The Final Countdown: Wheel Of Fortune's Top-10 Trades Of 2020 - No. 2 (Cafu)
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On a strictly formal note...
The Fortune Teller ("TFT") is a well-known contributor on Seeking Alpha ("SA"), and a top blogger according to TipRanks, with over 30 years of deep and direct market experience.
TFT is the leading moderator of two services on SA: Wheel of Fortune and Macro Trading Factory (led by TFT's "mirage identity" called The Macro Teller, or "TMT")
TFT is an account that represents a business which is mostly focuses on portfolio- and asset- management. The business is run by two principles that (among the two of them) hold BAs in Accounting & Economics, and Compute Sciences, as well as MBAs. One of the two is also a licensed CPA (although many years have gone by since he was practicing), and has/had been a licensed investment adviser in various countries, including the US (Series 7 & 66).
On a combined basis, the two principles lived and worked for at least three years in three other-different countries/continents, holding senior-managerial positions across various industries/activities:
On one hand/principal, IT, R&D, Cloud, AI/ML, Security/Fraud, Scalability, Enterprise Software, Agile Methodologies, and Mobile Applications.
On the other hand/principal, Accounting, Banking, Wealth Management, Portfolio Management and Fund Management.
Currently, they run a business which is mainly focusing on active portfolio/fund/asset management as well as providing consulting/advisory services. The business, co-founded in 2011, is also occasionally getting involved in real estate and early-stage (start-up) investments.
The people who work in and for this business are an integral and essential part of the services that we offer on SA Marketplace platform: Wheel of Fortune, and Market Trading Factory. While TFT (or TMT for that matter) is the single "face" behind these services, it's important for readers/subscribers to know that what they get is not a "one-man-show" rather the end-result of an ongoing, relentless, team effort.
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The contributor RoseNose is both a contributing and promoting author for Macro Trading Factory.
On a more personal note...
We're advising and consulting to private individuals, mostly (U)HNWI that we had been serving through many years of working within the private banking, wealth management and asset management arenas. This activity focuses on the long run and it's mostly based on a Buy & Hold strategy.
Risk management is part of our DNA and while we normally take LONG-naked positions, we play defense too, by occasionally hedging our positions, in order to protect the downside.
We cover all asset-classes by mostly focusing on cash cows and high dividend paying "machines" that may generate high (total) returns: Interest-sensitive, income-generating, instruments, e.g. Bonds, REITs, BDCs, Preferred Shares, MLPs, etc. combined with a variety of high-risk, growth and value stocks.
We believe in, and invest for, the long run but we're very minded of the short run too. While it's possible to make a massive-quick "kill", here and there, good things usually come in small packages (and over time); so do returns. Therefore, we (hope but) don't expect our investments to double in value over a short period of time. We do, however, aim at outperforming the S&P 500, on a risk adjusted basis, and to deliver positive returns on an absolute basis, i.e. regardless of markets' returns and directions.
Note: "Aim" doesn't equate guarantee!!! We can't, and never will, promise a positive return!!! Everything that we do is on a "best effort" basis, without any assurance that the actual results would meet our good intentions.
Timing is Everything! While investors can't time the market, we believe that this applies only to the long term. In the short-term (a couple of months) one can and should pick the right moment and the right entry point, based on his subjective-personal preferences, risk aversion and goals. Long-term, strategy/macro, investment decisions can't be timed while short-term, implementation/micro, investment decision, can!
When it comes to investments and trading we believe that the most important virtues are healthy common sense, general wisdom, sufficient research, vast experience, strive for excellence, ongoing willingness to learn, minimum ego, maximum patience, ability to withstand (enormous) pressure/s, strict discipline and a lot of luck!...
- With only 2 days left until 2020 is over, we've started the final countdown, presenting Wheel of Fortune's top-10 trades over the past year.
- We had to set a few basic rules in order to make sure that the list isn't solely comprised of option trades.
- Nonetheless, even after these rules have eliminated many successful trades, we still have plenty to choose from.
- Ladies & Gentlemen, it's our great pleasure to introduce to you at no. 2 the Michaels Companies group.
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The Final Countdown
During the last 10 days of 2020, we are revealing Wheel of FORTUNE's top-10 trades for 2020.
In order to qualify for the elite-squad we've set a few simple rules:
- Opening date of the trade must be inside 2020. Trades that were opened in prior years, no matter how successful they've been this year, are out!
- A symbol can appear only once in the series, even if more than one trade involving this symbol is eligible.
- Only trades involving common stocks, preferred shares, corporate bonds, or naked/non-secured/non-hedging options are eligible.
- Excluded trades: Sale of covered CALLs or cash-secured PUTs. Had we include these types of trades - they would fill up the entire top-10 list (showing 4-digit annualized total returns).
- Eligibility is based on market closing prices on December 21, 2020.
Simple, clear, and fair.
We're taking advantage of this series to not only present the winning trade, but also all other trades related to the same family/symbol.
The final countdown continues with...
Number 2 (Cafu)
We love trading The Michaels Companies (MIK) around earnings, especially since the increased volatility is allowing for potentially extremely profitable trades, with a relatively high margin of safety.
Below you can see how we executed these trades, while having very different views that translated into very different startegies.
September 2, 2020; ahead of Q2/2020 earnings; bearish view.
We closed the position after only one day, for a very generous profit.
December 2, 2020; ahead of Q3/2020 earnings; neutral view (expecting high volatility)
We've closed this strategy in two separate dates in order to maximize the return. First we sold the 10-strike CALLs on the very same day that the Q3 results were out, when MIK jumped over 25%.
We allow for the 12.5-stike CALLs to lose value (decay) while the stock lose momentum.
By doing so we increased the risk (compared to the original positioning) between 12/3-12/17, but as you can see below - during the week before the expiry date (of the CALLs) - MIK has traded below $13 at al times, below the adjusted break-even price (which was originally closer to 14).
It's important to note that there wasn't any point along the way where any of the trades was losing money on a net basis. At any given time, we were above our breakeven levels.
Here are the exaxt, full, details of the trades:
|Security||Purchase Date||Purchase Price||Sale Date||Sale Price||Total Return|
|Buy MIK 12/18/2020 10.00 CALL + Sell 3x as many MIK 12/18/2020 12.50 CALL||12/02/2020||(0.11)||12/03/2020||2.50||2,272.73%|
|Buy MIK 12/18/2020 10.00 PUT + Sell 4x as many MIK 12/18/2020 7.50 PUT||12/02/2020||(0.03)||12/17/2020||0.05||166.67%|
|Sell MIK 09/18/2020 10.00 CALL + Buy MIK 09/18/2020 7.50 PUT||09/03/2020||0.12||09/02/2020||2.00||1,566.67%|
Although there's one trade that we initiated this year that has returned even more than what the MIK trades did, in terms of monetary profit (i.e. real money, not percentage) these were our best trades in 2020, simply because the risk rating that we've assigned to those was relatively low, allowing us to turn these trades into big tickets that have paid off big time.
It's one thing to make a 'killing' but it's very different whether you 'hunt' a tiny Rabbit... or a giant M(IK)oose...
Timing is Everything!
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