What started just a couple of weeks ago as an easy ride into expiration turned around on me very quickly, especially in the last few days before today’s relief. I’m still not sure what to think with where the markets are heading over the next week/month and so I started adjusting some of my positions today to remove some risk.
- CSX – two May 52.50 puts – Just six days ago CSX was more than $4 out of the money. I felt completely safe on this one expiring out of the money, but then the slide started and Thursday took out the legs on CSX. I still like it long term and decided to hold it a little longer. While CSX was trading at $51.19 I sold to open two CSX June $52.50 calls for $1.70 each and received $339.07 after commissions. The July strikes aren’t posted yet for CSX or I might have gone that far out, but with such good premiums at the same price I’ll be buying my shares from the naked put assignment I decided going short-term was good too. I also like the thought that my shares might get called away in June and will free up some cash for me, especially since almost all of my June naked puts are currently in the money. This trade brings my cost per share under $50.00 which gives me a little more cushion to protect from a further fall in price. If not assigned and CSX stays flat, the premiums are nice on their own.
- EEM – two May 41 puts – My plan when I wrote these puts was to keep some international exposure. I plan to take this assignment and write July covered calls on it once they post on Monday
- ITRI – one May 70 put – This one probably irritates me more than any of my other moves. I sold an extra ITRI June 80 naked put while ITRI was rallying a few weeks ago, but decided not to close this May 70 naked put for $0.15 since it was so far out of the money. After seeing ITRI fall fast and not reacting soon enough I finally decided to close the May put this morning. While ITRI was trading at $66.46 my limit order hit and I bought to close one ITRI May 70 naked put for $3.70.00 and paid $371.01 with commission. That means what I could’ve paid to exit the position went from $15 to $371.01. I ended this leg with a profit of a whopping profit of $7.98 from when I opened it two months ago. I didn’t think ITRI would drop that far, but for $15 I should’ve removed the risk anyway. That’s just a case of being cocky or naive maybe. I still like ITRI, but didn’t want to own 200 shares right now considering that half of their revenue comes from their international division. I might miss out on some profits, but thought it wiser to reduce my exposure from this single stock. With my June 80 naked put still in place I have plenty of room for upside still.
- KFT – three May 30 puts – Buffet came out a couple of days ago to say that he had cut his Kraft exposure. If had he waited until next week I might have had these options finish out of the money. That’s not how it worked though, especially with the entire market taking a lick this week. I debated closing KFT for a couple of days, but thought it would be OK for me by the close of trading today. Then it fell some more. I thought about just taking the option assignment and holding it while writing covered calls, but thought maybe this Buffet guy might be somewhat smart. Then it fell some more. When it started moving up this morning I decided to get out with a profit while I could. While KFT was trading at $28.98 I bought to close three KFT May 30 naked puts for $1.05 each and paid $316.39 with commissions. Then it went up some more. A few days ago I could’ve closed this position for $60-75, but tried to wait out expiration for a $0 cost. Sometimes waiting works and sometimes it doesn’t. Had I kept waiting into the afternoon I could’ve done much better as KFT joined in with the rest of the rallying stocks for the day. KFT finished the day at $29.69. I could’ve done $200+ better if I would have magically timed it perfectly.
- LLY – three May 35 puts – I’ll be assigned 300 shares from these puts. I thought about closing for a loss to use the money elsewhere, but when I checked the call premiums I saw I could get a good return from these shares. While LLY was trading at $32.75 I sold to open three LLY June 33 calls for $0.95 each and received $285.86 after commissions. I went with the June expiration to give me a possible forced exit at the same expiry that I might be taking on other positions from June option assignments. I might need the cash by then. LLY has had strong support in the past around $32.40, so I thought about aiming higher, but decided I should try to lock in a higher premium for now and if LLY screams past my strike I might close the position early and use the money elsewhere. If assigned I’ll be taking a loss on the shares of $2, but will have taken in $1.90 in premiums. It’ll be a slight loss, but not bad considering the fall it has had. If LLY dips further I don’t think it’ll stay down too long. I think I found the exact pocket of LLY’s low this afternoon to place my order. 15 minutes after my trade it was up $0.35 and the options were trading $0.15 higher. An extra $45 would’ve been nice.
- SPY – one May 117 puts – I’m taking the option assignment and will decide on Monday at what strike I’ll sell covered calls on. I thought about selling the calls this afternoon, but have since decided to see if today’s bounce has legs. I’m also considering selling new naked puts to go with it since volatility is so high right now.
- UCO – 10 May 13 puts – I’ll be assigned 1,000 shares of UCO. I sold a strangle on UCO yesterday in anticipation of this assignment.
Based on how the underlying stocks moved after my trades today it looks like I might have picked the wrong ones to exit as soon as I did, but that’s how it works. Not every trade can be profitable and made at the right time. I’m moving on with minimal realized losses for now and live to trade another day. I’ll probably sell a few more covered calls on Monday or maybe even another naked put or two if we appear to be heading higher again.
It’s been a tough month, that’s for sure. I closed most of my positions (long shares and Naked Puts) on April 29th (see http://messages.finance.yahoo.com/Business_%26_Finance/Investments/Stocks_%28A_to_Z%29/Stocks_U/threadview?bn=51477&tid=149691&mid=149691)
For this reason, May was a relatively easy month on me. However, I subsequently (and too early) opened positions on four ETF’s – SPY, EEM, EFA and IWM. All are for June expiry and my basis will be as follows if assigned:
My basis for EEM would be $34.60
My basis for EFA would be $49.60
My basis for SPY would be $113
My basis for IWM would be $59
If all of the above are assigned, I’ll be fully invested – but won’t need to go into margin. I see some very interesting single stocks that I’d love to sell Naked Puts on – but I’ll leave it to see what next week brings.
You should check out CSCO and SOHU. They’re two names I’m keeping a close eye on. Thanks for the posts about ITRI too. It’s a stock that’s never been on my radar but looks very interesting.
I’ve just sold Naked Puts on EXC and ITRI. EXC is the $37.50 strike and were sold for $0.54 and ITRI is the $65 strike and were sold for $2.60. Both are for June expiry.
NITE looks interesting at these levels – those $12.50 July Put Options look appealing if they rise to $0.50 or so. Another stock I like is BLK.
BTW, I sold some EFA 51 June Call Options (an equal number to my short Puts) for $0.66 each which will reduce my basis on EFA to $48.95 if assigned (taking commissions into account).