Alcoa (AA) has been slipping since I added to my position on Monday. AA is still trading above my strike and the chart doesn’t show a break in support yet, but I decided to start hedging my position a little since I have 500 shares at risk (300 at the June 35 strike and 200 at the July 40 strike). If I was more bullish on the markets overall I’d probably not be as nervous about the downside risk and also wouldn’t be as optimistic about the safety of the upside risk to my new naked calls.
While AA was trading at 41.33 I sold three AA July 47.50 naked calls (AAGW) and received $341.75 after commissions. AA has already had a big run up and clearly it could keep going, but I think it’ll hit a bump in the road before July expiry and won’t cross $47.50. At the same time, I could be wrong on the downside, so this gives me a better cushion.
I sold in the money covered calls in my IRA on Cummins (CMI) last month. Those options are much deeper in the money now. I expected a pull back and entered a limit order to sell naked puts in my taxable account. Yesterday I lowered my limit’s price and this morning it opened almost right on its 20 day moving average. While at 68.02, in the first minute of trading, my limit order hit and I sold two CMI July 60 naked puts (CDMSL) and received $328.50 after commissions. CMI made it as low as 67.50 and immediately came back up to 69 around 10:00. It’s possible I timed this one just right. My order was at the high trade price of the morning. The combination of early fear on the stock and the actual dip in price let my order hit at a higher than normal price and by 10:00 I already had a paper profit as the stock climbed out of its hole and fear subsided. This is a prime reason I like selling options using limits.