I sold naked puts on USO last year and then assigned the shares at expiration. I then sold covered calls a few times before finally getting out completely when I sold my 300 shares on November 25th for $42.68. USO continued to fall for a few weeks and then turned north again. I’ve been eyeing it and waited to see when it would drop again, but instead it kept climbing.
I still expect USO to fall back some, but since I’ve been wrong for the past $5.00 I didn’t want to miss out on what I think will be a good longer term play. While USO was trading at $37.51 I sold three USO February 31 naked puts (UBONE) for $1.45 each and received $422.75 after commissions. I sold out of the money by $6.51 for that reason. With an ETF as volatile as USO I want to be sure I leave room for error. I’m still getting a good return on these options if USO stays up. If it drops below $31 again I don’t think it’ll stay down too long and I’ll sell covered calls to try to keep a profit.
Taking a look at my other covered calls I sold in December I see that I made my move to early on a few. FCX has been on a big run. I expected a run to come, but grew impatient. So goes the life of an option seller. JOYG has had a good few days too. I’m not buying these calls back yet. I have less than two weeks to go before they expire and I wouldn’t be surprised to see either or both pull back some before January expiration. Worst case the calls are assigned and I sell my shares and move on with cash in my account. The goal when I sold them was to have more money at expiration than I had then and that’s looking likely – not that I want to jinx it.
nice, conservative trade…if put to you your basis will be near the 52 week low…highly unlikely at this point IMO…good luck with it
I like the idea of selling naked put on stocks and ETFs that I’d like to own. I was doing it late last year for MON and ENER when the market was declining, but I’ve stopped since the market started a (small) recovery. I am going to give consideration to selling a naked put on USO since I expect that Oil will go back up again sometime in the future.
with the drop in oil today we might be getting close to a nice setup to sell puts…I might wait for a support level since oil has shown the ability to free fall
Yep, I knew I was jumping the gun on USO yesterday, but did it anyway. Did you see MON today? It was up almost 20%. That means my covered call strike was a little too low, but it could come back some from here or I might sell new naked puts at the same strike as my covered call so I “win” on at least one of them.
Thanks for the tip. I pulled the trigger yesterday on some Jan 31 Puts.
Alex,
Do you have any update on your thinking about USO? I was considering selling puts a few days ago, but had not done so. Now that USO fell below $31 today, I’m thinking oil may fall further.
For reference, I have been remarkably wrong in predicting the market direction recently. It always seems to go the opposite 🙂
Thanks.
Yeah, I’ve been debating it since it started turning back lower. If my option expired right now, 12:25 pm on 1/12/09, I’d have a profit. I agree oil will likely head lower, but for how long I don’t know. I’ve been thinking of selling some way out of the money calls for extra cash to cushion my downside, but not a real hedge. I’m still debating it though.