Introduction
February has been a turbulent month for financial markets, particularly with the crypto currency linked high yield ETF sector. A sharp decline in Bitcoin, stagnation in Ethereum prices and a looming USD $5 billion options expiry were key drivers of market volatility, leading to heightened uncertainty.
Adding to the complexity, broader economic and regulatory shifts played a significant role. The ongoing US-EU trade conflict, the SEC's decision to dismiss its lawsuit against Coinbase and the USD $1.5 billion Bybit hack further reshaped investor sentiment, intensifying concerns about exchange security and centralized platforms. These events highlight the need for strategic diversification, hedging tactics and a keen awareness of macroeconomic factors.
For CONY, MSTY and YMAX, these factors translated into a challenging month, with notable price declines. However, strong income distribution rates continued to reinforce their long-term appeal, highlighting the resilience of income generating strategies despite short term volatility.
The following is a breakdown of what transpired in our portfolio, key market insights and strategic adjustments for February 2025.
Portfolio Overview (February 2025)
Transaction & Options Overview
February's trading activity was focused on managing risk, generating premium income and adjusting positions to align with market conditions. The key option transactions included:
Additionally, a 50 share purchase of MSTY at $25.95 per share was executed, which has since declined, contributing to the portfolio's overall losses.
The USD$120.73 collected in premiums helped soften the total portfolio loss, though it is not enough to fully compensate. More aggressive option selling strategies could be used to generate additional income as option premiums are still high due to market volatility. It is noted that there is an opportunity to generate more passive income by selling covered calls and cash-secured puts. For example,
- Selling covered calls on MSTY & YMAX
- Selling cash-secured puts on YMAX.
Portfolio Breakdown
- CONY (-36%) suffered the largest decline, primarily due to its strong correlation with Coinbase (COIN) and the overall Bitcoin market downturn. Coinbase's stock faced downward pressure crypto trading volumes declined, and investor sentiment weakened following the USD $1.5 billion Bybit hack incident.
- MSTY (-32%) declined sharply due to its exposure to MicroStrategy (MSTY), which saw significant losses as Bitcoin plunged. MSTR's leveraged Bitcoin holdings exacerbated its volatility, dragging down MSTY's performance.
- YMAX (-20%) performed the best among the three, as its covered call strategy and diversified exposure provided a buffer against market downturns.
- Overall portfolio (-32%) loss reflects market uncertainty, particularly within the crypto-linked sector, compounded by high implied volatility, reduced liquidity and risk-adverse sentiment due to global economic factors.
Market Drivers Behind Portfolio Performance.
- Cryptocurrency Market Weakness
- Bitcoin's price declined approximately 21% from January highs, leading to sell-offs in crypto related assets like COIN and MSTR.
- The Bybit hack incident (USD $1.5 billion stolen) further eroded market confidence in centralized exchanges, contributing to negative sentiment towards CONY.
- Macroeconomic & Geopolitical Factors
- US-EU trade tensions and ongoing tariff disputes with China, Mexico and Canada created further uncertainty contributing to a broader risk-adverse environment.
- The Federal Reserve's hawkish stance on interest rates has shifted capital into safer assets, reducing demand for high yield, high risk ETFs.
- Options Market Impact
- The looming USD $5 billion Bitcoin options expiry caused heightened volatility, leading to short-term price swings that affected holdings like MSTY and CONY.
- Declining Implied Volatility (IV) in MSTY and CONY suggests that speculation has reduced, which can impact options premium generation.
Portfolio Summary
Portfolio Implications and Strategic Adjustments
Strategic Adjustments
- Continue Generating Premium Income.
- Sell short term covered calls on YMAX for steady premium collection.
- Sell longer term covered calls on CONY & MSTY to leverage IV decay
- Sell cash secured puts on YMAX to accumulate shares at a discount if assigned.
- Risk Mitigation & Hedging
- Buy protective puts on MSTY to hedge against further downside risk
- Reduce exposure to crypto volatility by reallocating to CSPX. This provides diversification while maintaining exposure to large cap equities with long term growth potential
- Monitoring Macro economic conditions
- Assess Bitcoin's support levels, a break below USD $80k could prompt further decline in CONY and MSTY.
- Stay vigilant on US-EU trade developments and crypto regulation shifts.
Given the current market conditions and portfolio performance, a structured target allocation is recommended to balance income generation with risk mitigation.
- (64%) Reduce exposure to CONY and MSTY
- (16%) Maintaining a presence in high yield ETFs (YMAX)
- (10%) Reallocation into Broad Market Exposure (CSPX) for stability
- (10%) Increase cash allocation for flexibility in trading opportunities and hedging options
CONY, MSTY and YMAX will make up to 80% of this portfolio.
Return on Investment (ROI) Analysis
February saw in-month dividends exceed USD$500, further cushioning the portfolio against unrealized losses. While this does not fully offset declines, it underscores the strength of high yield income strategies in volatile markets.
- CONY:
- Total net dividend yield of 12.44%,
- 3.73% from 2024 (USD $225.57)
- 8.71% from 2025 (USD $426.60)
- MSTY:
- Total net dividend yield of 7.68%
- 7.68% from 2025 (USD $346.07)
- YMAX:
- Total net dividend yield of 8.16%
- 2.81% from 2024 (USD $52.09)
- 5.34% from 2025 (USD $98.95)
Implied Volatility (IV) Trends & Strategy
As market conditions shift, implied volatility (IV) trends provide valuable insight into risk perception and option trading opportunities. February saw significant IV decay particularly in MSTY and CONY indicating reduced speculation and a shift in market expectations.
Key IV insights
- MSTY saw the sharpest IV drop, declining from it's December peak to lower levels. This suggests a cooling off in speculative bets on Bitcoin and MicroStrategy stock
- CONY remained volatile but saw long term IV (IV 120) declined, signaling reduced uncertainty about Coinbase's future stock movement.
- YMAX maintained the lowest and most stable IV, reinforcing it's position as the least volatile ETF in the portfolio, ideal for income-generating strategies.
Conclusion
February 2025 presented significant challenges for the portfolio, primarily driven by crypto market volatility, macroeconomic headwinds and shifting investor sentiment. While MSTY and CONY faced steep declines, YMAX demonstrated relative resilience, and options premium collection helped soften the impact of losses. The portfolio's focus remains on strategic income generation, risk mitigation, and diversification to navigate the evolving market landscape.
Looking ahead to March 2025, the trade execution plan prioritizes covered call strategies, cash-secured puts, and protective puts to enhance returns while limiting downside risk. The introduction of CSPX as a broad-market hedge will further reduce exposure to crypto-related volatility, providing a more balanced investment structure.
By staying adaptive and leveraging market inefficiencies, the portfolio aims to recover losses and sustain long-term income growth, positioning itself effectively in an uncertain economic environment.
You can see further details of my portoflio using the following Google Sheets page.
If you have any queries, feel free to reach me and I will try to respond as soon as possible.
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