I didn’t have much on my plate for January options expiration, but what I had worked out for me. About a week and half ago I closed my EEM naked put position because I thought EEM was ready to come off its recent highs some. I was right about EEM falling from its level at the time, but the dip didn’t start as soon as I thought it would have and I could’ve held on until today to let a few more dollars worth of time value melt away. EEM fell below my original strike of $42 this morning when I first started drafting this post. That got me back into watching it again and by the afternoon I entered a new limit order on an EEM option. While EEM was trading at $41.95, I sold two EEM March 41 naked puts (EEMOO) at $1.60 each and received $318.60 after commissions.
The 40 strike puts were my first choice, just for the sake of wanting to go farther out of the money, but with volatility so low I decided to up my risk a little more for some extra potential reward. The difference between the premiums of the two strikes was only $0.35 at the time, but that’s still $70 more I stand to pocket by accepting $130 more in rick. $70 sounds small, but considering the number of trades I make per year, $70 more per sale can add up. It wasn’t such a tough decision when I compared the increased risk of $130 to the $70 of potential gain. I could play the same gain in talking myself higher one strike at a time, but at some point I had to think of where EEM might be in two months. I drew one trend line of higher lows up to around $40.60 and another to $42.45 with both still rising. If either of those holds, I’ll make a profit on this trade. I could’ve waited for EEM to get closer to one of those lines, show support is holding and then make my trade, but with being so far under invested right now I can afford to take some slightly bigger risks.
UCO had a big run since I sold an option strangle on it last month. That was great for my January 11 strike naked puts and my 500 long shares, but not as much for my covered calls. They nullified the gain I was getting on the long shares after crossing above $12.00, not counting the time value I gained on. I was patient though. UCO cracked and retreated back to $12.01 this afternoon before gaining a dime fairly soon after and then stayed almost dead flat the final two hours of the trading day. My covered calls returned to a profit on today’s fall which made this a good trade last month.
I could have let my puts expire worthless (which I did), bought my covered calls back for a profit and sold the long shares for a small profit. Instead I decided to stay long 500 shares of UCO and sell new covered calls. While UCO was trading at $12.10 I rolled my calls from January to February expiration. I bought to close five UCO January 12 covered calls (UCOAE) at $0.13 and sold to open five UCO February 12 covered calls (UCOBE) at $0.78 and received $318.00 after commissions. I started with a limit order at $0.70 for this calendar spread, but when I saw UCO moving higher I lowered my limit to $0.65 where it hit. After I did that I noticed it might have made more sense to let the shares get called away and just sell new naked puts. The profit difference would’ve been about $3.50 in commissions I could’ve saved, so it’s not enough to worry about.
I only went one month out on this trade since oil is so volatile and UCO is a “double” ETF. The net of this change is that I have half the exposure to UCO than I had before today. I’ll probably add in some new UCO naked puts at a lower strike at some point, but want to see UCO’s current slide stop first. I see a trend line of higher lows that’s just under $11.00 right now. If UCO gets to that line within the next five weeks, that’ll probably be when I sell new naked puts on UCO to go with my long shares and February covered calls.
These trades pull me up just over 40% invested for the $90k I have allocated towards stocks. I might try to sell one more block of February options before shifting the rest of my focus to March expiration in my effort to keep half of my account allocated to every other month’s expiration. I took in almost $1,000 in option premiums this week. If I could maintain that each week and loose only $1,000 per month in bad trades I’d end the year with a 24% gain, but now I’m getting ahead of myself…