ETN was down more than $10 this morning. That’s over 13% down from yesterday’s close. I planned to wait until after Friday’s options expiration to sell calls on it, but decided I had to cut my losses sooner rather than delay it.
While Eaton (ETN) was trading at $69.28, I sold one ETN July 70 call (ETNGN) and received $159.25 after commissions. ETN came off its low of $68.75 soon after I made my trade. I could’ve made another $100+ if I waited 15-30 minutes.
I originally sold a July 90 naked put (ETNSR) and received $219.25, so this gives me $378.50 to cut into the $2000 I’ll lose on the stock if ETN closes above $70 when options expire on Friday, three days from now. Losing more than $1600 is pretty bad, but I’d rather have that loss wrapped up than have my losses get bigger. If ETN does stay below $70 at the end of Friday, I’ll write new covered calls and reduce my loss a little more. Just to throw a wrench in this, I’ll be on vacation Thursday and Friday and won’t have access to my account to close any of these close options rather than take the assignments.
Before I finished typing this post ETN was back up over $72 and I thought of another option (no pun intended) for me and entered a new limit order. While ETN was trading at $71.71 my limit order hit and I sold one July 70 naked put (ETNSN) and received $134.25 after commissions. This does two things for me. The first one was that it gave me more of a cushion for my losses. I now have received $512.75 in premiums from my ETN options which brings my potential losses below $1500 if ETN stays above $70. The second one involves incurring more risk. If ETN closes below $70 on Friday I’ll own 200 shares instead of my initial 100, but my average cost will be down to $80 per share instead of $90. If I subtract the premiums I’ve received, my cost per share will be down to around $77.50. I can then sell covered calls at the September 75 strike and depending where ETN is trading, could move this whole position to a profit. If ETN continues to lag below $70, I’ll sell calls at the 70 strike and still reduce my losses since half of my shares will have been from the 70 strike naked put. In essence, I expect to make a profit on half of my position which just reduces and possibly eliminates the losses from the 90 strike or I’ll just be out completely and will move on to something new.
I tried to wait for expiration, but it cost me with ETN’s big drop. So far I’ve been able to wait it out on BNI. I had a chance yesterday to sell a call on the rally, but didn’t and BNI dropped in the afternoon and again this morning. I’d really rather wait until after the September options are available to get a better premium and the belief that the bottom won’t get too much deeper for it. I have a limit order to sell a BNI call on the next rally knowing that I’m about to be assigned 100 shares.