Freeport-McMoRan Copper & Gold Inc (FCX) has been getting spanked and I’ve been along for the ride for most of the $60 decline. I got out with a full profit with shear luck when FCX spiked briefly after 100 shares were assigned to me at $105 with July options’ expiration. I paused and got back in with an FCX September 85 naked put that is now deep in the money. Using options, I was in on FCX as it declined, but didn’t come close to losing as much as I would have if I had bought the stock instead of sold the put option.
I put a limit order in on FCX to sell a call and it hit this morning. While FCX was trading at 67.30, up for the day by $2.00+, I sold one September 75 call (FCXIO) for $1.50 and received $139.25 after commissions. That turns my position into a strangle. I have two options (a call option and a put option) expiring on the same day at different strikes. I’ve set myself up for a potential loss on options. If FCX gets above $76.40 I lose on the call option, if it’s below $81.70 I lose on the put option. Adding both premiums together gives me a little more cushion on each side though.
With FCX around $68 as I write this and seven and a half days remaining before both options expire, I’m hoping for FCX not to get higher than $75.00. If it does, I’ll take the loss and move on since I’m not bullish now. If it closes next week below $75, depending on where it closes and what happens over the next couple of weeks, I’ll sell a covered call closer to the money and possibly another naked put farther out of the money. Again, just trying to milk every bit I can out of FCX. Even though I only took in $139 today, it’s good to know I’ve increased my chances of finishing next week with more money than I have today. I’m cutting my chances to “win big” on a big rally, but if we see a big commodity rally before options’ expiration I’ll be selling anyway. This just forces (or at least encourages me strongly) not to change my mind.
Been reading your blog for a while. I trade options myself. You should look into a new broker. $10 commissions on options???? I use a broker that only charges $1 and has hands down the best execution system I have used. there is a $30 per month minimum though (but if your trades are coming in at $10 per trade, that is just 3 trades per month)
HM, what broker do you use? I tried Interactive Brokers for a while, but didn’t like it. At the time I was working for AT&T and they blocked access to a lot of the “extras” within the site. I’ve thought about trying it again or at least TD Ameritrade’s iZone which is half the price, but cuts some of the services I like. I didn’t like IB was that each time you change an order you get charged. I was getting nickel and dimed to the point of not making the savings worth it to me. I change my orders a lot to find one that hits. I’d probably still do better with IB, but the difference is fairly small I think. IB didn’t download to Quicken very well at the time. Do you know if that’s been fixed? That said, AMTD isn’t the best with Quicken either. I have to do a lot of manual updating to match lots correctly.
Anyway, I’m open to hearing others’ experiences with various brokers if there’s something better. How are IB’s bells and whistles? Do they offer many extras like text/email alerts for price triggers and free reports and ratings?