Hi mate, too be honest ive almost had a gutful of wasting my time on these forums, so I was just keeping my posts to a minimum these days.
Your several questions requires a fairly lengthy in depth answer, however Since you show a sincere interest in options and are in fact and options trader I will respond to you only, and hope the trolls just ignore this communication between us as it has absolutely nothing to do with their trading style, ill also post to contribute to other genuine traders (who’s posts I enjoy reading) like stefans, toto and barkston and a few others unnamed but appear to have an objective brain.
Basically the crux of your question is how I manage my position, I guess the best way to explain this is to get straight to the facts and explain my live position for September.
So based on my qualitative analysis I subsequently formed a view on where I personally thought FMG sp was going to migrate to for the month of September. This view was approximately 5.50-5.60 as evidenced in the link below, and I basically create that view every month as also evidenced in my HC post history.
https://hotcopper.com.au/posts/26734695/single
And gee didn’t the good old trolls come out to play at my prediction hey, well look were we are now hey, you wouldn’t read about would ya, so who’s full of BS now, I think it’s pretty damn clear. Admittedly I think nev leaving may have given me an extra 10 cents on friday…lol. Mind you it got down to 5.66 only the other day without the news of nev leaving, so the sp probably held up not too bad considering the news of Nev, Dalian getting another smack down and also being a Friday, not too bad a day really considering all the factors.
Anyway I digress, so this month we had the dividend which threw a spanner in the works for me. Normally I would have written my first wave of puts say on the Friday/Monday/Tuesday directly after the Thursday expiry, the premiums were seriously tasty, but I thought I better do the prudent thing and let the sp settle after ex div, in hindsight I shouldn’t have.
Actually I would also like to add even though it may not appear to make sense, im actually managing my position whilst im not even in a position, for example after the div I still wasn’t happy with the sp, I still felt my 5.50-5.60 was fairly likely, the sp kept holding for a bit longer than I liked but I wasn’t convinced it would hold much longer, at the same time I was getting time decay on my prospective premiums, so its about finding a balance on when you are going to strike per say, balance between premium on offer, level of sp and time to expiry, so like I said im sort of managing the position before I even get into it, if you know what I mean, its like when you buy an investment property, you make a large portion of your profit when you buy, you must buy well at all costs, I feel that is crucial to managing a put option position. May sound backwards but that’s just how I do it. And despite your best efforts you can never pick the bottom or that perfect balance. This month for me is probably an example of that.
Anyway moving on, I got impatient, the sp was holding, time decay etc etc, so I thought stuff it, it will probably get to 5.5-5.6 but expiry day is quickly approaching so I will write 1 million of puts as a first wave trade (again this is another way I personally manage my position, buy your puts in waves to give you room for error). So on the 8/9 I wrote just shy of 1 mil and took about 19k in premium.
So here we are today, some unforeseen news completely out of left field that took maybe another 10-15 cents off the share price, personally I think its overdone, anyone with half a brain knows that FMG will continue printing money with another leader, FMG is not just NEV, FMG is a collation of systems and processes and very intelligent people that will continue to generate money, people are worrying over nothing in my personal view. Nev is a figure head, don’t get me wrong his done a brilliant job, however the show will go on, profits will keep flowing which will in turn guarantee that tasty div that the world is constantly scrambling for and it will also create growth. Also Nev hasn’t done this on his own, twiggy has been there in some shape or form all along the way, and he will be there for the next CEO.
My current strikes are at 5.75 so sp of 5.55 is not ideal.
However I can almost guarantee I will not get exercised until expiry day (more than 3 years of doing this and never exercised until expiry day), so I have near two weeks to monitor and manage my position. I tried to somewhat manage my position today by selling about another 600k of puts at a 5.50 strike, order didn’t get filled, which actually tells me that majority of longs don’t want insurance because they think this is oversold and also options buyers perhaps think its oversold. This will probably bounce on Monday depending if Dalian and spot holds.
So at the minute as far as managing my position I just sit and wait it out, if sp drops more, then I write more premium to offset my higher strike price, at say 2-3 days prior to expiry day I start to consider if I’m going to buy back and close out any of my positions. If I feel the sp is going to bounce then I may perhaps just allow the exercise to occur, then I will sit it out and wait for a bounce and then sell (in addition I will generate further return via covered calls), I did this last December and made about 50k in about 6 weeks of holding the stock, the stock went from like 6.25 and I sold at 6.77 I think it was from memory.
The other option is that you get exercised, then you start writing covered calls to collect premium, so your just doing the opposite to puts except now you own the stock, and your entitled to the next dividend and the sp appreciation leading up to that, so you effectively take a long position, but generate income via the calls and then a div.
