I’ve been debating my next move on AA since I wrote about it a couple of days ago here. I decided to wait to see how the markets reacted to whatever the Fed did today. AA was down and up and down and up. I happened to exit my Feb 27.50 calls (AABY) while it was on an upward swing and while AA was trading at 33.02 I bought back my calls for 5.70 a piece, which was about 20 cents of time value remaining. AABY’s last trade of the day was at 5.30. AA closed the day at 32.70. I traded poorly, but was in the mindset that the masses decided stocks should rise after the cut and I cut my losses. I still have my two sets of four puts at Feb 30 and 32.50.
I paid $2,292.99 with commissions after selling them for $866.99. That’s a loss of $1,426 that I could have avoided if I had let my naked puts sit alone, but I took the risk of cutting my losses and it backfired. All wasn’t lost since I held my naked puts and gained on the intrinsic value disappearing on the way up. If AA closes below 32.50 I’ll take the assignment at this point and will have to make a game time decision if AA goes below 30 again where I have another four naked puts still.
I also added to my CAT position and while CAT was around 70 I sold one March 65.00 naked put (CATOM) and received $119.25 after commissions. That goes with my CAT March 65.00 covered call. I own 100 shares of CAT from an earlier naked put assignment up at 75. I also have 2 CAT Feb 62.50 naked puts I expect to expire worthless. My theory with the new March naked put is that it is at the same strike as my call, so one will finish OTM and if more shares are assigned I’ve reduced my average cost even more, especially with all the option premiums I’ve taken in now.
Altria (MO) finally announce it’s plans for a new company split that has been anticipated for a while. I took the chance to sell one naked put on it. While MO was trading at 76.48, I sold one March 75 naked put (MOOO) and received $199.25 after commissions.
I wish I could’ve come up with something clever to tie in a CAT MOOOing with AA, but my corny mind isn’t functioning today. I’ll take suggestions if anyone is more clever than I am today.
The exact same thing happened to me on AEO. I locked in a loss by hedging too hard. I am still convinced that there is significant risk of further downside. I am not sure who is buying but almost every economic indicator coming out is negative. I am going to try to roll forward the hedge. This market is tough, but that’s how we learn.
Well said, you have to keep learning since it’s always changing.