Covered Call Report for November 2015

Please see the Covered Call Report for November 2015 by clicking the link below:

Covered Calls – November 2015

LP

May Take On It All – August

It’s been a while since I have updated everyone on everything from this side of the desk and we seem to be as settled in the new office as we possibly can be given everything the market has thrown at us this year. Given the amount of time that has passed since I last updated everyone, I thought I would provide my view on the current state of play along with outlining some of the things we have been doing and what is currently in play along with some ideas going forward.

With the issues in Greece dominating the early part of the northern hemisphere summer it now seems to have stopped making the headlines of every media outlet available.  This has seen the Euro trade in a range between 1.0500 to 1.1500 against the USD.  European equity markets took the news badly on any negative news but were also very quick to rebound on any sign of an agreement or turnaround in the market. The sell offs provided good buying opportunities and we did so by purchasing some DAX calls through issued trade alerts. All trades that have been recently executed can be seen in the Performance Report that can be downloaded through the Performance Page.

Post Greece, the market then shifted its focus to China and the Federal Reserve in the US. The swings on a daily basis on the Chinese equity markets were significant to say the least but this was to be expected given the massive run up we had seen – 69.84% gain from the lows made in February this year alone!

In the US all eyes are on the September FOMC meeting in anticipation of a possible rise in interest rates. We have seen the USD strengthen against most currencies, combined with commodity prices, QE in Japan and Europe all pointing to more strength in the USD. The big question remains as to how far can this go? If we look at the Australian dollar, we have weaker commodities, slowing demand in China and the RBA still on an easing bias so holidays in the US don’t look like they are going to get any cheaper any time soon. The AUDUSD in on course to touch 70 cents this year in my opinion. On the holiday front the only positive is the lower crude oil prices which is benefiting the airlines but doesn’t quite seem to have made its way to the petrol pump for our benefit. Fuel Prices are higher now that when oil was trading around $100/barrel! – explain to me how this works?!

Looking forward I still have a preference for US equities over domestic equities but having said that, we have done quite well locally but better offshore. Stocks such as CSL have pushed to new highs, The banks have been steady and the miners have been hammered. I have been issuing investment recommendations on the ASX200 and we have simply been buying dips in the index. To date we are doing well with this strategy as you can see in the Performance Report on the Performance Page. Timing has been everything but my core view remains that we should perform better in the second half of the year as compared to the first half. With regard to the US we have also been on the right side of the currency move so not only has it been a case of calling the direction of the equity markets but the currency gains have also improved the returns.

From here, I continue to favour health care, technology, pharmaceuticals, biotechnology, banks and solid trending stocks which continue to deliver. The most notable example being Walt Disney in the US up until the overnight movements. Stock down circa 10%.

I will look to put a note out, post the close of each month with an update. Please use this as an opportunity to ask any questions you might have.

LP

Covered Call Report – Returning 17.04% YTD.

The Covered Call Strategy is a very conservative, long term, passive income strategy that can help you make money with monthly income streams, protect portfolio’s in market down turns and increases profitability in markets that are trending higher.

Learn more about this strategy through the website here :

http://pilkingtontrading.com.au/covered-calls-dow-jones/

This month’s report is below. Please let me know if you are interested in learning about this strategy and how it can be applied to an existing portfolio or even how to begin you portfolio.

LP

Covered Calls – August 2015

Dow Jones Covered Call List for July

Please see the report for the Covered Call Strategy below:

Covered Calls – July 2015

LP

Trending Tactics – Trading made simple.

Trending Tactics with Pilkington Trading has a fresh new look. Please press the link below to see yesterday’s report that has the current trends and our entry points/stop losses on each product.

Trending Tactics 6.5.15

Trade all of the products in the report from anywhere, at any time with one low commission account.

Receive daily information on new buy/sell signals and where to move your stop-loss in relation to your current positions.

Trending Tactics looks to take the guesswork out of currency, commodity and index trading. Markets can be fast moving and unpredictable, but once they start a trend it can last a long time. This strategy consists of being long or short the instrument at all times with a stop and reversal order in place that moves constantly to limit risk and increase returns.

