Brooklyn Investor latest

[Value_Added]

8 hours ago, 73 Reds said:

What is an option wheel strategy?  One easy option strategy to beat the S&P 500 index is to own SPY and sell well OTM covered calls against the position.  If SPY rises too quickly so as to endanger assignment just roll the calls.  You'll achieve what most professional money managers strive to do but don't:  Best the index.

Just thinking here but wouldn’t a more effective income generating strategy be to sell OTM puts on the index then If it gets assigned, sell covered calls against the position.  That way you’re always generating income whether you own it or not and aren’t spending anything to roll the call of the appreciated stock.  If it appreciates and the option is assigned, you go straight into selling OTM puts.  
 

Im not a big options person but if solely for generating income from the index, what’s the downside to this versus only using covered calls and having to roll them?

[Whensthepaintdry?]

What if you aren’t particularly in love with the idea of buying the index here?  Plus the premiums seem lower for the index. 

[Value_Added]

I was just using the index as an example to @73 Reds scenario of selling covered calls.  
 

As @Gregmal said,  you could do it with any security, especially one you find to be undervalued.  I’m not familiar enough with options to know how to effectively search for mispriced options.  But if you already have your eye on a specific security, could workout great.

 

 Typically I sell slightly OTM puts to initiate certain positions and sell slightly OTM calls to exit certain positions.  I’ve done this to lower my cost basis, never to generate income but it sounds appealing under the right conditions.

Edited Sunday at 10:59 PM by Value_Added

[villainx]

3 hours ago, Value_Added said:

Typically I sell slightly OTM puts to initiate certain positions and sell slightly OTM calls to exit certain positions.

 

This seems like a sensible way to add or exit/trim.  I don't know, between work and just following the companies I own or want to own, it's a little bit more work.  At the same time, I've been telling myself to get more comfortable with the strategy and actually try it.

 

[Value_Added]

21 minutes ago, villainx said:

 

This seems like a sensible way to add or exit/trim.  I don't know, between work and just following the companies I own or want to own, it's a little bit more work.  At the same time, I've been telling myself to get more comfortable with the strategy and actually try it.

 

Yeah, it is a bit more work.  I don’t really use technical indicators for much except buy/sell points and in this instance they can help collect more premium before being called away or put the equity.  Oftentimes it’s just easier to buy or sell the position outright without messing with options, especially if you wouldn’t be able to live with not owning it or not having the cash from it. 

[Spekulatius]

12 hours ago, Castanza said:

How many equities do you hold Spek? If I remember right you hold quite a few positions? If you don’t mind sharing. 

More than 50

[Dinar]

14 minutes ago, Spekulatius said:

More than 50

Dude, how do you find the time?  I own 20 and I spend 40-50 hours a week on investing.

[dealraker]

8 hours ago, Dinar said:

Dude, how do you find the time?  I own 20 and I spend 40-50 hours a week on investing.

AJG 43%; Berk 38%; Fairfax, Meta follow along with Brown and Brown, Erie, Aon, Norfolk, Lowe's....gets well up in the 95%.  All owned for decades except Meta.

 

How much time a week do I spend on "investing" a week with the above?  That would be zero, ZERO, and more Z-E-R-O.  Probably one hour in the last ten years as to making changes, adding shares.  I do read our forum, all but a couple threads.

 

I mess on the fringes to stay relevant and Spek is a delightful read!

 

 

 

 

 

 

[73 Reds]

17 hours ago, Whensthepaintdry? said:

I would only be interested in the most basic version of it. Selling cash secured puts on stocks I would like to buy and if assigned selling the covered calls. Trying to make around a percent or so  a month. 

I dunno.  With good stocks you might be better off just holding the equities and forgetting about options altogether.  When you sell a put you lose the upside of just buying and holding the stock (along with dividends) and when you use this strategy on a poor performing stock you're underlying is depreciating and all the while you are paying taxes on option premiums when they expire.  Also if you use a more 'stable" stock the premiums are likely very low.  Sounds like a lot of time and work for little in the way of potential gains.  

[Gregmal]

To a degree it probably is also a position sizing thing. I’m more prone to sell puts if I want more exposure but am willing to be patient on price. I’ve never really considered selling calls cuz it just seems like a waste of time. I could potentially see appeal with a large concentration. Conversely I’ve never understood the need to micro manage or obsessively scrutinize a sub 10% position. Like if it’s a sell on a 10-20% move why even own it?

Edited Monday at 12:26 PM by Gregmal

[Dinar]

2 hours ago, dealraker said:

AJG 43%; Berk 38%; Fairfax, Meta follow along with Brown and Brown, Erie, Aon, Norfolk, Lowe's....gets well up in the 95%.  All owned for decades except Meta.

 

How much time a week do I spend on "investing" a week with the above?  That would be zero, ZERO, and more Z-E-R-O.  Probably one hour in the last ten years as to making changes, adding shares.  I do read our forum, all but a couple threads.

 

I mess on the fringes to stay relevant and Spek is a delightful read!

 

 

 

 

 

 

Yes, if you can find a good growth business, buy it in size and own for decades.  

[73 Reds]

15 hours ago, Value_Added said:

Just thinking here but wouldn’t a more effective income generating strategy be to sell OTM puts on the index then If it gets assigned, sell covered calls against the position.  That way you’re always generating income whether you own it or not and aren’t spending anything to roll the call of the appreciated stock.  If it appreciates and the option is assigned, you go straight into selling OTM puts.  
 

