I started with oil.  While UCO was trading at $43.83 I sold three July $37 naked puts for $1.85 each and received $555.06 after commissions.  A few minutes later, while UCO was trading at $43.90 I bought to close my two April $42 puts for $0.25 each and paid $49.95 with commissions.  That’s how IB has it listed on my trade summary, but I’m sure the commissions will be corrected.  As it is right now, they are paying me to trade.  Obviously the commissions were flipped.  I’ll see how it looks tomorrow or in a few days when the trades settle.  Even if it’s flipped, a nickel is less than the commission should be.  It’s in my favor for now, so I’m not worried about it, but I know it won’t stay as it is right now.

I decided to close my April UCO puts just in case oil snapped lower in the next few days before expiration.  I got most of the profit out of them and don’t need to risk that much exposure to oil all in one week.  This new trade could give me a 5.24% (19.8% annualized) return if it works out and since I was able to lower my strike by $5 from the one I just closed, I was much more comfortable selling three contracts rather than the two I had.  I hesitated since the June options aren’t available yet for UCO and wondered if July was too far out.  Since I only sold three, not what I consider a full position, I thought the risk was worth the longer timeline.  I don’t see oil coming down much past $35 during the summer (if at all) and if it does, I’ll work the same trades as last year where I sell new puts at lower strikes and sell covered calls at the strike where I was assigned these puts.

Not too much later in the morning, I moved on to the S&P 500.  While SPY was trading at $138.46 I sold one June $137 naked put for $3.46 and received $345.23 after commissions.  (IB fixed their commission charges by this time.)  I wanted to add some exposure, but wasn’t bullish enough to go in the money.  I didn’t feel I needed to with the 2.59% (15.3% annualized) return I’m expecting from this trade.  I’d like to see SPY run higher and give me some cushion on this strike while I sell more puts at higher strikes.

I have more cash available I need to put to work and I’m not sure I’m going to sell in the money puts with it.  I might go farther out of the money and try to take smaller bites with a better buffer before a loss.  If I do that, I’ll be more likely to push the limits on how exposed I am and will go over what I have cash to back, like how I used to trade.  I’m concerned about the annual “sell in May and go away” trend, so I might ease in to any plans like this.  I’d hate to overload right at the obviously wrong time.  The only reason I’m even considering it is that so many investors expect the market to sell off soon that it might already be baked into the prices and the downside could be limited.  Ah, the joys of trading and market timing.

What are y’all doing – lightening up or adding to your holdings?

I’m still not enthused about adding too much more exposure with the VIX this low and premiums not worth a lot, but I hate not to have much upside potential during a bull market when the charts aren’t showing sell signals yet, just resistance possible.  Even after these trades listed below, I’m still only about 61% invested and I had to force myself into these trades.  I only replaced two of the contracts that expired and will leave some limit orders in place to hit if/when we get our next decent dip in the market.

This is how the rest of my positions finished up for the period.

• DIA – One March $127 naked put – Finished out of the money.  While DIA was trading at $132.23 I sold one May $133 naked put for $3.55 and received $354.12 after commissions.  This trade gives me a potential return of 2.74% (which is only 15.6% annualized) and a cushion of 2.09% before I take a loss on any downside movement.  I thought about buying a call instead, but think I’ll have a better opportunity for that next week if I wait.  Originally, I thought about selling an April put, but the premiums were terrible and gave me almost no downside protection and little upside potential.
• SPY – One March $132 naked put - Finished out of the money.  I’ll add a replacement before long.
• UCO – Three March $27 naked puts - Finished out of the money.  Already sold two new naked puts yesterday.
• IWM – One March $77 naked put - Finished out of the money.  While IWM was trading at $83.07 I sold one April $83 naked put for $2.21 and received $219.85 after commissions.  This trade is more aggressive, but small caps move quicker and in bigger swings, so that makes sense.  For the higher volatility, I can make a better return.  As with my DIA put, I can make 2.74% with this option, but since it’s only a month out, the annualized gain could be 27.9%.  That’s the kind of trade I like more than the DIA trade.  My downside break comes after 2.76%.  It’s not a lot, but I don’t have much invested yet so my overall account risk is very limited still.
• IWM – One March $80 naked put - Finished out of the money.  I’ll add a replacement at some point, hopefully soon.
• DSX – Three March $8 covered calls – Finally I’ll be out of my DSX position.  I’m happy with this trade in a way.  Not because I made money (I didn’t), but because I didn’t chase bad money with good money too far.  This only frees up $2,400, but it’s available now and that’s good.
• TBT – March $19 long put – Do you realize how happy I am that I restrained myself and didn’t sell naked calls to go with this order?  I lost 100% on the trade, but that was a small dollar amount.  I’m just happy I stuck with my anti-stupid mantra for this trade and didn’t lose $1-2,000 from naked calls.  I saw these TBT puts trade as high as $0.21/0.22 before they tanked.  That was $0.4-$0.05 below my limit order.  I was close, but came up empty.  I knew it was a gamble when I made the trade and that’s why I kept it small.

