Solar Energy Fund
As one of the fastest growing sectors in the last 5 years, Solar Energy continues to shine with the Chinese market leading. Renewable energy resources gained traction in both China and US as a way to cut the energy dependence on foreign sources. Although the financial crisis of 2008 and the European Crisis of 2011 threatens to put a dent in the financing structures necessary to implement Solar Energy projects, the installed capacity is continuing to grow at an astonishing rate.
Many Solar Wafer and Panel makers have taken huge hits up to 80% to their stock prices in the last three years due to two reasons. The over investment in the manufacturing capacity before 2008 while financing was abundant has led to oversupply and decreasing prices as financing dried up during and after 2008. The other reason is the financial crisis in both the USA and Europe has created the impression the necessary subsidies and financing schemes for larger Solar Installations might be in doubt, making the future expectations for Solar manufacturers bleak.
However, many of these subsidies and financing incentives should come back as the economies recover and financing becomes abundant again, as renewable energy presents the only solution to complying with the Kyoto Protocol, and the similar measures in US to limit carbon emissions. Many of the solar manufacturers share prices trade at extremely cheap valuations of 2X - 3,5X EBITDA. Thus, Solar Energy investments are expected to give investors a very high return as they return to their normal valuations of 6X - 8X EBITDA and as growth and profitability rises as the oversupply of wafers get depleted and new projects are approved.
Due to the high-beta nature of many of the Solar Energy firms, the Solar Energy Fund will be a very actively managed fund. The aim is to exploit the long-term uptrend in the sector while avoiding the harsh price corrections these high-beta stocks can be faced with due to external factors. The fund will also try to take profits when there are extreme upswings in the price not supported by fundamentals and try to reinitiate positions at more favorable levels.
June 17th’ 12 14:52
Not only have I turned this Fund largely unprofitable but it also seems that if I had waited a little while longer I would have recovered most of my losses. It seems I have closed out my positions right when the stocks were normalizing. This has been really unfortunate for this Fund, but I still have confidence in this sector. In my opinion, many of these stocks are very undervalued When these stocks start their medium-term rally the gains will be so great that, this Fund will not only recover its losses but it will also become one of the best performing Funds. Because of the volatility in the sector though, it just is very hard having leveraged long positions without being exposed to margin calls. Therefore, I should probably wait for some sort of a capitulation before I put on any further trades.
June 4th’ 12 10:46
Unfortunately I have turned my best performing Fund into one of the bottom ones with my latest solar trades. I just wasn’t able to anticipate the developments that have happened in May 2012. Also the market weakness did not help either. I started getting margin calls and I decided to close down the positions altogether before they make so much damage that even future option trades won’t recover. The Fund is down about 61% and it will remain passive for a while until I can find some very solid option trades to make-up the losses. Another option would be to initiate medium-term long positions in the solar stocks if they really get crushed and hence they would be about to capitulate. In both cases, I will wait until I can be very confident in a possible trade before I put it, because the Fund can’t handle any more downside.
May 4th’ 12 15:43
FSLR and LDK are close to my buy targets. The developments in Europe are cause for concern but even in a weak market, I will probably start to accumulate long positions in FSLR if it gets to $15 and in LDK if it gets to $2,65. I might do it with a hedge in short positions in SPWR or CSIQ.
Mar 14th’ 12 13:15
I had remained passive on this Fund after the spectacular trades I have made. However, I decided to initiate some large long term Treasury positions in the Fund to take advantage of elevated yields. When the yields come down with a market correction these should appreciate quite well.
Feb 14th’ 12 15:57
I have closed out my position in TSL at another 15% profit. I have also closed out my short position in SPWR. I did not get out of those positions not because there isn’t more downside to those stocks, but because the sector has just gone crazy lately and I wouldn’t want to lose all my gains to a 30% up day. Plus the Fund is up an amazing 32% so I will probably sit on the sidelines until a real good opportunity emerges. My next trade will probably be towards an up move, when I catch these solar stocks back down another 30% from their current levels.
Feb 13th’ 12 9:52
Trina Solar has jumped another 14% at the open but has turned back down sharply and I was able to short it when it was up 9%. It will probably just crash back to at least $9 since it was unable to make a new high. And if it turns back up my profits from the previous trade should cushion the losses before I close my position.
Feb 10th’ 12 15:48
There have been some real erratic movements in the solar stocks in the last 2 days and the Fund has done a great trade to take advantage of that. Trina Solar was up %15 in two hours when I decided to short it. It actually continued to move higher to almost up 30% but came down towards the end of the session to put me at a slight profit. Then it went down another 8% the next session that made up about the same amount in two days. I will close out the position since it might jump back up another 10% at the next session’s open.
Jan 23rd’ 12 15:13
Ironically, my hedge position in SPWR is working much better after I have closed my other positions. SPWR is down almost 8% taking the Fund up almost 20%. I am contemplating when to close out the short position in SPWR as I wouldn’t want to lose the profits to a surprise up 30% day that have happened recently. I will probably evaluate the technicals to make my decision.
Jan 19th' 12 10:44
Seems like there's some profit taking is approaching in the Solar sector, as well as the market in general. I closed out the long positions in FSLR and LDK.
Jan 13th' 12 15:11
Seems I won't have a chance to close out the options positions on TSL before market close. Since Europe was closed shortly after S&P downgrade news the markets have not responded fully, or at least I hope. I will take the chance to keep those options for a while as I don't presume the EUR.USD market can just pass over the news.
