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.

These are the 11 options I was short going into the day.

• CSX – 1 August $25 put - Expiring in the money CSX rallied nicely for a few days from its lows, but then fell off a cliff again this week.  I like the stock long term and am going to take the assignment and not even sell covered calls yet.  I think it’s going to pull itself back up before long and when it’s closer to $25 (or at least closer to $24) I’m going to sell a covered call then.  It’s a solid company with good revenue and earnings, a forward P/E ratio of 10.38 and a dividend yield of 2.1%.  I’d be happier if the chart showed a better picture, but the downside looks like it might be limited to $20.00, the low from 8/8/11.
• DSX - 10 August $11 puts – Expiring in the money, DSX had a chance to work out for me if it stayed closer to the money, but it dropped sharply and I lost any chance of selling my long puts’ time value.  Since the underlying shares were so far below the strike (in the money) the intrinsic value took over the whole premium and left virtually no time value to sell.  I have a limit order in to sell my straddle for $0.00, just to get out, but I can’t find a taker yet.  I’m not at risk for more downside since I’m long 10 puts with the 1,000 shares I’m about to buy, but want to exit the position and be done.
• ITRI – 1 August $50 call - Expiring out of the money, ITRI has been a dog for me, so I sold my 100 ITRI shares for $35.30 and received $3,529.00 after commissions.  The series of trades cost me a realized loss of $1,423.44.  I only had $3,530 left to lose if ITRI went to $0 (which I don’t think it will), but I opted to cut my losses and move on to better opportunities that I understand better.  With the European troubles and US government debt issues ITRI’s prospects might not be as bright as they claim them to be.  Maybe they are, but I won’t be around to profit from it.
• JPM - 1 August $40 put – Expiring in the money, JPM hit $33.69 twice recently.  I expect that low to hold.  I’m staying long JPM for now with my 200 shares (including the 100 about to be assigned.  JPM has a forward P/E ratio of 6.25 and a dividend yield of 2.7%.  Assuming they don’t take too big of a hit in the near term to earnings I think JPM will be a strong long term hold.
• JPM - 1 August $41 call – Expiring worthless, see above
• QCOM – 1 August $52.50 put – Expiring in the money, QCOM hit a low of $46.70 recently.  I’m expecting that low to hold support and am staying long these new 100 shares without a covered call yet, but I’m considering a $52.50 strike covered call for October.  That would let me get out at the price where I’ll be buying and the premiums are worth pocketing.  My hesitation is due to my expectation QCOM will recover quickly and I can do better by waiting.
• SSO - 1 August $50 put - Expiring in the money, not only do I have this SSO naked put and the one listed just below, but also I have a September $45, January $50 and $55.  That leaves me in a situation where I don’t want to add more SSO exposure yet.  At the same time, I’m not really in such a bad hole that I can’t sell my way out of it with new covered calls.  Any new covered calls will have to be long dated and far out of the money, but with my puts expiring later I took in enough premium up front that I’m fine with my cost per share.  I want to see how the next couple of days trade and then maybe sell a couple of December $45 covered calls.  If we get a bounce in the S&P 500 I might make the calls September $45 strikes to go with my September $45 naked put.  That would force one side to finish in the money while the other expired with a full profit.
• SSO – 1 August $53 put - Expiring in the money, this put might go down as one of my worst timed trades ever.  I have a friend (another advisor here in Atlanta who runs a market timing service) who warned me against going long when I did, but I didn’t listen and am paying for it.   See above for more on my SSO plans.
• UCO – 1 August $34 put - Expiring in the money, I’ll sell a covered call at $34 on these 100 shares.  I’m not sure when I’ll get to it. The downside in oil really seems limited from here though.  I’m up to a half position in UCO so far and plan to sell new naked puts with any covered calls I sell.  I might even sell puts first.
• UCO – 1 August $43 put - Expiring in the money, see above.
• UCO – 1 August $47 call - Expiring out of the money, see above.

