As I wrote earlier today I had a lot of option assignments from this past Friday’s option expiration. Kraft (KFT) was one from earlier in the month as an early assignment. I held it for two weeks without selling covered calls on it. KFT closed at $28.70 the day before my shares were assigned. Today I closed my position when I sold all 300 shares at $29.45. I took a loss on the position as a whole since I bought at 32.50 and only sold one set of options, naked puts to start with. The premiums weren’t worth carrying the underlying stock.
As I expected, Freeport McMoran (FCX) would move back above my buying price of $105.00, so I sold while it was up above where I bought it, but not at the high of the day as luck would have it. My goal was to get out without losing on the stock itself so I could and just be happy with the premium received. I can rewrite naked puts without worrying about the wash rule not allowing me to take losses on the stock since I don’t have any. I accomplished the first half and made and extra $3 or so with the stock trade. I’m waiting for FCX to come down some before selling a new naked put. I entered a limit to sell a new naked put at the September 95 strike and expect it won’t hit for another week when FCX falters again. If FCX breaks its trading channel to the north, I’ll raise my strike and take a higher dollar risk. I bought the 100 shares for $10,519.99 and sold all 100 FCX shares for $10,522.95 with commissions.
Alcoa (AA) was a fairly easy decision. For 3 seconds I debated if I should sell the 32.50, 35.00 or 37.50 strikes. While AA was trading at $33.45 I sold two AA September 35 covered calls (AAIG) and received $418.50 after commissions. I went with the 35 strike because I didn’t want to go too far out of the money. Selling the 37.50 calls would have reduced my premium intake too much. I opted not to sell in the money covered calls at 32.50 because I think AA has limited downside from here and has a larger and more likely profit potential at the 35 strike. I typically try to sell covered calls not based on where I was assigned the stock, but based on where I think I have a higher probability of profit. $32.50 strikes were close to winning that argument in my head, but I sold the 35 strike more on gut instinct than anything else.
Burlington Northern (BNI) was a very easy decision. While BNI was trading at $94.42 I sold one BNI 95 covered call (BNIIS) and received $559.25 after commissions. I’ll take a small loss on this position if it’s called away in September, but I have a much higher probability of having more money in two months than if I had sold the 100 strike. I’m still selling out of the money, but not by much. If I have a hard time deciding at which strike to sell the options I always come back to which has a lower risk of losing money while still offering a good return. The 95 strike won that debate easily.
Joy Global (JOYG) was an easy decision too. While trading at $70.70 I sold one September 70 covered call (JQYIN) and received $649.25 after commissions. Briefly I thought about the September 75 calls, but with such a big premium at the 70 strike, I had to reduce my downside risk as much as possible. Annualized, this trade will be a nice return if it works out. If JOYG continues to slump, I’ll have a better cushion to continue pulling a profit out of it.