A Comment -- General Comments From an Expert (A Commentary)

US 2-year treasuries. Dissatisfied with performance of bond ETFs. Wanted some US hedging, so bought this. Yield is 2.5%.

Market. Apple got to $1 Trillion market cap today. He would not be a buyer. He has been wrong about AAPL-Q for years. It is possibly the most successful business in the history of capitalism. Investors have to recognize that it is probably an exception to everything elsewhere.

Market. We have been all challenged by Trump’s “art of the deal” strategy to put pressure on friends and foes and double down if he doesn’t get what he wants. Markets have priced in a lot of the uncertainty, but it hasn’t priced in the success story on what he is trying to do which is something the USA has tried to do for the last 50 years. In Europe he has to deal with 28 different political leaders and while business if purely economics, in politics the appearance of looking strong could be more important than getting a good deal. Options price risk. The higher the volatility the higher the risk premium. Now premiums are higher than last year but not excessive.

Is trading on calls OK or do you just do it to own the underlying asset? Just when intend to buy the asset. Mainly because there is a time element. They expire.

Deep in the money call options and flipping the underlying asset is a good strategy? Delta is higher on the deep in the money options. It is going to perform closer to the stock. Flipping the stock, he assumes is shorting the stock. Nothing wrong with the strategy. It is aggressive. It is what some hedge funds do.

Would a Water ETF be a good buy given all the fires and droughts out there. It is more water for consumption. Yes. There is merit to that for droughts. Not a big fan of it but not against it.

Is selling a covered call below your cost base a good idea? There are ETFs that do this. First thing to do is look at the stock and decide if you still like the stock. If you still like it, then it is a better buy if it dropped in price. Then he would look into doubling down.

Would you recommend a book on options? The bible for options traders is called “Options as a strategic Investment” by Lawrence McMillan. It walks you through all possible strategies. A great book.

Would you recommend an investment in ETF for a TFSA for $5,000 for a 19 years old? Always tough to get this challenge. He recommends 50% on iShares S&P/TSX 60 Index ETF (XIU-T) and 50% on a covered call ETF. He recommends the BMO Covered Call Cdn Banks ETF (ZWB-T). He likes the Canadian Banks now.

Market. The threat of inflation is starting to be reflected in longer term bond yields. As rates begin to go up around the world, even in Japan, investors need to be wary. Cash is a good think to be holding right now. Rising stock markets and rising rates usually don’t go hand in hand. One needs to be careful as this is the second longest bull market in history – trees never grow to the sky.

Molson Coors investment in Marijuana. Beer companies participating in this new market makes sense to do it early he thinks. They are talking a totally new market and new beverage opportunity, which he thinks is more of an experiment on their part. He does not understand what a successful business model in the cannabis space is going to look like and the valuations are simply too high.

High Yield Bond Funds. Cash in a registered account should be invested in interest bearing instruments. Do not invest in Canadian only high yield bond funds as they tend to be highly commodity based and too risky. Look for a North American fund instead, which hedges the US currency risk out. An ETF also holds derivatives as well and have thus not tracked the indices as well.

Holding Cash. You want to own cash to take advantage of a short term plunge in the market. Therefore, it should be in something that is guaranteed, where you can access your holdings the next day.

Bonds 101. Bonds are fixed income, because the yield is fixed. The price of the bond is volatile (based mostly on interest rates), but if you hold the bond it will mature and return your principal as long as it does not default. You can take less risk by buying a shorter term bond.

Is a market correction due? He has no idea when the next correction is coming. If it happens, do not sell into the plunge. You may want to take some chips off the table to have some of your holdings in cash. The time to step back in is when the sell-off looks like it will continue to fall everyday.