Going into today, I was long 1,200 shares of UCO with six covered calls in-the-money at the July $28 strike and six covered calls out-of-the-money at the July $33 strike. UCO has been moving higher since its mid-April low. The ascent has been anything but steady and might have topped out again. Two days ago, the leveraged oil ETF hit resistance at a long trend line of lower highs that went back to early May 2012. I saw it falter when it got to this trend line and started trying to figure out if I should hedge again or let it play out. The downside risk looks like it could be another $5 or so from yesterday’s close. The sound of losing $6,000 (1,200 shares x $5) without trying to hedge at all, didn’t appeal to me. I decided to repeat a variation of the last ratio spread I did on UCO, but this time I’ll keep it through the end of expiration.
While UCO was trading at $29.10, I bought 10 UCO July $29 puts for $1.911 and at the same time sold 10 UCO July $27 puts for $1.138 and sold 10 July $26 puts for $0.873. I sold …
I sold a vertical call spread on TLT (20-year Treasury ETF) for a $0.28 net premium less than a month ago and closed it today, a month before it was set to expire. While TLT was trading at $116.54, I bought to close 10 TLT June $127 calls for $0.07 and sold to close 10 TLT June $129 calls. I paid $31.25 for the $0.03 net premium including only $1.25 in commission (thanks to a commission rebate on the calls I sold). This gave me a realized gain of $240.98. I didn’t see a good reason to leave the small risk in place in case the position turned on me.
My remaining upside potential was only $30.00 from here, which amounts to 0.75% upside on the money I had at risk. Even annualized, that’s barely over 8%. The goal was to take a full profit, but since I was able to pocket 88.5% of my maximum profit in less than half of the planned time, it was an easy decision. Now, I’m in a position that allows me to watch TLT and wait for the next opportunity to make the same trade again. I don’t know if that opportunity will come anytime …
I charted the daily prices for the past six months on the Dow Jones Industrial Average ($DJIA, $INDU, $DJI, the Dow) after the index closed for the week at 15,354.40 on Friday, May 17, 2013.
Some of the reliable indicators are less predictive once a stock or index stretches past old highs. Previous resistance has been broken and no time in the past can be used as a guide to the next hurdle. The trend line of higher highs can be a small guide for where a surge might stop, but it doesn’t mean the chart is going to turn south. The past six months have shown that every touch on the upper trend line has only meant sideways movement for the next week or two with an occasional 2-3% drawdown. The DJIA can fall 3.5-4.0% and still be above its trend line of higher lows. A move down to the short trend line of higher lows, around 14,500, would be a 5.5% mini-correction and the rally could continue from there.
The moving averages might be more telling, not for …
I have no options contracts expiring today. I didn’t start the month with a bunch on my plate for May. Over the past few weeks, I closed or rolled out the positions I did have for May. Since I don’t have any positions that changed today that I need to cover, I’m taking the opportunity to post what I have in my current portfolio.
Symbol
Shares/ Contracts
Expiry
Strike
Type
TLT
-10
June
$127.00
Calls
TLT
10
June
$129.00
Calls
EEM
-3
June
$43.50
Puts
QCOM
-2
June
$65.00
Calls
SSO
-2
June
$72.00
Puts
UCO
-6
July
$28.00
Calls
UCO
-6
July
$33.00
Calls
T
-3
July
$37.00
Puts
UWM
-2
July
$52.00
Puts
DIS
-1
July
$65.00
Puts
IWM
-3
July
$95.00
Puts
UCO
1200
Stock
QCOM
200
Stock
I have $65,843.12 in cash to cover most of the puts shown above. That leaves me with a little more than $20,000 in margin exposure. It’s not an insane amount, but deserves to be watched and managed. I’ve thought about buying some puts to hedge some, but obviously haven’t. The longer this rally goes on without a decent correction, the more I worry. The technicals haven’t turned yet, so I haven’t panicked early. At a minimum, I might close some more exposure soon to remove the risk of a real sell-off.
I feel better about my IWM naked put trade from yesterday. I was scared the rise in the Japanese yen would kick off more algorithmic selling today as it did yesterday when the yen hit parity (1 to 1) with the US dollar. Instead, IWM is higher and I’m up more than $100 on my three naked puts from yesterday.
