I haven’t gone anywhere. I’m just doing more watching than trading. I guess I got a little spooked by the dive last week and have held off on opening new exposure in my taxable account. I’ve done a little asset allocation adjusting in my IRA and in my wife’s too. I’m turning those into mostly passive accounts with just a few random option trades when I see a good opportunity. I’ve done that mostly due to time constraints, but also as a balance for what I do in this taxable account I blog about.
With only seven trading days to go before May options expiration I’m looking pretty good again with my options expiring soon. UCO is my only May option in the money and I have a hedge on it, so I’m fine with taking the option assignment and writing covered calls while I wait out the dip in oil. My June options aren’t as pretty with most of them in the money right now. Since I’m more than fully invested already I’m not in a position where I have to rush into a trade just to have exposure. I can wait out some of next week and be choosy with my trades. I doubt I’ll wait for all of next week to pass before adding more to my account, but with such a moody market right now I think being somewhat cautious has its place in my positioning.
Once I start making new trades I might do more with ETFs than individual stocks. That depends on volatility staying higher than it has been for the prior few months. Out of the money SPY and IWM puts are starting to look more atractive. Party I think that because my May SPY 117 naked puts are back to being out of the money again and I’ve made money on them while SPY has lost money. The idea of buying on the dip hasn’t broken yet and there’s no better way to cut risk on that trade than by writing puts. One individual stock I’ve seen in a buying area again is NDAQ. I still have a few days to go before I can buy into it again due to the wash rule and my loss I took on the shares last month. If it stays down close to $20 or lower through next week you can expect to see me sell some new puts on it. I was able to sell some puts for a client of mine on it yesterday while it dipped.
Yeah, it’s a difficult trading environment this past week. I’ve actually done the same as you’re considering and switched to ETF’s only. I’m short Naked Puts on SPY, EEM and EFA for June expiry and am going to do the same for IWM at some point.
Another trade I’ve just entered into today is quite similar to your UCO trade (except with USO). I bought 10 USO 37 October Call Options at $3.05 each and sold 10 USO 37 May Call Options at $0.71 each – or a net cost of $2.354 per Calendar Spread.
With only 6 trading days left until May expiration, the time value in the Options will erode very quickly. If USO trades close to $37 at some point next week, I should be able to close the May Calls for a profit and roll them out (and, possibly, up) for a reasonable credit.
UNG looks ripe for a short here.
Today, I opened the following positions:
Whilst UNG was trading at $7.66, I sold UNG JUN 8 Calls at $0.31
Whilst UNG was trading at $7.52, I bought UNG JUL 9 Calls at $0.18
I originally had the buy order in at $0.17 but it didn’t hit and I wanted my hedge in before the close so raised it a cent.
The maximum loss for this trade is $1.00 – ($0.31 – $0.18) = $0.87 (or $87 per spread). This only occurs if the three of the following hold true:
I make no adjustments
UNG ends Jun above $8
UNG ends Jul above $9
My profit if UNG remains below $8 at June expiry will be $0.13 per spread. However, I’ll also still have the UNG Jul 9 Calls for a hedge – or could close them for additional profits.
NOTE: The above figures don’t take commissions into consideration which are $0.014 per spread.
Ronan, I like your USO trade. That might not even be so bad for me to do in combination with my current UCO position.
I’m not sure about UNG. Natural gas inventory data this morning came in smaller than expected (bullish). I guess you could go bearish on it based on a strong dollar. Your hedge seems like you’re playing it right maybe since you’ll be able to write new calls for July too. The profit isn’t worth the risk for me though.
Thanks for sharing your trade details. It’s always interesting seeing another perspective. If you remember, update us on how it closes out in July.
Have you got BP or XOM on your radar?
I’m short term bearish on BP but long-term bullish. An interesting, but risky, play might be to sell May, June and July 50 Calls and purchase Jan ’12 45’s at a net debit of $4.40. High risk but may be worth a small bet.
Regarding XOM, it’s not far above it’s 5-year low, is paying a dividend of 2.77% at current prices and may be able to pick up some assets on the cheap of BP depending on the outcome of their current crisis.
Another interesting stock is DO.
I’ve been watching both BP and XOM, but can’t pick a trade yet. Since I have the UCO position I have oil exposure already and haven’t wanted to push it past that. DO is interesting, but I want to wait to see if there’s any new legislation limiting off shore drilling. Once it’s clear there’s nothing to harm DO it’ll rocket higher, but until then it can keep falling.
I agree that DO is risky (not as much as RIG but still risky). If it falls much further, I might consider selling Naked Puts and Purchasing Calls with the Premium received.
I have oil exposure through USO. If there is legislation limiting off-shore drilling, Oil should spike much higher, otherwise, DO should spike. Just my opinion of course.