Took a Credit on PCU Vertical Put Spread

In 2007, I sold options on Southern Copper (PCU) a few times.  I think I ended up taking a little loss on the series of trades (which is moot now) and then moved on to FCX.  FCX ended up taking a harder fall in the recent downturn than PCU so I came back to it for my trade today.  I was influenced by the beginning signs of a recovery.  The mistake I made last time was not hedging.  Since then I’ve learned to hedge more often, although I didn’t do it with NDAQ yesterday and now wish I had since it has fallen.

While PCU was trading at $18.07, my limit order for a vertical spread hit on the put options.  I sold six PCU April 17.50 puts (PCUPW) at $0.96 and received $561.50 after commissions and bought six PCU April 15 puts (PCUPC) as my hedge at $0.31 and paid $190.50 after commissions.  I entered the order for a net credit of $0.65 and received net $371.00 total for the two option trades.

I’m trying to increase my exposure to the markets a little more each day and decided that adding a play on copper in the mix would help me balance some.  $20.00 might pose a little resistance on the PCU chart based on previous highs and I’m expecting $17.50 to hold support although PCU just passed above it last week.  $12.50 seems like a harder floor for support which is why I hedged.  The final decision probably came down to the trading channel I drew that shows an area around $17.50 and another not far above $16.00 offering potential support.  Those trend lines coupled with the 10 day moving average that’s currently around $17.00 make PCU more than interesting to say the least.

I admit, this might have been somewhat of a forced trade since I have so much cash on the side (in a percentage basis) that I feel should be doing more for me.  If PCU falls soon enough that I can get a profit on the long put, I might sell it, remove my hedge, take the profit and expect to be assigned the shares if PCU doesn’t turn and rally right after that.  I had my chance to do that with March options expiration with NDAQ and SSO, but didn’t take the risk and in hindsight clearly see I should have.  If I think a fall in PCU is temporary, an unhedged short put option might not be too risky.

(Also worth noting today, I’m having bad neck pain today and I’m on more pain killers than usual – I’m not looking for sympathy comments, just explaining my state of mind in case this post reads like I’m on drugs.)