Things are volatile with global trade wars and a host of other challenges

S2N spotlight

This is an example of how Wall Street eats your lunch.

It didn't take long for a financial product to be launched that guarantees 100% of the downside of Bitcoin and gives you up to 10% of the upside. The Calamos ETF comes in 3 flavours with varying degrees of downside protection and upside.

100% protection with 10-11.5% annual upside. b) 90% protection with 28-31% annual upside. c) 80% protection with 50-55% annual upside. I am going to focus on the 100% protection ETF. I have not studied the product in great detail, so this is very much a back of the envelope calculation.

The NAV of the ETF trading under the ticker CBOJ is $25. As we get closer to the one-year mark and the price of Bitcoin is trading more than 10% than the NAV at the time of the purchase, then the NAV should be including $2.5 (10% of NAV) and trade at $27.50.

The fund has an annual expense ratio of 0.69%; this is what the managers of the ETF get.

If I wanted to recreate this strategy, how would I go about it? As Borat says, "Simples."

To protect myself, I need to buy a 1-year put at a strike of $100k (I rounded for simplicity) to protect 100%. The best I could find was a 10-month put, which cost $17,571.

To create the same effect as the ETF, I now sell a 10% out of the money call. I receive a tasty $20,460, which puts a net $2,890 in my pocket.

The problem now is that we have sold a call on Bitcoin above 110,000, so we need to protect ourselves, which means we need to own Bitcoin. Most exchanges provide 100:1 leverage, so you can take $1,000 from your pot and buy 1 bitcoin, and you will be perfectly hedged with $1,890 left over to cover the funding rate on your margin loan. The funding rate is not a trivial topic, a subject for another time. If after I shared a potential free lunch you still want to pay retail, that is fine; it is the sleep-easy approach. I would rather sleep on rocks than sleep easy and pay retail.

S2N observations

I have never seen a signature like it. This is how a graphology expert interprets this signature, not knowing who it belongs to.

Large letters can imply a strong sense of self-importance or confidence. Sharp or angular letter formations are often linked to aggressiveness, decisiveness, or high energy. It can also indicate impatience or a tendency to push forward assertively. A rightward slant sometimes indicates outgoingness, a drive to connect with people, or impulsivity. Pressing firmly into the page is often said to denote high emotional energy, determination, or strong convictions. A signature that is both large and stylised can be interpreted as a desire for attention and a need to project power.

I introduce you to Donald J. Trump, the 45th and 47th President of the United States. "The Donald" has come out swinging. I am struggling to keep up.

Things are volatile with global trade wars and a host of other challenges. The undisputed safe haven in times of uncertainty is gold. It hasn't disappointed, making new all-time highs. However, gold is not often shown in other currencies; we are used to seeing gold quoted only in US dollars. Due to the other currency's weakness against the dollar, you see how safe the safe haven has been, especially for those who bought into safety from weaker currency countries.

The one factor gold seeks to protect against is the erosion of wealth through inflation. You can see how the green line of the inflation-adjusted gold price is not nearly as impressive. This is what happens when you borrow and spend too much. Gold is outpacing inflation, but only just.

I think the Gold/Silver ratio gives you a sense of the safe-haven premium being priced in at the moment. We are close to 2-standard deviations from its long-term mean. The red line will have me very excited to trade the reversal.

The most overvalued stock on the stock market is Peter Thiels Palantir. What is it about those PayPal pals (not sure they are), Musk and Thiel, that their stocks trade at such premiums? The current PE ratio is 546. These guys sit on some of the most sensitive data in the world. I wonder what they know that we don't!!!

S2N screener alerts

Coffee is trading at all-time highs and has been rising for 10 days in a row, only the 4th time it has done so in 47 years.

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For those who are new to the letter, the shading is Z-Score adjusted so that only moves bigger than usual for the symbol are highlighted.

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