• UWM – July $40 naked put – expired worthless.  One of the cool things about this put is that UWM is trading slightly below where it was when I sold this option in February.  I was able to make money while the market dropped some.  I’m still bullish on small caps for the rest of the year, but not so confident to think I can’t be wrong.  To give myself some cushion I sold another out of the money naked put on UWM.  While UWM was trading at $47.16 I sold one October $42 naked put for $2.75 and received $273.97 after commissions.  UWM finished last year at $42.69.  So if it stays positive for the year through October expiration I get to take a full profit.  I don’t see a sell-off pushing small caps too far into negative territory so I wouldn’t be too upset about taking an assignment that low.  The premium gives me a potential annualized gain of 25.8% and I have a cushion of 16.81% before I take a loss.  That’s equivalent to about 8% or more of a loss in the Russell 2000 index.
• UCO – July $42 naked put – expired worthless.  Just as I did with UWM, I made money on my UCO option as UCO lost money.  In May I thought oil was close to a floor when UCO was trading over $48 so I sold this July put.  I was wrong, but was smart enough to sell out of the money.  That allowed me to take a full profit even when I was wrong.  Now that I’ve proven that I can make money when wrong, I’m testing myself a little bit more boldly.   While UCO was trading at $43.81 I sold one UCO August $43 naked put for $2.65 and received $264.52 after commissions.  I picked this specific contract for a few reasons.  I’m already long 100 shares and have a covered call at $47 that I’m afraid is too low to avoid assignment.  If UCO takes off again I want to squeeze in some more profit while I can.  I set the expiration to the same month as my other UCO options in place so I have an even table to make my next trades once everything expires.  (I also have an August $34 put I’m short.)  I wanted the strike to be high enough to give me a better profit on the series of trades if my 100 shares are called away at $47.00.  I don’t mind going this high for my strike in case I’m wrong again and UCO drops further.  It’ll still reduce my average cost per share which is at $43.24 including all UCO option premiums received in my IB account for this series of trades.  If all my puts are assigned I’ll still only be less than 10% invested in oil with room to double my position still on a bigger drop where the prices are even more attractive.  (I’m not even factoring in my new January $35 strike put I have in my AMTD account.  Different account, different focus.)  Today’s trade offers a potential annualized gain of 65.4% (yes, it’s that volatile).  I only have a cushion of 7.64% and that can be wiped out in a day with UCO.
• AFL – July $50 naked put – expired $4.65 in the money, giving me a paper loss of $203 on this leg of the trade series and I’ll be forced to buy another 100 shares.  More below…
• AFL – July $50 covered call – expired worthless which allowed me to hold onto my first lot of 100 shares.  I’m not sure what I’m going to do with these 200 shares.  I have a paper loss of more than $800 right now and I might make that a realized loss on Monday.  I want to see what the September premiums look like when they post next week.  I’ve debated selling my 200 shares and moving on, selling two covered calls or even adding another naked put.  I have no doubt AFL will come back strong one day, but I’m trying to decide if that’s within the next month.  I’ll cover the pros and cons in more detail when I make the next leg of this series of trades.

I don’t see oil taking a sustained fall off a cliff within the next 6-12 months, so selling out of the money UCO naked puts doesn’t seem to be a great risk.  Since I’m trying to avoid an assignment I went with a trade that allows me a 27.54% cushion before I take a loss on it.  While UCO was trading at $43.92 (before this morning’s weekly inventories were released) I sold one UCO January 2012 $35 naked put for $3.50 and received $339.25 after commissions.  Even with the strike being so far out of the money I’m still sitting on a potential 20.9% annualized gain.  Maybe I should’ve gone farther out of the money to lower the probability of assignment even more, but if UCO drops to my cost per share of $31.61 I’ll be ready to buy with little worry.  Selling covered calls around the low $30s should continue to bring in good profits until oil wakes up again as it always does. (Famous last words?)

Ever day that oil moves higher I’m happier that I rolled my UCO covered call from a $42 strike to a $47 strike.  Now I’m wondering if that was too low for August expiration also.  I have a July $42 put in my IBKR account I was almost hoping would be assigned this week so I could lower my average cost per share, but that doesn’t look as likely now.  Then again two more days is a long time in oil’s world.  I’m not saying I’m upset that I’m not likely to be assigned another 100 shares yet.  I just wouldn’t have minded if it happened and saw a benefit if it did by being able to write a strangle on my shares with closer strikes than my current strangle at August 34/47.  By Friday I’ll make up my mind on what my next step is with UCO.  If my July 42 strike still looks destined to expire worthless I might add an August 42 or higher put to go along with my other two August options.

—————————————-

Also, added Google Plus to this site at the top of the home page and just below each blog title.  If you’re using it please “Plus One” my home page and any other post if you like what you’ve been reading.  Feel free to add me into one of your circles and I’ll add you back.  I’m using my main email address – alex [AT] mytradersjournal DOT COM.  Let me know if you need an invitation to get in.  I’m not sure if that’s still a requirement or if you can just create an account from scratch.  I’m happy to add any regular readers.