I love it when people describe my new trading venture, Excelsior Capital Partners, as a vehicle for "gambling." I take as much offense as possible, puff out my chest , and offer very detailed financial explanations as to why that is not the case.
Putting pride aside, though, I have to admit that writing weekly options contracts is like playing craps. A player can either patiently play the pass/don't pass line bets or throw caution to the wind and attempt to hit it big on the "middle of the table" bets. Experienced gamblers will tell you that those middle wagers are sucker bets as the payoff is lower relative to the risk than the pass line bets (a higher house advantage in gambling parlance,) but hitting a hard eight (two fours) is pretty fun.
Playing markets at all-time highs is very similar to playing the pass line. What I did for Excelsior this week was tactical, not strategic. I bought put options on Beyond Meat (BYND) going into earnings because the company's valuation is, excuse the technical language, ridiculous. BYND's decision to launch a follow-on offering in which 3 million of the 3.25 million shares offered were secondary shares made that trade a winner.
After that I decided to buy volatility by selling puts on the iShares volatility ETN, (VXX) . Short options trades are very risky, and have correspondingly high margin requirements. When they work, though, it is beautiful. The option seller receives the premium up front and if the underlying security ends the week's reading above the strike price it is essentially an infinite profit. The contract writer's basis becomes zero, and since it is impossible to divide by zero, it is impossible to calculate the return. But I can tell you that it feels pretty, pretty good.
So, what did I learn this week? Fed Chair Powell is not committed to lowering rates back to zero. I believe there were some in the market who thought that ZIRP (zero interest rate policy) would be coming back in vogue, but Powell contradicted that feeling with his "midcycle adjustment" language at his press conference.
The second thing I learned: always try to be on the same side as the Orange Man. I still have a few hours to obsess over my VXX short, but if things stand as now, the options I wrote will expire worthless and the infinite return will be achieved. President Trump saved my bacon with his tariff tweet yesterday. I am certainly no political analyst, but I can read the tea leaves. There has been no real progress in trade negotiations with China.
When the market "prices in" a positive resolution to the China trade war without an iota of evidence to back up that theory, it is a trading opportunity. The same people who are making that mistake are the ones who were buying BYND shares at $220.
I will take the other side of that trade every time it is afforded to me. I look forward to an August of heightened volatility, just as we saw in May and December. Even if that macro call does not come to fruition, there are enough Beyond Meats in this market to generate further profits on quick pullbacks.
That's my summer in a nutshell. If you believe I will be gambling while you are heading to the shore, that's fine. I can handle such criticism. Rest assured, however, I will eagerly compare portfolio values with you after Labor Day.