Martin Vlcek

Contrarian, growth at reasonable price, macro, small-cap
Martin Vlcek
Contrarian, growth at reasonable price, macro, small-cap
Contributor since: 2013
Cracker 1,
Interesting take. I only log into LNKD several times a year but check FB at least once a week. FB can easily add LNKD features or buy LNKD. It doesn't work the other way around. So LNKD is disposable, FB is not.
"When the market realizes we are not going to produce enough oil, say about three years from"
My thinking is that this would probably shift the entire futures curve up, many years out because the supply deficits would likely last for years due to long investment cycles. So the curve could remain in contango but shift higher.
The Protagonist,
"Selling the call and buying the put, is that the collar Convoluted is speaking about above?"
Yes, we are talking about the same thing. What I do extra is trade that collar position based on volatility levels. When volatility spikes (and markets usually fall as well), I would consider selling a portion of the protective puts and in some cases even consider closing some sold calls if I see lots of upside. I consider this tinkering with the collars as active rebalancing around the core position without actually selling the underlying positions. The collar decreases the beta a bit.
In terms of correlations rising, yes, unfortunately, they are rising:). But as you mention, the special situations are great in such environment. I've also been selling otm puts on volatility spikes at levels I would be comfortable holding anyway. Also, oil is still in contango, so that trade has been a great hedge. The oil glut is not over. I am waiting for the real bankruptcies. Russia is getting desperate to hold oil above $30. China's problems are not nearly over. I am still Short China through shorting the leveraged ETF (usually there is the leveraged decay benefit as well).
Overall, I am trying to stay as market neutral or at least as much uncorrelated as possible. Happy hunting!
Thanks for clarifying. I have some SVXY puts to lower the UVXY and VXX delta and because the SVXY trade should also work well as a standalone trade or a pair trade with UVXY or SVXY due to volatility decay o SVXY if VVIX jumps around and remains high, as I expect in this new volatility regime.
I am also shorting USO as an indirect hedge and for the large contango, and the problems are not over in oil sector. I am shorting leveraged China ETF (YINN) for volatility decay and as an indirect hedge. The problems have not been solved there either. There are some other smaller special situations but they are more or less market neutral. And some small long/short individual equity positions, very small in gross value and even smaller in net value.
excellent comments. I try to adjust the collars or other options that I may have when I see the market has moved too quickly to one side. I basically treat volatility as a separate asset class. When volatility is low, I would buy cheap puts and sell covered calls that have relatively lower time premium, but are sold at higher absolute price for the given stock, so they cut off my profits at a higher intrinsic value. When the stock drops and volatility jumps, I usually close or reduce the puts and lock in some gain on them, mostly during panic days or simply days when spot volatility jumps by 20% or more. I consider this a minor rebalancing (buy low, sell high) around the core position and it limits the risk and volatility. But more and more I prefer to hedge with positions that have their own positive expected future value an are negatively correlated (most of the time) with the position I want to hedge. That way, I don't pay the time premium if nothing happens.
Thank you for your comments. I usually hold volatility trades for weeks, so I consider them a medium-term holdings. therefore, I try to limit the exposure based on the usual beta of these products, ~4.5x for 1-times VIX ETNs and 9x for 2x leveraged VIX ETNs, to have no leverage if this was a regular SPY long or short.
When you say you bet 17% on the trade, does that mean you have 3% stop loss and when that stop loss is hit, you lose 17% of your bankroll (NAV of the account?).
ikkyu, thank you for sound comments. I personally use protective options on most of volatility trades. But also lots of imperfect hedging, shorting assets that are mostly negatively correlated with the volatility trade.
"In early Jan., almost all the big moves were after hours"
most probably because China was he cause (U.S. followed overseas markets then), so this may return and even stay depending what drives the markets most.
Thank you for sharing. I agree it depends how much you want to protect. Options always cost money so if I can find a hedge that generates positive expected returns by itself (without options), I prefer it to options. But I use protective options in some cases as well.
Good point. That's why it is important to limit the notional exposure to the volatility products to much lower than 100% of the account. Generally, I try to stay below 15% as these products have a very large beta.
Very nice article. Thanks.
I appreciate your long-term perspective and steady approach.
I believe there are some undervalued stocks in the market again, and truly long-term investors should benefit by doing some selective buying as I said a couple of days ago:
I would avoid too indebted companies though as their interest costs have very little downside benefit left and lots of upside risk if they move from high grade to lower grade and as/if risk spreads widen even more.
Excellent article Phil. I like this part. Very important and so simple. But probably not in the interest of some politicians:):
"We need to channel that money towards wage growth so the bottom 99% can benefit and we need to get the Government back to infrastructure spending and put those Trillions of Dollars to use creating jobs. Meanwhile, we're comfortable calling 1,850 the bottom of our range for 2016 but we're not expecting much from here - just a gradual drift to make up that 11.4% (2,060)"
I am long but trying to hedge some exposure. Where I don't share your most probable vie is that the drift higher will be nicely smooth and gradual. I believe we will continue to see volatility as the rallies may be swift as nobody wants to miss out on the central bank liquidity. But the rallies are also likely to get sold by some participants. Volatility has been a nice revenue stream recently and I think it will remain so:
Great article and very interesting comments. I believe there are always troubles and risk in the world and in the markets. If there were none, stocks would be priced for perfection. That's when I would really start to worry big time. I see some overvalued stocks but there are decent opportunities, better than 6 months ago. I just checked the DIA valuations on by one:, but I am sure there are cheap stock sin the S&P as well. If you have along time horizon that is.