Since this strategy has been developed (1999), there have been staggering results as you can see from the far right column:

Follow the link to find out more:

http://pilkingtontrading.com.au/trending-fx/

Please register your interest through the Contact Page if you would like to follow this simple, effective strategy.

Our Eyes Are On the Following….

Most of my focus at the moment is offshore, predominantly in the US as we are seeing a strengthening USD and a falling AUD, meaning that when we close trades in USD, our profits in AUD are even greater. In the last six months alone, if you were to hold your cash in USD rather than in AUD in your Australian bank account, you would have returned approximately 17% alone as the Aussie Dollar has fallen away.

In terms of US names we are predominantly invested in the following companies:

Apple Inc. (AAPL) – Target price $137.00.

Citigroup (C) – Target price $73.00.

Rackspace (RAX) – Target price $55.00.

Monster Beverage Corp. (MNST) – Target price $136.00.

Another huge focus of my client’s portfolio’s is getting exposure to the WTI Light Crude Oil price through United States Oil Fund (USO) and PowerShares DB Oil fund (DBO) Exchange Traded Funds. I am expecting to see a bounce in the oil price in the next calendar year and looking to take advantage of this through these funds.

On the local front the names I have in mind at the moment are all yield plays essentially:

Most of the banks.

Telstra (TLS)

Wesfarmers (WES)

Woolworths (WOW)

Flight Centre (FLT)

Woodside Petroleum (WPL) – again, to get exposure to the oil price on an expected rebound.

I think overall, the markets are due for a slight correction before looking to move higher throughout the latter half of the year. Feel free to contact me for any research on the above stocks and what I am basing my thoughts on.

LP

Seasonal Trade Ideas – June to October.

In relation to my seasonality posts that I have posted earlier in the year, below is a link to the June – October seasonality of Australian stocks that BBY believes could have some upside potential through this period.

Please click the link below to view the comprehensive report.

Trade Ideas – June through to October 2014

Feel free to contact me with any queries or questions in regards to this report or how you can invest in any of the stocks.

LP

Why you’re missing out by not being in the markets! (Market update) 04.03.14

Thought I would send out a quick blast with a bit of market news and what I am currently looking at/actively trading at the moment.

We are seeing the markets pull off a little bit at the moment due to all the noise surrounding Russia and Ukraine. Markets don’t like uncertainty. We have seen gold rally because of this (currently at the $1350.00 level). This is just noise and I think the market is beginning to realise that a diplomatic resolution looks like the likely outcome. This is creating a few good short term buying opportunities along the likes of BHP, RIO, AMC, TLS, CWN and IRE.

I am still bullish for the months leading into May before I think we’ll see a sell off and then a strong run into the end of the year from the beginning of July. Sell in May and go away they say!

I am looking at Westpac at the moment for a possible trade throughout the months of March and April as these months have generally been strong for the company as well as the ASX200 index over the last 12 years:

 

In the US I have had my interests in the following stocks:

• Las Vegas Sands (LVS)
• Monsanto (MON)
• IBM (IBM)
• MasterCard (MA)
• Bed Bath and Beyond (BBBY) (As a seasonal March/April trade)

We have done well so far in these stocks and I think there is still room to run. Possibly a time to buy the dips!? As Warren Buffett is doing:

http://www.businessinsider.com.au/warren-buffett-speaks-on-cnbc-2014-3

Please let me know if you would like to look into any of the strategies I have currently in play for these stocks or wish to open an account to get exposure to the markets.

LP

Buying on the dips? 28.01.14

After a huge pullback last Friday night and another small fall in the American markets yesterday, it is no surprise our market is following suit (currently down 65 points on the XJO). The question is… What to look to buy on the market dip?

I personally think we will see some volatility in the markets over the next few months before seeing a strong rally for equities in the latter half of the year.

The two stocks that have strong support levels in place and seem to be respecting these levels at this point in time are Telstra Corporation (TLS.asx) and Fortescue Metals Group (FMG.asx).

