Sep 2023 Portfolio Review

I would like to thank some of the readers here, be it from InvestingNote or otherwise, for praying for my mother. Her scans are all cleared for pancreas (although a spot in the kidney is found, and we will be seeing an urologist one day), and her eye issue was not due to nerve damage from diabetes.

Diabetes is really a tough disease, affecting you day to day. We just had a change of insulin and mum is constantly getting hypoglycemia at certain hours. However, the readings seem to show a bit of improvement.

Thank you everyone. 

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Straits Times Index Fund, YTD returns: 2.35%
S&P 500, 15.45%
Tracker Fund, -7.59%
My portfolio, 4.42%

Notable Transactions

Disposed and realize >50% losses on Didi Global, which had already delisted. Tiger charges a quarterly fee for holding ADRs, so holding wasn't a sound move. Didi  have very illiquid options-- hence selling call options is not a feasible alternative.

Lets begin with selling puts....

As of 2 weeks ago, I decided to spare some effort in trading of options. I have always been selling puts on Alibaba on a regular basis. To be clear, we are talking about the ones being traded in Hong Kong Stock Exchange, and selling puts over there isn't going to give you any index-beating returns.

Yield = Premium / Margin

An example, below is the screenshot of 9988's option chain at 29-Sep, during the lunch break:

Alibaba.HK was trading at 85.95 HKD as of writing.

A good place to start selling options is a 0.2 Delta.

Delta is a ratio to estimate how the option pricing would move against or along  a 1 dollar of underlying move. Hence a low delta means a lower probability that your options will get assigned. It also used as a proxy to describe risk. A delta of 0.2 means you are "exposed" to 0.2 of a share.

 There is a good chance that the stock will not be assigned to you. Note that, however, the implied volatility is only at 33.3%. The premium, which you can collect is 1.01 HKD. Given the standard way of calculating margin, which is:

(Strike price * 30%) - out of the money component, 

(85.95 * 0.3) - 5.95= 19.84.

This means your "yield" is a measly 1.01 (premium) / 19.84 (margin) = 5%.

Compare this to Intel, which has a higher Implied Volatility, 

at 0.20 delta, we could sell 32.0 puts at a premium of 0.5 (last traded)

= (32 * 0.3 ) - 3.18 = 6.42, which translate into a yield of (0.5/6.42) = 7.8%

The key to higher premium prices is Implied Volatility. IV is the expected volatility (a forward indicator) of future volatility, and is affected by market sentiment/demand and supply. 

There is a reason why selling of Tesla puts could enable one to beat an index returns quite easily...

At 0.2 delta, we could sell put options at 225 strike for premiums of 6.25.

That translate to a margin requirement of:

(225 * 0.3) - (246.38 - 225) = 46.12.

Yield = 6.25 /46.12 = 13.6%

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Of course everyone has different ways of calculating yield. Would it not make sense to instead, use the assignment cost? For instance, if Tesla is put to you (i.e., you have to buy Tesla at 225$), you need to come up with $22500, and the premium paid to you earlier is $625. That translate to a yield of....2.7%

To save you time, if you compute yield using this method for Intel and 9988.hk, that will be 1.5% and 1.2%

Of course, let's not forget that these are returns from merely a month! But the put cost for Tesla is... prohibitive to most people. Let's just say that nothing in this world is perfect...

-boonsong