Sold USO Calls & Bought SSO Calls


I started the day by selling covered calls on my 300 newly acquired USO shares I had to buy at $31.00 (I paid $9,319.99 with commissions) from the February 31 naked puts that expired in the money (ITM).  USO started up and then headed south with the rest of the markets.  While USO was trading at $24.30 I sold three USO March 25 covered calls (UBOCY) for $1.65 each and received $482.75 after commissions. 

I considered the March 26 and March 27 calls which weren’t too much less in price considering the extra $1.00 potential in gain from the underlying ETF.  I decided to cut my losses up front and take more off the table immediately by going with the higher premium carrying March 25 calls even though I stand a great chance of ending the position at a loss.  I sold the original puts for an after tax gain of $1.41 per share.  Today’s trade knocked down my costs by another $1.61 per share.  That makes my cost for my 300 shares approximately $28.05.  If I sell them at $25.00 I’ll lose over $900.  If the price of USO stays below $25, but close to it, I’ll stand a chance of breaking even as I rewrite the calls.  I don’t see demand for oil taking off in the near term, so any spike in oil soon will likely only be a bear market rally and I don’t expect it to last.  If it does last I’ll have cash back and will have a higher account value than I already have now.  If I see oil rising and believe it’s legit, I might consider selling new naked puts at the March 25 strike with the idea that one of the option legs is guaranteed to close out of the money (OTM).  If that happens and USO closes close to $25 at March expiry, I could “win” on both legs.  I have a long wait before I know what will happen, but I like my position for now.


By the end of the day all of my attention was focused on the S&P 500 ($SPX.X) and two ETFs that track it, SPY and SSO (double the S&P 500 index).  I’ve been saying for weeks that SPY was due to retest the November lows and wished I had bought puts back then when I was blabbing about it.  This weekend I noted in my $SPX.X chart that it just had a little farther to go to reach the November low.  As I predicted, the SPX stayed in the channel I drew, hit the top line of lower highs and dove down to find support at a low of the day of 742.37.  That’s only one point above the November low I’ve been calling for over the past few weeks.  I decided to put my money wear my mouth (or keyboard in this case) is.  While SSO was trading at $17.95 and the SPX was trading off its low at $748 I bought to open three SSO March 19 calls (SOJCS) for $1.40 each and paid $432.24 with commissions. 

I debated if I should buy the March 17, 18 or 19 strike calls and picked the 19 strike because it allowed my to buy three calls for less than I could have bought two March 17 calls for and the March 18 calls didn’t really fit either side.  I didn’t want to spend more than $500 on what could be a mistake if my prediction doesn’t work out.  The March 17 would give me a better likelihood of profiting because they contain a little intrinsic value (part of the option price is made up of value found from the option being ITM).  But I don’t see SSO staying flat, so it’s either dropping more and I’d lose on either or it’s going to rally and owning three options gives me a chance to make a greater percentage gain.

My original plan was to wait until the S&P 500 bounced off of support before I got in, but I’m 55% in cash right now and opted for more exposure to an upside rally.  Buying the calls seemed a good move versus selling naked puts because the risk is greatly reduced of how much money I can lose.  My loss on this trade is capped at $432.24 which would a 100% loss.  My potential gain is unlimited, although I’ll pick an exit point and put in a limit order as soon as I see what kind of reaction this closing at support does for the markets tomorrow.  If the option premiums go up $1.40 I’ve made a 100% gain.  If I don’t put a sell order in tomorrow, greed could easily take over and I could blow any profit I get in the short term if the rally doesn’t have legs.  Depending on how it plays out, I might sell calls at a higher strike since I have the long calls in place to keep the short calls from being naked and risky.


I didn’t cover my JOYG or TDW long positions yet with covered calls because both appear to be near their lows from a few months ago and I want to see if they’ll rally.  I considered buying puts on them and wish I had because they both dropped from where they were when I debated it.  My 200 FCX shares were called away and I received $4,979.98 after commissions. My 200 AAPL shares were called away and I received $16,979.91 after commissions. Also, my 200 CELG shares were called away and I received $9,979.95 after commissions. Those three were all down today, so I was happy not to have them bringing me down. 

All these trades/option assignments together brought cash balance up to $30,032.57. I’m ready to see confirmation that today’s support holds and I’ll put a lot of that $30k to work quickly, even if I miss the first few days of a bounce. I’d rather get in late than be fooled by a rally that dies off too quickly. Then again, I’m pretending a rally is guaranteed just because my chart lines thought it should mean more than a sick economy does.  I might be getting ahead of myself considering the DJIA lost 250 points or 3.41% today.

« « S&P 500 Chart (SPX.X) – February 20, 2009 - | - Closed MON Covered Call for Quick Profit » »

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  1. Comment by Jo

    I did the opposite with SSO. I just sold some SSO March 19 calls today. But it’s part of a covered call/collar. I was concerned about a bounce but thought any rally probably would not have legs. I guess we’ll see how it works out.

  2. Comment by Alex Fotopoulos

    Jo, I agree the next rally won’t have a long run until something changes in the fundamentals. I’m playing this for the bump. If 741 breaks on the S&P all bets are off.

  3. Comment by Jo

    Yeah, I am watching for 741 too!

  4. Pingback by Changed SSO Position

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  5. Pingback by 2009 Stock Picks - Q1 Review

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