UCO is well off its highs and I don’t think it’ll fall more than $5 more over the next few weeks, if any more.  With that in mind, while UCO was trading at $45.16 I sold two UCO April $42 naked puts for $1.55 each and received $309.35 after commissions.  This is about a third of a position for me and I’ll definitely add to it if UCO drops closer to $40.  I just couldn’t stomach adding much more exposure above $40 without hedging with some longer dated long puts.  By selling just two contracts, I cut my total risk and could still make out OK.  If it works out, I’ll gain 3.81%, which is 37.4% annualized.  Not that it means much to UCO, but I have 10.41% of a buffer before I take a loss.  UCO can slide through that in a couple of days, but I always believe it’ll come back up eventually.  That’s the fun/profitable part of writing naked puts on UCO.

With so much of my cash being freed up tomorrow I need to sell new puts, but I haven’t been able to bring myself to it yet.  I’ll add something new tomorrow so my account has more exposure, but so many charts are not very inviting right now.  SPY, DIA and MDY are all near their trend lines of higher highs.  That doesn’t mean they are going to sell off, but the probability that they will weaken from here is decent, even if it’s just a few points to the trend lines of higher lows.  IWM is having a hard time getting very far past $83.00 and staying there.  Once it makes a solid move above this temporary ceiling I’ll be more inclined to wade in deeper.

While UCO was trading at $40.71 I sold three UCO March $37 naked puts for $2.00 each and received $599.01 after commissions.  If assigned, which I’m half expecting to be, my cost per share will be $35.00.  That’s 14.01% below the price when I made the trade.  More importantly, it’s almost dead on the midpoint for the ETF over the past six months and $1.00 below the intraday low from the past two and a half months.  I expect support to surface before I take a loss.

This is a half position for me on UCO at a total cost if assigned of $10,500.  I’m willing to go up to 20% of my account in UCO and maybe more if the price goes low enough.  I didn’t need to go for a full position yet.  As I mentioned, UCO has looked weak lately – not enough to keep me out of it, but skittish enough to make me somewhat careful.  If the trade works out for me I’ll make 5.69% or 38.47% annualized. With potential gains like that I have no need to overextend myself.  I almost went with a lower strike to make it a safer trade, but with only 300 shares at risk I think my downside risk is limited.  If assigned, I’ll run the same pattern I’ve done for a while – accept the assignment, sell new covered calls out of the money with new naked puts out of the money.  If possible I’ll try to make money on the shares themselves, but with such great premiums I’ll be happy to break even on the shares cost while I continue to rake in the premiums at a lower price.

The biggest risk to this trade is that the dollar strengthens faster than demand can keep the price of oil afloat.  That happened briefly last year as the fears of what would happen in Iraq diminished.  Oil nose dived, but then it came back and all was fine in UCO-land.  Iraq is back in the picture again recently and its impact will come and go for years to come in my view.  I’m discounting that and still believe this trade’s risks are worth its potential return.

I’m still very under-invested elsewhere.  As I mentioned in my S&P 500 chart this past weekend, the upside looked limited.  SPX is nearing potential support now that it has stepped lower.  If support surfaces I’m going to have to hustle to get some exposure back in place.  I’ll probably start adding more index ETF puts tomorrow, just to make sure I have more skin in the game albeit with out-of-the-money puts maybe.  Small caps found support on IWM’s 10 day moving average and a trend line of higher lows.  I want to see how that opens tomorrow before I really go after it.