For quick traders, I don't see too much upside within the next 12 months. Better to play volatility than be straight long stocks. That is what has worked, at least for me in the past 4 months:
As many hedges, I believe long Treasuries dont' work as well as they used to. Much less long term upside than in the previous 30 years. But in the short run, yes, they will probably work as a good long stock hedge:
Excellent article. I think volatility is great. I sell volatility at times, mostly hedged though. It's been a big profit driver for my portfolio since the FED raised:
Nice article. I think some oil producers are trying to "do whatever it takes" to prevent oil prices from falling further. I remain defensive though and I think oil is still a good short as a hedge of several long portfolios:
I agree that QE and easy money goes on but at least smart diversification is needed. With some hedges not working as well as in the past, one has to look further:
MFITZ, excellent, very useful comments as always. I would add that the ECB will also have a hard time to find assets to buy.
Is the next step even more stock purchases? Safe dividend stocks and DIA should do well. Some of the stocks are reasonably priced thought the index as a whole is probably a bit overvalued. But if the low interest rates remain, this crazy game can go on:
:). Happy investing!
Jan, that's pretty smart. Thank you for the excellent continued coverage of FP!
I thank you for catching that first:). Happy investing!
I keep holding 200 shares although I don't know why the stock dipped. Could be someone bigger saw a better opportunity or cut down on risk?
I checked the numbers using several sources, some in GBP, some in EURO, some in USD, so it's a mess. But the approximate $ market cap is $7B, debt ~$2B, cash ~$0.7B. EBITDA ~0.7B, FCF~0.35B. So EV ~8.3B. EV/EBITDA ~11.5x, EV/FCF much higher, over 20x.
Timberwolf, thank you for checking this out and correcting. I will check as well and correct it in the article based on the numbers.
Thank you for your comments. They contain lots of good ideas and info.
Well done on the 37.50 SVXY Feb.5 calls. I am waiting to roll Jan 29 UVXY sold $40 calls from the bear spread. I am short UVXY.
Timberwolf Equity Research,
Thank you for your comments. As I wrote in the article, I used several sources and it was not easy to get any reliable numbers on some of the stocks. I am trying to find the numbers now but can't find the source. It's been several weeks since I wrote this and I usually don't look at foreign stocks at all. What numbers have you come up with and what source?
The weight of Coca cola has been decreased in the index since I wrote this article and the share of the banks was increased, so beware of this higher risk.
"AAPL is the new IBM"
AAPL is the GOOGL, INTC, MSFT, NFLX, AMZN, PYPL and TSLA (in five years from now) all under one hood. You can't compete with that kind of an ecosystem moat. And it is trading way below 10x EV/FCF and way below the companies mentioned in this comment.
By the way, I believe IBM is the next GOOGL in five years (a leader in the new mega industry of artificial intelligence)
enlightening comments from you, as always, thank you:).
Are you just selling the calls naked without any other long housing exposure or do you treat the calls on ITB as a "covered call" on your real world housing property, essentially getting a "dividend" from your house but risking that you will miss some upside if ITB jumps?
Thanks a lot for the great info!
Mark gave an excellent information. I would add be careful around ex-dividend dates. If the options don't have enough time premium to offset the dividend, they are prone to be exercised. In fact, of the very few times that my short options were exercised by the other side was for this dividend arbitrage. At other time it only happened when the option had virtually zero time value, was close to expiration and the price was far from the strike price.
"but I wanted the price target and couldn't make it fit without going long"
That's a very good reason to go longer in time:). I do it too with other stocks where my price target is too far from the price.
Thank you for the link. My premium subscription portfolio is up 5% while markets are down 5% to 15% and I am using various hedging and "market neutral" or low correlation strategies. But not yet momentum. If someone "spots" the strategy in the markets, they can exploit it , front run it, take the other side of the trade, etc. to the point of making it unprofitable for you.
I believe all strategies get in and out of favor, so they work for a period and then stop working for who knows how long. A value investing and averaging in works in the long run because it has the support of the asset liquidation value as one of the "support" zones for the price. But I fail to see any "downside protection in trading strategies. The chance is low but you can get a long losing streak which will wipe out all your capital. Holding a combination of stock and debt gives you a chance to walk away with at least some assets even in the most disastrous scenario of a debt restructuring or bankruptcy. The assets at a certain price become cheaper to acquire than create by building, and that attracts deep value buyers to undervalued stocks.
Sorry for not seeing your question sooner. I believe nobody can time the markets precisely, so I would just average in, buying on weakness the high quality, reasonably priced stocks that have a high chance of still being here ten years from now.