: Number of Hours (Min. 30 hrs) 30 x # of Weeks 52 x (Minimum Wage: $11.25) $11.25 = $17,550.
- Achievement of reaching the Minimum Wage Goal is now at 86.47% with $2,373.49 outstanding.
- Revision for Q3 FY2015 50K Report, minimum wage:
| Dividend Goal | % Completion | Remaining |
| $50,000 | 22.643708% | $38,678.15 |
| $25,000 | 45.287416% | $13,678.15 |
| (REVISED Q3) $17,750 | 63.785093% | $6,428.15 |
- Here's how it has been coming along as of Q4 FY2015. (Values represent potential full year cash flow.):
| Book Value | Yearly Div | ||
| Total | $326,323.596873 | $15,176.506280 | |
| Yield Total | 4.650754% |
- 3 goal posts: $17,550 (Approximate Minimum Wage), $25,000 (Half-way), and $50,000.
| Dividend Goal | % Completion | Remaining |
| $50,000 | 30.353013% | $34,823.49 |
| $25,000 | 60.706025% | $9,823.49 |
| $17,550 | 86.475819% | $2,373.49 |
Holdings:
- Increased BNS, CAR.UN, CWB, ENB.PR.T, IPL, NA, MFC, SLF, and T.
- Added FFH.PR.I
- Removed EMP.A
- Not sure if I should still include HSE in my dividend list as their last dividend was changed to a "Stock Dividend" instead of "Cash Dividend".
Upcoming:
- I'm working on a monthly DRIP Report. As the name suggests it will be a report showing the DRIPs completed each month. It will be exciting to keep track of how my long term investments have been progressing in terms of developing future income.
Friday, January 1, 2016
$10/day for $3,600! Option Writing Challenge: Failed.
Back around January 2015 when I first started using Option Writing; my friend spoke about wanting to earn an extra $10 per day or more simply: $3,600 a year. Based on my (at that time) successful Option Writing I told my friend it was entirely possibly to achieve this goal.
Calculation
$10 x ~30 days x 12 months = $3,600.
$3,600 per year additional income / 12 months = $300 per month.
Options Closed
Number of Traded: 57
Losses: -$311.41
Number of Trades: 131
Trade Commission: $1,615.04
Options Expired
Number of Traded: 9
Gains: $592.25
Number of Trades: 10
Trade Commission: $133.75
Totals
Total Number of Traded: 66
Total Gains: $280.84
Total Number of Trades: 141
Total Trade Commission: $1,748.79
Total Revenues: $2,029.63
*Not including FX conversions and Option Assignments.
Surprisingly, coming out of 2016, despite some massive losses, I eked out out a gain of $280.84. Breaking it down further that turned out to be $0.7694/day or ~$23.4033/month.
Tallying up the commissions for the 141 trades, shows that the cost of making $280.84 was astronomical, hitting $1,748.79 or 622.6997% of the year's gains.
Despite my goal of using Options to earn money and to generate lower average purchase costs for stocks I want to own; a lot of the resulting trades was the result of inexperience:
One might think that it was not worth the time and worry that I put into using this new strategy in my toolbox, but it really showed me the potential of being more active and from writing Options. This coming year I definitely want to continue Option Writing, but hopefully can put to use my 2015 experiences to be more careful with my targets; focus more on what I currently have in holdings; and be more patient. In addition to Option Writing, I want to get back into the buy side and work on using other Option Strategies.
*Not including FX conversions and Option Assignments.
Surprisingly, coming out of 2016, despite some massive losses, I eked out out a gain of $280.84. Breaking it down further that turned out to be $0.7694/day or ~$23.4033/month.
Tallying up the commissions for the 141 trades, shows that the cost of making $280.84 was astronomical, hitting $1,748.79 or 622.6997% of the year's gains.
Despite my goal of using Options to earn money and to generate lower average purchase costs for stocks I want to own; a lot of the resulting trades was the result of inexperience:
- Making dumb moves from writing and lucking out on expiry or short term turn around for Stocks that I ended up not being that certain or keep on holding for the long term.
- Over-extending myself and writing too many options at once. This resulted in me needing to take opportunities pull back.
- General market uncertainty; causing me to want to reduce exposure.
- Impatience with waiting for the Expiry Date for Assignment or Option Expiry.
One might think that it was not worth the time and worry that I put into using this new strategy in my toolbox, but it really showed me the potential of being more active and from writing Options. This coming year I definitely want to continue Option Writing, but hopefully can put to use my 2015 experiences to be more careful with my targets; focus more on what I currently have in holdings; and be more patient. In addition to Option Writing, I want to get back into the buy side and work on using other Option Strategies.
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