• CSX – 1 January 20.83 COVERED CALL - Expired in the money which means my shares will be called away.  I finished the series of trades with a loss of $123.04.  I don’t think I’ll be back in on CSX for a while.  I’m not saying it’s a bad stock; I’m just eyeing other trades.
• DDM – 1 January 51 PUT - Expired worthless.  I’ll probably just work with DIA in the future, but might drop this one in sometimes when I want a lower priced tool to work with.
• JPM – 2 January 33 COVERED CALLS - Expired in the money which means my shares will be called away.  I finished the series of trades with a loss of $691.79.  I could’ve kept working the position longer and continued to be patient with it to make more money, but I think there are better opportunities to work my money elsewhere that have less volatility.  It was time to take the loss and move on.
• MDY – 1 January 160 PUT – Expired worthless.  See next bullet.
• MDY – 1 January 175 PUT – Assigned 100 shares at $175 as of this morning.  I could’ve bought my option back yesterday for around $6.00 and made $1600+- (~10%), but wanted to ride it to through expiration with the intention of selling a covered call after the shares were assigned after Friday’s close.  Once I had a chance to step back and see how empty my account is after today’s expiration I thought I should delay selling covered calls.  I need some upside potential in place without an option putting a ceiling on it.  The markets could fall and I might have been wise to cover this position, but I’m far less than 50% invested right now and one ETF falling wouldn’t be such a bad thing with so much cash available on the sidelines.
• QCOM – 1 January 52.5 PUT - Expired worthless.  There’s no way I can stay away from QCOM for long.  It’s become one of my constant positions through options.  However, I’d like to see it below $57 again before I sell my next put.  Seeing the March contracts would be good too.  Right now the February contracts aren’t worth enough and the April contracts are too far out.
• RSP – 2 January 48 PUTS - Expired worthless.  I’ll be back to trade RSP again.  I’d like to see it come down a few more cents first.  I think it’ll poke below $48.50 fairly soon and then I’ll sell another naked put when I see it hit support.
• TBT – 5 January 18 PUTS - Expired worthless.  A couple of days ago TBT looked like it was going to be down to the wire as it dipped below $18 for three days ending on Wednesday.  Now that it’s at $19.28 late in the day I’ll have to wait for the next drop before reopening this trade.  I might even go with a $17 strike next time, but probably not since support seems to still be close by the $18 strike.  The risk still seems small when premiums are added in.
• UCO – 3 January 35 PUTS - Expired worthless. More below.
• UCO – 3 January 40 COVERED CALLS – I thought these calls had a chance of finishing out of the money when UCO fell down below $40 earlier in the day, but then it recovered.  I decided to let my 300 shares get called away after coming very close to rolling my covered calls to a February $38 strike.  When I checked the put premiums I saw that I could do better with puts than covered calls.  So I deleted the order I was setting up.  UCO has been faltering some lately so I decided to give it another day before selling new puts.  This will close out my UCO position that started early last year in April.  UCO is much lower now than it was when I sold that first naked put of this series of trades.  UCO was trading at $61.27 then and is at $40.67 mid-afternoon today.  Even with this huge decline, thanks to the power of options I ended with a profit of $1,923.65.  It never gets old making a profit while the underlying stock or ETF declines.
• UWM – 2 January 30 PUTS - Expired worthless. More below.
• UWM – 1 January 35 PUT - Expired worthless. More below.
• UWM – 3 January 40 PUTS - I decided to close out all of my leveraged ETF exposure while I had a profit in hand.  While UWM was trading at $38.95 I bought to close three UWM January $40 naked puts for $1.10 and paid $330.97 with commissions.  My net premium total received on these two trades was $1,646.63.  Buying them back today gave me a realized profit of $1,315.66.  In January, UWM was trading at $43.66 when I sold the first LEAPS.  In May, UWM was at $48.65 when I sold two of these puts.
• UWM – 1 January 45 PUT – Same idea on this higher strike on the same ETF, pocket profits and move away from leveraged ETF exposure (I’ll be back with UCO soon).  While UWM was trading at $38.97 I bought to close one UWM January $45 naked put for $6.10 and paid $610.62 after commissions.  This gave me a realized profit of $458.37 while UWM lost value from when I sold the put in December 2010.

I had a few other options expire in my TD Ameritrade account too that are also worth mentioning.  Since I sold these while I was blogging about that account I thought I should include how they finished at expiration.