Im not a big options person but if solely for generating income from the index, what’s the downside to this versus only using covered calls and having to roll them?

Selling OTM covered calls against SPY and rolling them as necessary pretty much assures you of beating the index over time.  Selling SPY puts does not because you lose any potential excess interim upside.  

[thepupil]

5 hours ago, Gregmal said:

To a degree it probably is also a position sizing thing. I’m more prone to sell puts if I want more exposure but am willing to be patient on price. I’ve never really considered selling calls cuz it just seems like a waste of time. I could potentially see appeal with a large concentration. Conversely I’ve never understood the need to micro manage or obsessively scrutinize a sub 10% position. Like if it’s a sell on a 10-20% move why even own it?

 

I think this depends on the intrinsic value range of the company. Like in the last 10 years or so, I made a lot of money trading EQC on 2%-10% moves. At  various times, these were huge swings in the implied value of remaining assets or just a big swing in the multiple of cash + RE. 

 

the apartment REITs are a less extreme version. There can be pretty big differences in implied unit values / cap rates and risk reward on a 20-40% move. Like let's say you buy a 5% position in a MF REIT that realistically has like 20% downside and 40% upside (basically MF REITs in late 2022) and it goes up 40%over 12 months. Let's say your view of value went up by 10%, so you now have 10% upside and 38% downside and a bigger position (7% if the portfolio was flat). You started out risking 100 bps in downside scenario to make 200 bps. now you are risking 266 bps to make 70*. Surely the risk / reward has deteriorated.

 

Now maybe you say "i don't want to pay taxes and I'll just dilute the position down by adding to other stuff; I'm fine just earning the LT hold IRR of these assets", but at some point, one may need to take more aggressive action to improve r/r of portfolio, right? I think this is pretty straightforward when dealing with assets with a potentially more narrow range of outcomes and when one can replace the appreciated asset with relatively fungible (but better priced) risk; RE companies lend themselves to such trades, which is probably why I've made a far higher return than the LT returns of many of my holdings. Obviously this is much more complex if you're talking about less fungible companies and things with  potentially wider range of outcomes. 

 

of course, levered stuff it's the opposite. a 50-100% move in stock price can be almost meaningless in terms of risk / reward. 

 

*of course there is also a "constant multiple" LT return just from holding the asset, but I mean the short to intermediate return from re-rating / multiple change

Edited Monday at 05:51 PM by thepupil

[Spekulatius]

13 hours ago, Dinar said:

Dude, how do you find the time?  I own 20 and I spend 40-50 hours a week on investing.

Far too much but I don’t have 40 hours. A lot of things I study are generally interest that have an investment outlet.

 

When I hear or read about a stock and it looks at least reasonable or even better well priced and I think there is something special about it (management, product offering or macro tailwind)l I tend to buy a few shares.

 

Examples are APR (  Auto Partner ) which I bought in 2022 after the Ukraine invasion when the polish stock market went to hell. Somehow got only a position in one account while the limit order in another account didn’t fill. I really didn’t spent much time on it the last few years, except checking in the annual reports and some earnings. I noticed the stock had retreated due to slower growth  and a margin hit partly due to one off factors. I feel the story is fundamentally intact so I bought a few shares for the other account that didn’t have any.

I think I will make it big, I don’t much about the polish stock market , but the business checks a lot of boxes and the valuation is almost as attractive  as when I bought it in 2022, so I just add a few more and hope it works.
I have many positions like this and I don’t think there is anything wrong with doing it that way.

 

Smother one I want to point out on “interesting story or market” is Fuso Chemical was first posted here as a Wall Street article claim8ng that some semiconductor suppliers get exploited by TSMC put a lot of Capex in. The article ticked a few checkboxes due to my material science background and I know that those ultrapure colloidal particles that Fuso produces for semiconductor polishing etc are not easy to make and customer don’t like to switch suppliers as those wafer that are processed can be worth thousands of $ depending on the process stage and you don’t risk it for saving a few bucks on consumable. Not a unique insight but these things something help me make a decision to determine that there is something special about a business.

 

So in  a way my portfolio are breadcrumbs that follow my interests over time? I have found that it keeps me interested and while investment mistake are made along the way, there are also quite a few unexpectedly good outcomes.

 

 

Edited Monday at 05:11 PM by Spekulatius

[Dinar]

@Spekulatius, how do you think Fuso's business will look in 10 years?  Revenues, profits?  What do you think of management and capital allocation?  Thank you.

[Spekulatius]

4 hours ago, Dinar said:

@Spekulatius, how do you think Fuso's business will look in 10 years?  Revenues, profits?  What do you think of management and capital allocation?  Thank you.

I don’t think I can know 10 years ahead I think Fuso business will correlate to leading edge wafer starts  since that’s what Fuso materials are used for. So in ten years, Fuso will basically morph from a chemical company with business for food as well as semiconductor supplies to a company that is mainly a semiconductor consumable business.

On the financial side the  semiconductor material supply is way more profitable than their traditional business with 30% operating margins. Everything else being equal this business should grew faster, with cyclical ups and downs and be way more profitable.

 

On the capital allocation issue, all we know that management told us they intend to pay a progressive dividend which is what they have done over the years so far as well.