Welcome to the first portfolio update issue of The Trading Club.
Each Friday, we’ll provide an update on the current live tracking portfolio (as of Thursday’s closing prices), a summary of the last week of trading activity, and updates on any significant developments among the companies we have positions in.
We will also provide answers to subscriber questions.
If you have any questions or feedback, please email us at [email protected]
Portfolio Overview
We currently have 11 open positions. We started off the trading week with eight put-selling trades and the British American Tobacco (BTI) call option purchased on May 30. If you haven’t yet seen it, we recorded a video while placing each of these trades, which you can find here.
The other two positions include the The PepsiCo (PEP) put sale limit order we placed on Friday, May 30, which was filled on the morning of Monday, June 2. We also purchased 200 shares of Triple Flag Precious Metals (NYSE: TFPM) in the final hour of trading on Tuesday, June 3, at $23.75 per share, following our recommendation on Monday, June 2.
A quick note on the Triple Flag position: we purchased the shares listed on the New York Stock Exchange, which are denominated in U.S. dollars. The company’s shares also trade on the Toronto Stock Exchange under the same TFPM ticker, but they are denominated in Canadian dollars, which explains the price difference if you look up the same ticker on the Toronto exchange.
The portfolio snapshot below shows all 11 current positions, including nine profitable positions and two in the red:
The notable underperformer in the portfolio last week was Sable Offshore (NYSE: SOC), the southern California oil producer that suffered a temporary setback from an unfavorable court ruling.
Sable Offshore Update
On June 3, two nonprofit groups, the Environmental Defense Center (“EDC”) and the Center For Biological Diversity (“CBD”) dealt a temporary blow to Sable’s ability to begin generating oil sales.
The nonprofits obtained a favorable ruling from the Santa Barbara County Court, which granted a temporary restraining order (“TRO”) against Sable and the Office of the State Fire Marshal (“OSFM”) that prevents Sable from restarting oil flows through the Las Flores Pipeline System. This pipeline is the critical conduit for the transport of oil from Sable’s Santa Ynez Unit (“SYU”) production facilities into the market for sale.
In response to the ruling, Sable announced the company is “exploring all possible avenues to address these preliminary ruling,” and it is now targeting August 1, 2025, for first sales, instead of the originally planned July commencement.
We see two key reasons why the TRO will likely get repealed, allowing Sable to proceed with restarting oil flows through the Las Flores Pipeline system and begin making oil sales.
- Sable originally received the waivers to begin flowing oil through the Las Flores Pipeline system last December, and nothing has materially changed since then. The legal burden required to justify a TRO is evidence of “immediate and irreparable harm” by continuing with the restarting of oil flows through the pipeline. In a court filing on June 3, California’s attorney general stated that the environmental groups pursuing the TRO did not meet this legal burden, including the following excerpt:
It is Petitioners’ burden to demonstrate immediate and irreparable harm to justify a
temporary restraining order. They did not do so in their hundreds of pages of moving papers and
supporting evidence. Accordingly, the Court should deny their applications for temporary
restraining orders.”
- The nonprofit organizations have no legal authority on the pipeline waivers. The authority to grant or deny the pipeline waiver lies with the OFSM, as dictated by the 2020 Consent Decree pertaining to the restart of the SYU project and associated infrastructure, which was granted by the federal government. And by granting the TRO on behalf of the nonprofits, the Santa Barbara County Court has, in effect, ruled that the OFSM violates its duties under the federally-granted Consent Decree. And because federal law reigns supreme over local law, this should be a decision that Sable can appeal through the federal court system.
As a result, we don’t believe this TRO will stand up under scrutiny, and we expect Sable to pursue all available legal means to repeal the order.
Despite the recent declines in Sable’s stock price, and our put position in the company, we continue to believe Sable Offshore will eventually clear this latest legal obstacle and begin producing oil and cash flows in the coming months.
We plan to continue holding our position in Sable Offshore.
Next, we’ll address some of the most common questions we received from subscribers last week.
Frequently Asked Questions
What kind of account do I need? Can I do this in an IRA, 401K, or other tax-deferred account?
The majority of trades we plan to make can be performed in a non-margin account with level 1 options permission, including all of the trades placed to date. These trades can be performed in self-directed, tax-deferred accounts including IRAs, 401ks, and HSAs.
In the future, we may choose to perform more complex trades that require margin capabilities and level 3 options permission. These potential trading strategies include short selling, selling puts or calls on margin, and option spread trades.
If you wish to take full advantage of these potential future trading ideas, you will need a margin account with level 3 option permissions. Tax-deferred accounts generally prohibit the use of margin, which would exclude these accounts from participating in these trades.
What happens if the trading price I entered doesn’t get filled?
If you place an order at a certain price and it doesn’t get filled, you can either adjust the price until it gets filled, or you can cancel the order. Depending on what the market does on any given day, prices may move toward your order or further away from it, and you must decide what price you are comfortable paying for each trade.
In our opinion, once we’ve decided a given trade is a good idea, we’re willing to adjust the prices up to a reasonable limit until we get filled (generally 10% to 20% of our target price). In cases when the market moves significantly away from our target order price, we may cancel the order instead and wait for another opportunity.
Why are some of the trades different from the original ideas you recommended?
Some of the trades differ from the original ideas recommended because we aim to give subscribers access to each trading idea before we place the trade in our live account. And as a result, market prices will inevitably change between the time we publish a recommendation and when you or we place the trade. In certain cases, these market fluctuations can cause us to adjust our trades from the original idea.
For example, consider a case where Hershey shares are selling for $155, and we publish a trading idea to sell the $155 strike put option on Hershey. If the stock price moves up to $160 by the time we go to make the trade, we may instead elect to sell the $160 strike put option.
Should you choose to place the trade based on the original idea of selling the $155 strike put option, this is no reason for concern. We will always aim to keep the same basic trade idea: selling Hershey puts. The key difference will lie in the exact strike price and premiums we receive.
This means your individual performance will inevitably vary from ours. In some cases, shifting market prices will cause you to get a better price than us, and in other cases, we will get a better price. But over the long run, should you choose to make the same general transactions that we make, but on a slightly different timeline, we expect the differences will be negligible.
What happens if we sell a different strike option that expires in the money, and your trade expires out of the money (or vice versa) resulting in a different final position?
Let’s address this with a couple of hypothetical examples…
- Let’s say that we sell a higher strike put option on a stock like Hershey at $165, and you sell the lower strike option at $155, and Hershey closes in between the two strike prices at $160 on the expiration date. This means we will be forced to buy shares at $165 on the expiration date, whereas you will not, since your option will expire out of the money. If you wish to replicate our exact position, you can simply buy shares on the open market the following trading day.
- Let’s say that we sell a lower strike put option on a stock like Nike (NKE) at $55 per share, and you sell the higher strike put option at $60, and Nike closes in between the two strike prices at $58 on the expiration date. This means you will be forced to buy shares of Nike at $60 whereas we will not, since our option will expire out of the money. If you wish to replicate our exact position, you can simply sell your shares on the open market the following trading day.
Here again, these differences will inevitably result in short-term differences in performance. And as noted earlier, we expect that in some cases the differences will result in you making a higher return than us, and in other cases, we will make a higher return on any individual trade. But over the long run, we expect these differences to be negligible.
Thank you for joining us at The Trading Club.
Good Investing,
Ross Hendricks
Porter & Co.