• SSO – 2 January 40 Puts – Expired worthless, took a full profit.
• UWM – 4 January 30 Puts - Expired worthless, took a full profit.
• UCO – 1 January 35 put - Expired worthless, took a full profit.

While UCO was trading at $40.03 I sold three UCO January 35 naked puts for $2.70 each and received $808.72 after commissions.  This was a higher strike than I originally planned to sell new puts on, but UCO is higher than I thought it would climb also, so I decided to change plans.  Even if oil sells off (and we all know it will again eventually), I don’t think it’ll fall too far below my cost per share on this new lot of $32.31.  My average cost per share if assigned another 300 shares at $35.00 would be $34.29.  That’s a price I can easily play with and be patient with.

The way oil is trading lately it seems my 300 shares stand a good change to be called away in January and I’ll just have to settle with taking my profit and starting over.  I have a lot of time value left in the options to melt away in the next couple of months and would love to see UCO slide back into its sideways trading range between $34 and $41.  If it does that, I’ll be able to continue repeating this same trade until it doesn’t work.  Thanks to the volatility in oil and doubly in UCO I stand to make a return of 8.3% or 49.3% annualized on this trade.  Just as easily I could take a loss, but I like my odds over time.  The time value in both legs of my UCO options equals nearly $2,500.  Hopefully I don’t lose much value on my actual shares before the time value erodes.

• UCO – 3 November 26 naked puts – Finished out of the money by a long shot.  I could’ve easily gone with a much higher strike, but there was no need to take the extra risk since I own 300 shares too.  This gave me a nice little return.  I’ll add some more UCO puts fairly soon.  Most likely I’ll target January expiration to couple them with my January $40 covered calls.  UCO broke through its recent ascending trading channel, so I might wait to see when it gains better support.  Then again, January $33-35 strike puts are probably not a major risk.
• VNQ - 1 November 50 naked put – Finished out of the money for a full profit and helped reduce the cost per share of the 100 shares I own.
• VNQ – 1 November 55 covered call – Finished very close to the money.  I placed a limit order to roll the covered call, but it didn’t hit. I didn’t give too big of a chance for it to hit maybe, but was fairly close.  There wasn’t a need to chase the ETF since I’m not sure if I want to own VNQ right now.  It looks like it might have some more downside to it.  I could turn around and sell naked puts out of the money if we see much more of a dip.  The position finished with a loss on the series of trades of $152.49.  If I had rolled the covered call I’d have been back to a paper profit, but if VNQ heads further south I’d be back to a loss again.  In the end it just seemed to be a better time to step back and take inventory of what I have.
• QCOM - 1 November 52.50 covered call. As expected, my QCOM options finished in the money and I’ll be forced to sell at the same price I bought the 100 shares.  I did well this round trip with QCOM, so I decided to go ahead and try it again at the same strike.  While QCOM was trading at $55.73 I sold one QCOM January $52.50 naked put for $1.92 and received $191.65 after commissions.
• MVV – 1 November 70 naked put and 1 November 71 naked put.  These are both going to be assigned as they are my biggest losers of the month and are deep in the money.  I have a limit order in place to sell February $60 covered calls, but I might change that on Monday to January or even December.  January options aren’t available yet, so I couldn’t do it today.  I can sell covered calls far enough out of the money that I’ll still get a good return and will also set myself up to finish the series of trades with a profit.  The trick is where MVV is going in the near term.  It might be a better trade to leave some upside risk and sell lower covered calls for better premiums.  Lots to think about on this one still…
• DSX – 3 November 8 covered calls – With about 30 minutes to go in the trading day my limit order hit to roll my DSX puts to December.  While DSX was trading at $8.05 I bought to close three DSX November $8 covered calls for $0.07 and sold to open three DSX December $8 covered calls for $0.43 and received $104.26 after commissions.  I almost didn’t sell new covered calls since DSX looks closer to the bottom of its trading range than the top, but I did and to compensate myself for the upside risk I added new naked puts to go with my covered calls.  With less than four minutes to go in the trading day I moved my limit order lower by $0.05 from $0.40.  While DSX was trading at $8.10 I sold three DSX December $8 naked puts for $0.35 each and received $102.83 with commissions.  Now I’m long 300 shares of DSX with an options straddle at December $8.00.

