I had a lot of positions change today, and a lot of money moved around. I’ll tackle this step by step.
Options Expiration
First, options expiration was Friday, and I had two positions to account for. My short GDX put (at $52) finished out of the money, netting me a cool $450. My short SSO call spread (short $50, long $60) finished in the money, but still netted me $621, which is the difference between the $787 premium I received in March and the current position value of $166. For an introduction to options, click here. To learn more about call spreads, click here.
With selling the SSO call at $50 and the shares ending at $50.83, I was assigned 200 shares (2 option contracts at 100 shares each) at $50 each. This increased my portfolio short position by $10k ($50 x 200 shares), which is a significant increase. To match this exposure on the short side, I decided to deploy cash toward the long side.
Investing in Fama-French
Earlier this month, I expressed my discontent with the capital asset pricing model (CAPM) and argued that the Fama-French 4 Factor Model was superior. Reasonably thinking, since I had to purchase equities, I was able to invest in the risk factor methodologies that Fama and French support. To do this, I purchased exchange traded funds TILT and PDP. TILT is designed to replicate the Fama-French 3 Factor Model, focused on market, style, and size, by tilting the portfolio toward value stocks and small cap stocks. PDP is a momentum fund, with momentum as the fourth risk factor in the Fama-French 4 Factor Model.
Trade Details
I purchased 150 shares of TILT at $54.65 and 65 shares of PDP at $24.93. These long equity positions total $9.8k, which aligns well with my new $10k short position (from the SSO options). One trade execution issue I had with purchasing TILT is market impact. Since the fund trades on low volume, my bid moved the price. As you can see, my 150 shares were the first traded shares of the day.
With an illiquid security, I verified that the net asset value ($54.67) was in line with what I paid.
Top Five is updated to incorporate changes to GDX, SSO, and TILT.
