YTD P&L: -2%
Changes this month
The big changes the month was the addition of 3 precious metal miners to my portfolio as well as a roll of my short QQQ strangle and a bear put spread spread on /6EM9. I have also increased the capital of my account by almost 150%.
My unrealized P&L YTD numbers are not showing correctly. I am down -$1000 but it is showing a value of almost -$1,500. That is because after the market’s close the futures options spreads get gigantic so over the weekend those positions will show massive unrealized losses. When the futures markets open on Sunday those spreads will tighten and my unrealized P&L be normal again. I will try to remember to take my account screenshots before market’s close on Friday.
Adding the miners
This last month I have added silver and gold miners that now comprise about 30% of my total portfolio value, which is the percentage that I had been hoping to achieve. When looking for miners to invest in I was looking for them to have at least 2 or more of the following characteristics.
- Silver output is at least 50% of total output
- Low to no debt
- Large cash pile on hand
- AISC below the industry average
- Annual output is growing, not declining
These characteristics are designed to find miners that have nice leverage to the metals, but not be completely wiped out if metals carve out a new low in the future. With those characteristics above I had a difficult time finding even 3 miners that fit the bill. Most small/mid-sized miners in general and particularly silver miners are in rough shape. I was able to identify at least 3 miners that fit 2 or more of the above criteria.
Pan America Silver (PAAS): This was the easiest choice to make of the 3. This month it became the worlds largest primary silver produce when it acquired Tahoe Resources. They are a low debt company with a solid amount of cash-on-hand and a low AISC producer. If there is a new lower low hiding out there in silver prices I could see PAAS buying up other distressed silver miners in a fire sale, further strengthening the company.
First Majestic Silver (AG): This silver miner is a bit more risky in that it doesn’t have a tremendous amount of in-ground reserves left, but it has been aggressively exploring with some promising results. It also had one of the strongest quarters of the silver miners and is rapidly increasing it’s production output. The have a weaker balance sheet than PAAS.
IAMGOLD (IAG): This is primarily a gold producer. What I like about them is that they have a fairly low AISC, a decent balance sheet and tons of growth potential. This stock gives me a little bit of diversity so I am not too bound to silver prices, since I consider silver more of an industrial play.
Overall I like the prospects of silver. Silver supply has been dropping for a number of years and with silver down around the $13-$15 range the supply could really start falling off the map. While demand is also down slightly, the drop in supply has matched or exceeded it causing a continued deficit. I think there is a possibility of price retesting recent lows or even potentially carving out one more new low, although I don’t think those levels will last.
I am fully aware of the volatility of small/mid tier and particularly silver miners. In terms of probability I think there could be a 20-30% drop in the miners still hiding out there. I am accepting that possibility in the short term for the much larger long term potential. This is all a play on the GSCI cyclical low trade, so getting my portfolio heavy on a number of commodities revolves around this. Once the GSCI vs. SP500 swings the other way, I would plan on shifting some of my holdings away from commodities and back to technology, healthcare, defensive, etc.
Short Premium Roll
Last month I rolled my short QQQ strangle to the next monthly expiration since the current position was nearing 14 DTE. I was able to roll for a credit. Per my rules I will roll all short premium positions nearing the 14 DTE to reduce gamma risk. This new position is 2 short calls at 178 and 1 short put at 161, with break evens at 181 and 156.
Bear Put Spread
An inside bar/pin bar fake out formation occurred on /6EM9 Euro-Dollar futures. This formation occurred right at the 50% retracement of the last swing high. These types of patterns, when forming with the prevailing trend, can be very powerful. There are 2 ways to trade these, waiting for a break of the mother candlestick or the more risky waiting for at least a 50% retracement of the pin bar. I opted for a retracement entry and chose to enter at the high of the mother/child candle range. Price did push up to the high of the mother/child candle, I entered short, and price immediately began to drop. Price closed out the day as a second pin bar, so the pattern is now an even more rare inside bar/double pin bar fake out. My risk is somewhere around the 0.25 – 0.5% and I am aiming for a profit of around 2%. I will be waiting for this setup to resolve, one way or the other, early next week. I may post more detailed analysis about it in a separate post.
Overall I am pleased with the composition of my portfolio now. I have a good mixture of buy-and-holds which are comprise of energy, defensive, precious metals, and healthcare. None of these categories are larger than 30% of my total portfolio value. My plan is to continue to sell options premium, make candlestick pattern trades, and overall keep things diversified to help reduce risk.