Even with the small cap rise of 0.75% so far, large caps are virtually flat and tech is only up a little. I decided I should close the cheap puts on I have SSO and QQQ while I could get out with a good profit on both. They both had very little upside potential from here and with six weeks to go before expiration, my annualized return on what was left for both positions was under 5%. 5% is not enough reason for me to leave the risk in place since I’m over-invested anyway, even after dumping these three option contracts.
While QQQ was trading at $72.85, I bought to close two QQQ June $69 naked puts for $0.38 each and paid $76.78 with commission. When I sold these puts, I wrote QQQ looked like it was due to bounce. I should’ve …
I wasn’t planning for this trade to hit today when I entered it. My plan was to get an order in place to hit on any weakness over the next week. That weakness took about an hour to surface instead of a few days. I was in the process of changing a client’s position to roll IWM puts to July from May and figured I could do well on the July portion of that trade in my account too, if IWM came back to this morning’s lows and the contract’s highs.
While IWM was trading at $95.96, I sold three IWM July $95 naked puts for $2.85 and received $853.82 after paying $1.18 in commission. When I started looking at the trade, the contract was bouncing between $2.60 and $2.65. I checked the high trade of the day and saw it hit $2.85 at some point. That’s not a completely reliable indicator of how high the contract’s bid/ask got during the day, because it’s possible that no trade hit when the contact had a higher bid/ask. The way the market was behaving in the afternoon, I thought the worst was over for the day and figured the tomorrow morning would be …
Disney (DIS) shares started running away from me after I went bullish in February. I’ve sold two sets of naked puts since then and have profited nicely on both, but could’ve done better by buying calls or even buying the shares. I started worrying that the price was getting ahead of itself recently. My thinking changed today when it dipped after their earnings release. I can’t find the negative in the earnings details yet. It looks like they beat estimates and have strong net income growth. These results don’t even include Iron Man III revenue.
The chart looks like it was possibly due for a slight reversion to the mean, maybe down to the 10-day moving average ($63.86) again or even the 20-day moving average ($62.39). Both moving averages are ascending and neither would mark much of a sell-off after such a strong few months. I decided to take a nibble into the stock again and have another order in place to add to my position on further weakness.
While DIS was trading at $65.03, I sold one DIS July $65 naked put for $2.11 and received $210.23 after paying $0.77 in commission. I almost made this trade closer to the open, …
I charted the daily prices for the past six months on the S&P 500 index ($SPX) after the index closed at 1,614.42 on Friday, May 3, 2013.
The SPX has been on the tipping point recently, but didn’t go off the edge. The large cap index rode along its 50-day moving average (dma) for a few days in April and then moved back above its 10 and 20 dma to close out the last few days of the month. 1,600 looked like it would continue as resistance when May rolled around, but after a few days of butting against the ceiling, the SPX gapped higher on Friday to reach new highs.
The SPX has been in its current ascending trading channel for nearly six months and is still showing strength. The 10 dma moved above the 20 dma again and the Williams %R indicator has returned to overbought to show sentiment is clearly favoring the bulls again.
The best the bears can hope for in the near-term is a retest of the round 1,600 line as the index fills in …
This morning’s positive jobs data caught most investors off guard. Not only did it beat forecasts by 10,000, the previous month’s number was revised 50,000 higher. Much of my concern for the market’s direction came from my view that if the jobs data is weakening, the economy will follow. Based on today’s employment data and the recent positive housing data, I’m more bullish than I was last week. I’m still somewhat cautious due to the run we’ve already seen in stocks, but I’m back to thinking any dip will be relatively shallow, maybe 5-6%, not 10% or greater as I was starting to fear.
Based on my outlook, I added more exposure and to get more bang for the buck, I sold naked puts on leveraged ETFs. While UWM was trading at $57.49, I sold two UWM July $52 naked puts for $1.80 each and received $359.26 after paying $0.74 in commission. As expected, the market gapped higher at the open and premiums on puts tanked. I tried to get in a quick order on this leveraged small-cap ETF at $0.30 below yesterday’s last trade, but it didn’t hit. Every minute I didn’t get the order in, UWM climbed higher. I …
