Options Expiration – January 2013

I started this year completely different than last year.  I was under invested coming into January in 2012.  This year, I came in with some margin risk at play. I worked it right this time.  Stocks have had a nice run up and I’m profiting from it, so far.  I had already cleaned up a lot of my holdings and taken profits by the time today’s options expiration came around.  I only made one trade in my account today. My two previous hedges expired worthless.

- QCOM – Two January $65 covered calls – I almost got out of these yesterday when QCOM was trading over $65.  I debated selling my shares for a few cents of profit and then closing my covered calls for a profit and giving up $0.20-0.25 in time value.  I opted to let it play out overnight.  I didn’t take too long before I dealt with it this morning.  While QCOM was trading at $64.59, I bought to close two QCOM January $65 covered calls for $0.03 each and paid $7.39 with commission.  This gave me a realized gain on the calls of $497.96.  I closed the January calls with a calendar spread, so at the same time I sold two QCOM January $65 covered calls for $2.62 each and received $521.70 after commissions.  QCOM has a dividend of $0.25 due before these calls are due.  That helps juice my returns a little more.

I would’ve done better to make the trade yesterday or even closer to the open this morning when QCOM was still trading over $65.00.  Sometimes it works out to wait and sometimes it’s like this.  I was actually thinking about closing the whole position, not just rolling the calls further out.  My cost per share is down to $56.00 per share.  I’m not worried about keeping a profit on the series of trades.  I was just considering reducing some risk and selling $62.50 strikes with new naked puts.  I backed off because I’m not overly concerned about QCOM.  I’ll be happy to sell a new single naked put, like I did last year, on any dip in price.  Sticking with the $65 covered calls gives me more profit potential.

- VNQ – Two VNQ January $64 puts (long) – This was the long side of the VNQ put spread I sold late last year.  I took the profit on the short puts last week and let these ride since I wouldn’t have received more than a dollar or two to close them.  They expired worthless today.

- IWM – Two IWM January $80 puts (long) – These were the two puts I used to hedge the 300 IWM shares I own.  I’m taking a realized loss of $800.76 on this insurance, but because I went long on the puts I was able to stay long the shares without having to sweat a big sell off.  The share price is up more than $10 since then, which gives me a positive difference of more than $1,200.00 with little downside risk for the past two months.  Two weeks ago, I sold out of the money covered calls on my 300 shares for February.  Those calls are now in the money.  I think I’m going to let them get called away next month, assuming small cap stocks don’t fall by then.

I’m not expecting a big rally or sell-off from here.  That stance is keeping me from being too aggressive on either side.  If anything, I have a bullish slant to my positions and should consider buying insurance again.  I don’t want my sizable year-to-date paper gains to vanish before they become realized gains.  At least my naked puts are getting farther out of the money, so I have a decent cushion building up to protect me from any near-term dip in prices.