Options Expiration – February 2012

This seemed like a very low-key expiration day, but I freed-up a lot of cash today.  Now, I have to figure out what my next move is.  Small-cap and mid-cap stocks have melted higher over the past few days, but larger stocks have flattened out or drifted lower recently.  This doesn’t give a lot of hints of what’s to come.  It could be a healthy consolidation period or we could be on the verge of a minor correction.  I’m far too under-invested to watch another leg of the rally get past me, but don’t want to over-invest if stocks are about to wander lower.

I only had two different positions expire today.  I another one that I closed a few minutes after the market opened.

• MDY – Two MDY February $200/197 Put Spreads – Perhaps I was overly cautious with my mid-cap ETF position.  I have been fearing a correction for the last few weeks and we haven’t seen it.  Rather than simply stay out of the market, I sold two put spreads on MDY to create an opportunity for a small gain.  It worked out for me, but I could’ve done even better without the hedge.  I’ll finish with a full profit on the spread of $276.92.
• IWM – 300 IWM shares long with three February $88 Covered Calls – I sold these three covered calls on IWM when the ETF was trading barely out of the money at $87.36.  I wanted to lock in some gains and did that, but left some money on the table with IWM trading around $91.80 today.  It’s been a good series of trades and I’m ending it with a realized gain of $2,247.62 (a little better than a 9% gain in five months).  This is the same group of shares that I took the put assignment on in November 2012 when I had a $775 paper loss on the position.  I reduced my cost per share with the original naked puts (sold in late September 2012), but lost more than that on the long puts I bought to hedge the position.  Thanks to the dividend and covered calls, I was able to reduce my cost per share again.  Finally, I found patience and used the charts to help me time my exit price well above my purchase price.  I’m going to get back in to IWM soon, but not today.  I’d rather wait for a down day to help with the premiums.  Expect a trade on Tuesday, after the markets are closed Monday for Presidents’ Day.  I might ease in to my next position with fewer than 300 shares on the line.
• UCO – Six UCO February $31 Long Puts – This was simple.  I opened the position on Monday and closed it on Friday.  The plan was to insure that I didn’t take a beating on my oil exposure as UCO entered the week looking vulnerable to a big sell off.  Luckily, I used these puts to protect myself rather than a stop-loss order.  UCO dipped hard on Monday morning (which would’ve triggered a sale if I had used a stop-loss order), but then recovered all of the way through this week, until today.  Ironically, as I write this in the late morning, UCO is trading within a couple of pennies of where it was when my order hit on Monday.  While it was on the way down this morning (more than 3% in the first 10 minutes of the day) I got out.  While UCO was trading at $31.55, I sold to close six UCO February $31 long puts for $0.05 each and received $31.39 including a $1.39 commission rebate I lucked into.  UCO continued to fall as low as $31.19 before bouncing back some.  I might have been able to get a dime for each contract if I waited, but my order at $0.10 didn’t hit at first, so I changed it to make a few bucks rather than nothing.  I was confident enough that UCO wouldn’t continue to falling and end below $30.95.  I decided $30 was worth the trade versus the likelihood that I’d end up with nothing for my option contracts.  Having insurance for the week cost me a realized loss of $213.22.  I still have a paper profit on the 600 shares I’m long and the six April $35 covered calls I’m short.