rob zdravevski's blog

The VIX is not what it seems

I had a topical discussion with a peer about why the VIX is hovering around the 23 mark yet the S&P 500 is making new highs?

Today, the VIX rose again (to 26.6) while the S&P 500 and Nasdaq climbed 1.5%.

He pointed out that an extraordinary amount of call options are being traded compared to put options and this may be distorting the call/put calculation of the VIX and changing its traditional guide of measuring “fear” or risk.

I found a reference that we are recently seeing something like $3 or $4 billion worth of call options traded each day versus the normal $1 billion.

Temporarily, this is changing the VIX’s behaviour and the indicator isn’t all that it seems.

Then I looked at the VXN (the Nasdaq’s volatility index) and it has been rising for 10 days all while the Nasdaq has also forged higher.

It should not be so correlated.

There is speculation in certain popular names which is dramatically pushing up the prices of call options associated with those companies, relative to their put options.

Speculative options trading is near 12% of the NYSE volume last week. (see graphic below)

And market makers who are selling call options to those speculative buyers are forced to hedge their position and buy the underlying shares.

September 3, 2020

by Rob Zdravevski
rob@karriasset.com.au

Stretched

A little something I am looking into, as I work on determining entry prices for some gold stocks

The attached chart shows Saracen (SAR:ASX) over a near 5 year period on a weekly basis,

On three occasions (denoted by the highlighted circles in the chart below), the stock was trading at a price resembling 3 times higher than its 200 day moving average.

On each time, the stock reverted to visit its 50 day moving average and eventually kissed its 100 day moving average.

September 3, 2020
by Rob Zdravevski
rob@karriasset.com.au

A sample portfolio

Investment advisors such as myself are hamstrung (legally) and for good reason from touting performance returns mainly because (in my case) I don’t operate, invest and manage money within a pooled fund or unit trust.

One, generally cannot advertise “returns” if you’re unable perform or produce audited results of the “fund” from a recognised firm.

Because my clients take my recommendations and execute the investments in a brokerage account of their choice, I am unable to publish anything resembling investment performance.

This is the next best thing I can show you, what I do…..

below is a screenshot of a client’s international brokerage account,

We’ve cropped his top 6 holdings (as of Aug 31, ’20), the other 8 positions are quite recently acquired (3 are in the “red”, they’re yet to mature and I’m keeping proprietary respecting that client’s retain me for this advice).

I tend to run concentrated portfolios of between 8-18 positions.

The 6 holdings below represent Google (Alphabet), Docusign, Paypal, Zillow, IHS Markit & Experian.

The value of these 6 stocks started at $174,103.
They are now worth $562,206

Most of these shares have been held for at least 3 years.

* sold Paypal, Zillow & Spotify this week
* see my disclaimer

by Rob Zdravevski
rob@karriasset.com.au

Another pearl from Seth Klarman

“Today, with Wall Street largely recovered from its March 2020 sell off while Main Street has barely lifted off bottom, a pernicious and crushing inequality could not be more evident.

It’s untoward that, once again, Wall Street has been effectively bailed out while programs designed to assist Main Street have been ill-designed, slow to be implemented, and inadequate to address the pandemic’s lasting impact.”

– Seth Klarman, July 23, 2020

Zoom adds the value of a Telstra in a single day

Time to say goodbye to a Pal

Our global client portfolios have owned PayPal (PYPL) for over 4 years, soon after the company spun out of eBay in 2015.

On average, clients paid $33.60 for the stock.

In late May 2020 we harvested a third of the position and yesterday we sold the remaining holding at $204.00 per share because subjectively, it seems this is as good as it’s gets across a host of factors.

PYPL is also mimicking the activity of the Nifty 50 stocks of 1960’s and early 70’s where the phenomenon of buying growth stocks at any price became the norm.

Fundamentally, PYPL now has a market cap of $240 billion, revenue of $18.2 billion and EBIT of $2.7 billion.

PayPal is trading on 13 times revenue and an astonishing 89 times its profit …I can’t help think that its priced for perfection.

In other words, how much more return are we trying to squeeze out from here on?

So why sell now and not earlier…

My technical analysis indicators now also suggest a host of stretched extremes where it seems that the odds for further gains may be laboured.

I asked myself if I’d be a buyer of PYPL with “new money” at these prices? My answer was “No”.

The risk/reward doesn’t seem to stack up, ……so then, why continue owning the stock, if I’m not prepared to buy more of it ?

September 1, 2020
rob@karriasset.com.au

 

More importantly, USD is Oversold

Following todays earlier note about the AUD trading in Overbought territory, the “basket” US Dollar Index (DXY) inversely registers a more important Oversold reading.

Why is the DXY news more important?

Prices tend to not stay Oversold for too long, whereas they can remain overbought for that little bit longer.

Alas, the chart below shows the DXY Oversold this week, for only the 7th time in the past 13 years.

All this talk of USD weakness may have reached its nadir ?

And in case you’re wondering, the USD (DXY) Index is a measure of a basket of currencies and their trading relative to the U.S. Dollar. The weighting of the index to each currency is; EUR 57.6%, JPY 13.6%, GBP 11.9%, CAD 9.1%, SEK 4.2% and CHF 3.6%

#dxy #fx #usd #currency #oversold

September 1, 2020

by Rob Zdravevski

rob@karriasset.com.au