Sold USO (Oil ETF) Naked Puts
I sold naked puts on USO last year and then assigned the shares at expiration. I then sold covered calls a few times before finally getting out completely when I sold my 300 shares on November 25th for $42.68. USO continued to fall for a few weeks and then turned north again. I’ve been eyeing it and waited to see when it would drop again, but instead it kept climbing.
I still expect USO to fall back some, but since I’ve been wrong for the past $5.00 I didn’t want to miss out on what I think will be a good longer term play. While USO was trading at $37.51 I sold three USO February 31 naked puts (UBONE) for $1.45 each and received $422.75 after commissions. I sold out of the money by $6.51 for that reason. With an ETF as volatile as USO I want to be sure I leave room for error. I’m still getting a good return on these options if USO stays up. If it drops below $31 again I don’t think it’ll stay down too long and I’ll sell covered calls to try to keep a profit.
Taking a look at my other covered calls I sold in December I see that I made my move to early on a few. FCX has been on a big run. I expected a run to come, but grew impatient. So goes the life of an option seller. JOYG has had a good few days too. I’m not buying these calls back yet. I have less than two weeks to go before they expire and I wouldn’t be surprised to see either or both pull back some before January expiration. Worst case the calls are assigned and I sell my shares and move on with cash in my account. The goal when I sold them was to have more money at expiration than I had then and that’s looking likely – not that I want to jinx it.
Comment by Premium Collector
nice, conservative trade…if put to you your basis will be near the 52 week low…highly unlikely at this point IMO…good luck with it
Comment by Super Saver
I like the idea of selling naked put on stocks and ETFs that I’d like to own. I was doing it late last year for MON and ENER when the market was declining, but I’ve stopped since the market started a (small) recovery. I am going to give consideration to selling a naked put on USO since I expect that Oil will go back up again sometime in the future.
Comment by Premium Collector
with the drop in oil today we might be getting close to a nice setup to sell puts…I might wait for a support level since oil has shown the ability to free fall
Comment by Alex Fotopoulos
Yep, I knew I was jumping the gun on USO yesterday, but did it anyway. Did you see MON today? It was up almost 20%. That means my covered call strike was a little too low, but it could come back some from here or I might sell new naked puts at the same strike as my covered call so I “win” on at least one of them.
Comment by HM
Thanks for the tip. I pulled the trigger yesterday on some Jan 31 Puts.
Comment by Super Saver
Alex,
Do you have any update on your thinking about USO? I was considering selling puts a few days ago, but had not done so. Now that USO fell below $31 today, I’m thinking oil may fall further.
For reference, I have been remarkably wrong in predicting the market direction recently. It always seems to go the opposite
Thanks.
Comment by Alex Fotopoulos
Yeah, I’ve been debating it since it started turning back lower. If my option expired right now, 12:25 pm on 1/12/09, I’d have a profit. I agree oil will likely head lower, but for how long I don’t know. I’ve been thinking of selling some way out of the money calls for extra cash to cushion my downside, but not a real hedge. I’m still debating it though.