FREE WHELAN: Leverage on leverage and two coppers

In this Stockhead series, investment manager James Whelan, managing director Barclay Pearce Capital Asset Management, offers his insights on the key investment themes and trends in domestic and global markets. From macro musings to the metaverse and everything in between, Whelan offers his distilled thoughts on the hot topic of the day, week, month or year, from the point of view of a professional money manager.

Firstly, and from an old derivs hack* like me this is fascinating:

I’ve previously mentioned the growth of 0 Days to Expiry (or 0DTE) options as being a big part of the reason for the decline in the relevance of the VIX, and a clear sign of the growing trend for market participants to take more casual risk.

Ed: *Young derivatives expert!

Well. There’s more speculation to be done in the market than before.

There’s an ETF that has a 0DTE covered call strategy that now has 0DT options written over it. Leverage on leverage on leverage.

Extraordinary.

Coppers and robbing

Last week we mentioned copper. A few weeks ago we thought it looked cheap at the levels it was. Last week we started to really see it move.

We have been quite bullish copper the last few weeks and maintain that stance.

Last week we saw Chinese smelters pledge to explore to drop their output due to sharply declining processing fees.

(Education corner: The fees are paid by concentrate sellers to smelters to convert concentrate into refined metal and their movements are directly correlated to supply.)

The cuts won’t last forever but there’s enough bullish momentum behind it for now.

The narrative has turned back to shortages so hopefully (hope is not a strategy) we’ll see a continuing trend up.

Best picks are BHP (ASX:BHP) in the large cap and Alma Metals (ASX:ALM) for something small and directly levered to the copper price.

Last week I mentioned Boeing as being a fairly simple short in the US market.

They have some real problems that were easy to see (source: every second news article about how their planes are falling apart in the sky).

The call was to sell it down to election night when Trump wins and then pick it up cheaper to benefit from the massive push that will come from NATO in defence spending.

When I posted the chart it was at US$200 a share.

Now…

Looks like we may be at a price that looks buyable, only I still have zero confidence in Boeing at the moment, which is bad because I have more travel to do this year.

Defence spend

As an update, the FT actually ran an article on Saturday highlighting just how far behind the spending target of 2% GDP NATO countries are.

Is 44 billion Euros a lot of money?

To be fair, Germany is increasing their defence spending at the largest pace since WW2, which is something I’m not going to comment on right now.

Fun fact:

Next year the EU is bringing in rules that limit a country’s debt to GDP.

Countries over that limit face EU Commission sanctions, which may be lighter if you happen to breach the limit due to increased defence spending. You know where this heads.

We cover this and more in the most recent episode of the Theory of Thing podcast. Link here…

Don’t hate Kate

Finally, we leave a light on for Kate.

Last week I said that the doctored photo of Princess Kate was taking up a lot of attention.

That turned out to be something of an understatement.

The amateur investigations into “that photo” and movements of the Princess of Wales over the last 6 months puts the Kennedy Assassination investigations to shame.

The world needs answers.

But on a more relevant note, it’s shown to the world that we now live in an era where you can’t trust the photos put in front of you and how much more dependence we have on our own logic and on the media to protect us from mistruth.

The US election will be a comical series of gaffes in which each side will easily get to claim any photo or recording is AI generated.

Nothing is real anymore.

On that chirpy note, stay safe and all the best,

James.

The views, information, or opinions expressed in the interview in this article are solely those of the writer and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.