We can see from a technically perspective that they are both looking for support at previous key levels, TLS – $5.10, FMG – $5.10 and I see this as an opportune time to buy the dip.

FMG has been range bound for the last 4 months and I believe we should see a bounce in both this stock and Telstra in the the next few trading sessions. I think this is a time in the market where we look to place opportune trades and wait for the market to regain its feet again before looking for a long term, relatively safe investment in preparation for a strong run in the second half of the year.

Telstra:

 

Fortescue Metals:

 

I would look for TLS to trade between the $5.00 and $5.15 levels and FMG to bounce to approximately $5.70 where key resistance is.

 

High Yield Income Strategy

Please see my ‘Covered Call Writing’ post to learn how to generate monthly income in neutral markets if you currently own or wish to purchase stock and adopt this income strategy.

Similar to a covered call writing strategy , the ‘High Yield Income Strategy’ involves the writing of an out of the money call option. The difference is that, instead of writing these calls over the top of stock already owned or purchased, we purchase a deep in the money call option with a long dated expiry to ‘replicate’ a shareholding. The bought call should generally have an expiry of 9 to 12 months to negate the negative impact of time decay on the position. The bought call that is purchased should have a delta of value of 0.7 – 0.8. This means that the price of the option is generally going to move at about 70%-80% of the underlying. i.e, for every dollar the underlying stock moves, we can roughly expect this option to move 70-80 cents. This is a dynamic figure and will change according to the underlying price movements of the stock.  The benefit to this strategy compared to the conservative income strategy is that it allows for a greater potential return in terms of percentage.

To negate the detrimental nature of time value on an option, we purchase long dated calls. This will slow the time decay component of the option and allow it to hold its value for longer. We will pay more for the length of the date but in comparison to buying stock in order write calls on, we are outlaying a lot less, hence making the returns on our investment greater.

In this strategy, we replace the bought stock with bought calls as described earlier.

Example: BHP Currently trading at $30.00.

We buy one BHP JUN 2014 25.00 in the money CALL for $10.00  = Total outlay of $1000. (one contract is the equivalent of 100 shares)

We also sell 1 NOV 2013 32.00 out of the money CALL = premium of $0.50 = $50. (5.00% on initial outlay)

The stock climbs to $31.00 by the June expiry and we get to keep the $0.50 premium we received and we gain roughly 75 cents (.75 delta excluding factors such as volatility etc.) on the bought option.

If the stock falls, we will suffer a loss on the bought call option, as we would with stock but we get to keep the $0.50 premium. We then continue to write out of the money call options each month (why we chose a long dated bought call) and continue with the investment strategy.

If the stock rallies strongly, up through our sold strike of $32.00, there are two options. The first would be to take profit on the position as a reasonable profit will be unrealised. The second option is to buy back the sold $32.00 Call and ‘roll’ the option to a higher strike ($33.00) and out to July possibly. This may be done at a debit or credit depending on the option pricing but remember, the bought call position is constantly increasing at a greater rate than our sold position is costing us.

Total return on investment if stock is at $31.00 at June expiry date:

$0.75 profit on the bought option + $0.50 (premium received) = $75 + $50 = $125 for the month.

= Total return on $1000 investment of 12.5%.

We can then look to write another out of the money call option, $33.00 possibly, for the month of July and generate more premium again.

You can see that the percentage for the high return strategy far outweighs the covered call writing returns.

In comparison to covered call writing this strategy is able to generate greater returns on the basis that your initial outlay is a lot less than purchasing the stock. One option will give you exposure to 100 shares but for a fraction of the price. So when the underlying stock moves $1 on a $10.00 stock it has moved 10% but if this move occurred on a $4.00 call option, this is a 25% move.

The flexibility of options gives us the ability to constantly monitor, adapt and change our positions in relation to the underlying price movements and generate greater returns or hedge potential losses when possible.

Please contact me to discuss how this strategy can be tailored to you and your portfolio.