UCO bottomed out early last week (10/4) at $24.58 and shot back up from there and didn’t close below $25 (above my cost if assigned new shares).  I’m banking on WTI oil not falling below the low $70s and expect this trade to expire out of the money leaving me with a full profit. I’ll make a 5.0% return if the trade works out for me.  That’s 46.6% annualized.  I’m bullish enough on oil to have gone with a higher strike, but with a potential return this high there’s no need to take extra risk.  My other 300 shares will give me a bigger upside return if oil continues to climb.  I don’t think WTI will get back above $100 until the European mess is cleared up better than a handful of rumors and plans to make a plan.  If I’m wrong I’ll enjoy pocketing these premiums and the next $1670 in growth from the shares I own before my covered calls come into play at $40.00.  If the shares are assigned, my average cost per share will drop substantially and I’ll be selling six covered calls and maybe more naked puts again.

JPM reports earnings tomorrow.  They’ve rocketed off their lows and I didn’t want to risk losing those gains if earnings disappoint.  So I bought some insurance in the form of very short dated puts.  While JPM was trading at $33.42 I bought two October 14 $34 puts for $1.05 each and paid $210.68 with commissions.  Since I bought the puts in the money by $0.58 my protection to the downside will kick in sooner than if I bought the cheaper $33 strike puts.  If JPM surprises to the upside the puts will quickly become worthless since they expire in two days.  JPM gained $1.25 today and I think they have much more upside potential so I’ll make the $1.05 back quickly.  I might even be able to sell these puts to get back a few cents if it doesn’t overshoot $34 too much.  I thought about selling covered calls farther out of the money at a later expiration to capitalize on the high implied volatility, but want to see if this rally has legs still after failing at 1,220 today.  JPM also faltered into the close and I already have a profit on my new long puts.  That’ll be moot by tomorrow when the unknown is known.

I started with a big move on UCO.  While UCO was trading at $33.76 this morning I sold three January $40 covered calls for $3.80 each and received $1,138.47 after commissions.  I was torn on this trade.  I still think oil will strengthen over time, but with the chances of the euro weakening and therefore the dollar strengthening oil prices might be pushed lower, especially if the economy doesn’t pick up and increase demand.  If we get a big bump from some government plan (whether it’s from Bernanke, the President or Congress) I’ll add more naked puts on UCO.  If the 300 shares I have long right now get called away at $40.00, it’ll be a gain of more than $6 in stock value and almost $4 in option value.  Together that’s a potential increase of around $3,000 in the next four months on the $10,128 I have invested in UCO.  I like 30% gains in less than four months.  If it’s not exercised, it’s still a return of 38.94%, not counting any price movement up or down in the underlying ETF.

A few hours later the markets started selling off again and fell below the morning lows.  As I mentioned in my SPX chart post yesterday, I still think support will hold and don’t want to sell my long positions down at these levels yet.  As an alternate approach I decided to sell one covered call on my 200 long SSO shares.  While SSO was trading at $38.64 I sold one October $42 covered call for $2.00 and received $199.65 after commissions.  This leaves half of my current long position open to run higher in a better bounce/rally off the lows and also allows me to reduce my average cost per share by a dollar on these 200 shares.  I also have four more naked puts on SSO spread between September $45 and January $50 and $55.  Once my September put is assigned I’ll probably go ahead and sell another covered call closer to the money on it and might even cover my other 100 shares and leave the other three naked puts short to keep a good bit of upside potential in my account.

Just a few minutes after my trade on SSO, the rumor hit the markets that China was going to aid Italy and buy some of their bonds.  This took the markets up sharply off their lows and showed how fickle this market is lately.  The rumor hasn’t surfaced to be anymore than a good story so far and might not matter in the end, but serves as a great reminder of what can happen when not-bad news hits the wires.

With the Fed meeting in a couple of weeks, the coiled spring could be set to unload.  If the Fed doesn’t do anything with a QE3 feel to it the malaise could continue for months.  There’s always the (very) slight chance Congress and the President will actually agree on something to help our country’s economy.  I think even a small agreement could lift stocks as it shows they are actually willing to talk to each other and compromise.  That said, even if we do everything right, all eyes are on Europe no matter what and I exited my UUP position too early.  At some point fundamentals might matter again and if we see companies doing OK on their upcoming earnings calls we could get a bounce for it.  A lot of the bad news is already priced into current stock prices.  While we’ll certainly get some downward revisions, the upside has more room to bounce than the downside does to fall.