Sold UCO Covered Calls for April

Yesterday, I mentioned that I might sell covered calls on my 600 shares soon.  I didn’t wait much longer before pulling the trigger today.  The first debate I had wasn’t if I should sell, but what I should sell.  I was trying to pick between selling the covered calls for February or April expiration.  I only have one option set to expire in February and gave it some serious thought to add to next month’s expiration, but decided I could work on that later.  The February expiration had a better annualized return if the calls were assigned, but not as good if UCO stays below my strike.  While UCO was trading at $30.26, I sold six UCO April $35 covered calls for $1.40 each and received $840.17 after commissions.

I think oil is going to continue to rise and $35 might be a fair target to exit.  However, I don’t think it’ll get there before February’s expiration and depending on how the dollar moves, oil could lose ground again.  That lack of complete conviction in my outlook led me to stop waiting.  I could do worse than making a gain of $3,679.50 by mid-April.  That’s a 20.27% return (68.43% annualized) if these covered calls are exercised.  Even if UCO stays flat, I’ll make the equivalent of 15.54% annualized.

My average cost came down to $29.89 per share when I include all premiums since I began this series of trades in April 2012.  I even thought about adding in more naked puts to dollar cost average down some more on a dip, but realized I had more than 17% of my account in the leveraged oil ETF and didn’t need to extend my exposure yet.  I’m overly exposed to a small correction as it is.  In fact, I might close some exposure soon or at least make some more adjustments.

Wisely (luckily?) I left IWM (small cap) shares uncovered and have seen a great gain on my shares.  I should probably sell covered calls soon.  IWM made it over a big hurdle today when it moved above the high for 2012.  The recent rally has been huge and taking some profit soon could be smart.  My QCOM naked put and covered calls could be pushed into February.  In addition, I don’t have much more profit to squeeze out of my VNQ spread.  It might be time to do a reset on my account by locking in the 3% I’ve made in two days and selling more out of the money puts.

If I’m targeting a 15% gain again, I only need 1% per month (including January) to reach my goal from here.  However, I don’t want to miss further gains this month before the voices grow louder around sequestration bickering in D.C.  That day is coming.

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