And like I said many times before, I set strikes at a point im happy to own the stock, so that in a sense is managing my position in accordance with my own personal strategy and were I see value in the stock.
I also mange my position via a holistic compare and contrast to other stocks and other sectors, for example im reasonably comfortable owning FMG around these levels, because my view on other stocks and sectors doesn’t come close to my current view on FMG, for example I get exercised at 5.75, my break even or buy in is about 5.64 after premium. Could it go lower from here, well it is possible, however in saying that one has to seriously analyse were the herd are going to put or transition their money.
For example do you see people putting their hard earned into the retailers, look at myer it’s a basket case, look at woolies and wesfarmers with all the competition from aldi and the like, jb hifi has taken a hit, Harvey Norman another hit despite recent record profits, however they cut their div which the market didn’t like, also amazon around the corner.
Telcos, well you need to be a damn brave man to invest in them at the minute, Telstra has been smashed and still has heaps of uncertainty.
Banks, we’ve seen the likes of CBA come off due to all the investigation its under and facing, I think FMG money has moved to the banks just recently, hence the pullback in fmg, however that will come back to FMG.
The oilers, as we know oil is up and down like a yoyo, WPL is down to about 28 bucks, so were seeing money flow out of oilers.
Health stocks have come off, CSL got as low as 119 from like 145, the strength in the aussie dollar is also doing it no favours, other health stocks doing it tuff, mayne pharma can’t win a raffle at the minute.
Markey darling dominos come down to like 40 from 85.
Many of these companies trading on absolutely ridiculous PEs are all coming back to reality
So at the end of the day one has to ask themselves were do people see some growth and some decent div yield in the next 6-12 months, I think FMG ticks both those boxes at the minute with a very low PE.
So at a compare contrast level im fairly confident that even if fmg goes lower in this down trend it will have support come back at some stage. If I didn’t think this I would be absolutely mad to write so much premium on it.
So In summary
I manage my position buy covered calls
I manage my position buy using all the information from the so called experts, I let them do my quantitative analysis for me, I’m hopeless at charting, im hopeless and staring at a 100 page report and balance sheets, I don’t need to investigate how ore is made and what’s going in it and how many granules of ore is sitting on every port in china, there are 10s of thousands of people doing that already, I just need to collate all the experts opinions and find the apex of the bell curve and work off that as best I can.
I mange my position by compare and contrast of other stocks and sectors, which ultimately gives me the confidence in the stock I may potentially get exercised on.
I manage my position via buying the option back if there is still profit in the trade after buy back as a result of buying puts in waves at lower strikes and as a result of time decay despite a slip in share price.
It’s a pretty hard question to answer really; I guess everyone manages positions based on their own personal tacit knowledge.
I think it’s probably also important to disclose as I have done before, Do I worry about the Greeks, the charts and being an expert in iron ore, no, I do just fine without them, how I do this I don’t really know mate, maybe I’ve just been lucky for the last 3 or more years??? Maybe I have a very fined tuned gut instinct as a result of tacit knowledge developed through all my years of investing, this comment should make all my haters out there laugh no doubt, I’ve been bashed before for using the term gut instinct.
I just try to keep it is simple as possible, I feel if you start trying to do too much and trying to be an expert at everything I feel you just end up going in circles and getting decision paralysis and you don’t focus on the very basics, such as share price action. No doubt you’ve heard the term jack of all trades, master of none, that that’s probably myself and the mantra I follow to get into, manage and get out of my positions.
If I get time, one day I may perhaps look further into charts and Greeks and the like, however it would be easier if you become a professional at it, then you can trade your Greek analysis for my qualitative analysis and hopefully meet in the middle somewhere…..lol
Anyway Orwell hopefully I’ve cleared up some things for you there mate and how I personally trade and manage my positions.
In closing, my current outlook, I don’t like saying it because it goes against my 5.75 strikes( and im not going to sit here and ramp and tell BS for my own agenda) however there may still be a slight down side from here for the month of September, I hope im wrong for my own sake, but at the end of the day that’s the markets and if I get exercised then I will just suck it up like a man with a spine and deal with it using the management strategies I have detailed above, regardless im pretty certain there will be catalysts coming to bring money back to the stock, however I don’t think it will happen in September.
Could all my strategies not work this month, certainly could and it could all turn to sheet, well that’s just the way the cookie crumbles sometimes, events like this just make you a better investor in my opinion. I feel you need to get it wrong sometimes just to keep yourself in check and avoid getting complacent.
Good luck mate, keep me updated on your findings. Let me know if you have any further questions.
(20min delay)