Jan 13th' 12 11:04
I just closed the stock position on TSL as it gave signals of turning down from its recent jump. I still have the uncovered short position in 9 calls, that I will try to close before market close. Until that it is a very risk position to carry but the France's downgrade will probably overwhelm the markets and the EUR will go down sharply even more. TSL seems to move very closely with the EUR so I should have a shot at closing those options positions at favorable levels. If I can close the options position at roughly $0.15, the profit on the TSL trade will go from 19.2% to 26,6%.
Jan 11th' 12 15:02
Also I would like to comment a little on the effect of the hedges on this up day. Obviously the hedges on SPWR and TSL are capping the gains on the Fund to about 13% while the sector is up close to 18%. However if it weren't for the short position in SPWR margin calls would have come long before we reached this spectacular up day. Also since the recent deal for SPWR was done at 8.80 if the sector keeps rallying that price might limit SPWR somewhat and let the profits from long positions run. As for TSL I had sold 9 Jan 20th' 12 calls for $0,44. So TSL above 9,44 does not add anything to the Fund. However, it should be noted that if the stock moves upwards of 9,44 it does not make a loss. It just caps the profit at 19,2% for the TSL position which is still very good. A strategy might be to sell the stock and keep the short positions in options, expecting the stock to go down back below 9,44. That would negate the hedge and the cap, but it would also create a short term uncovered short position on the options which would be very risky if TSL keeps its momentum until Jan 20th' 12, so I won't do that.
Jan 11th' 12 14:59
The solar market is rocketing higher on no apparent news flow. The fund has regained all its losses and then some. Well it was on pretty phony news that it went down so it is not expected the move upwards comes on speculation also. It seems that some big player has opened positions on the whole sector and making an index style investment as smaller firms are up more than larger firms. So if the buyer is making a sector wide investment the larger firms are absorbing the money while smaller firms shoot up 30%. Still even FSLR which is the largest is up close to 10%.
Jan 5th' 12 9:35
The market uncertainty and the degenerating EUR is surely having a devastating effect on high-beta sectors like Solar. The Fund is down almost 20% but the good thing is the hedge in SPWR is protecting against further margin calls. There are a lot of fundamental investments news that is supportive of the sector, however and my opinion is Solar will take off really big once the market stabilizes. The only reason it is suffering is because of its high-beta however valuations are still very cheap and none of the larger firms face cash flow problems. If the Fund manages to avoid margin calls it will probably one of the biggest winners.
Dec 23rd' 11 9:48
The thing is SPWR deal supports the sector and will put a takeover premium on other stocks but has effectively taken off SPWR off the table as a takeover target. Although this deal has cost me dearly, once it rubs on other solar stocks it will be great for the Fund. Also of note is that the Fund is still on the positive on its SPWR position, what the deal has rather done is it erased the huge offsetting profit on SPWR and has invalidated the hedge.
Dec 23rd' 11 9:46
The deal in SPWR has completely screwed up my hedge in the Solar Fund. As expected margin calls came and I had to reduce my hedge position in SPWR by 30%. Still the good thing is SPWR is only up 8% and has not held up the premarket gains. It is also far away from the deal price as it was a private placement and no tender will be forthcoming. Although this deal has cost me dearly, once it rubs on other solar stocks it will be great for the Fund.
Dec 20th' 11 9:13
KKR invests in 4 solar projects in California. Despite FSLR's guidance which totally wrecked the stock prices KKR's move probably means Solar does have a strong future. Big private equity does not make a move unless they are sure they will get stable cash flows. The Fund is not in that bad a shape either given the 15% correction in the stock prices.
Dec 14th' 11 15:54
I had to increase my short position in SPWR even more as it moved down and the nominal hedge I had decreased. No complaints though as I'm glad my hedge worked well. The Fund will close out this horrible day for Solar stock with only a 5% decline compared to up to 20% declines in individual components. One bad thing is the short position although a good hedge has pushed up the margins so any more wild swings might bring about margin calls. Still the day is over with minimal damage.
Dec 14th' 11 11:02
I have raised my short position in SPWR to compensate for both the rise in FSLR and also as SPWR fell the nominal short position in the Fund fell also. Mainly I had to raise the nominal amount to be able to keep the same hedge ratio in the Fund.
Dec 14th' 11 9:52
I've decided to use the decline in FSLR as a buying opportunity purely on valuation. This company is trading at 8X forward P/E even with the lowered guidance, it is in no way financial strain and it is still in a growth sector. There is of course the possibility it will move lower especially if the market goes down but trying to catch the exact bottom is a fool's game. Also if it gets any cheaper there will be a high probability it will get taken out private at a hefty premium. If that happens the whole sector would jump higher too.
Dec 14th' 11 9:12
It's a horrible day for Solar stocks as FSLR guides lower. My short position in SPWR will protect me somewhat but still the Fund will take a huge hit. It's a good thing the Fund is not very leveraged so there won't be any margin calls. I might even use it as a buying opportunity
Dec 7th' 11 11:54
I did put on my solar trades. I took a long position in FSLR, TSL and LDK with a short position in SPWR equal to a little more than half total value of my long positions. I chose to hedge with SPWR based on technical reasons. It is on a very strong downtrend and one of the more shaky companies in the sector. In case of strong correction it should crash down enough to offset the losses on the long positions. I also plan to sell some covered calls since the market has still hasn't broken its downtrend and the upside should be limited to 20 - 30% in the short term for my longs.
Dec 7th' 11 10:22
There is some action in the solar stocks, especially FSLR, due to the purchase of FSLR's Topaz project by Buffett's MidAmerican Energy Partners. There are some good trading opportunities here but solar stocks are high-beta stocks and I will wait until the market gets some direction to put on my trades.
Dec 2nd, 11 10:53
Sold some out of the money calls in some financials roughly 20% above the current price. I had to go with financials since implied volatility on the other mega-caps were too low to be viable.