I only have a few options expiring today with mixed results. The rest of my portfolio is weighted to November’s expiration. If nothing drastic happens in the next few trading days, I’ll start working towards building up my options for December’s expiration and move deeper into potential margin, all the while hoping that any correction is swift and causes the VIX (and VXX) to spike. On the other hand, a slow correction will give me time to chase my positions with new option legs. The way I see it (maybe with rose colored glasses) I’m in a good position right now to profit in either direction.
- AVAV – Two October 22.50 Covered Calls – I went back and forth on my decision with my AVAV covered calls. The December options are already posted and are fairly rich. I have a profit on the series of trades so far and could have improved my cost per share by rolling my current calls to December, but in the end decided to take the profit and walk away. I’ll lose on the shares themselves, but all the premiums I took in leave me with a $345.60 net gain. That’s close to 7% in six months, so ~14% annualized. I can be happy with that on a stock that went down after I opened the position. I also free up some cash for other puts that might turn against me. * Wait, scratch that * I finished writing this post and published it (round 1) around 3:00 – 3:15 pm. AVAV was trading around $22.63 then, but looking shaky. It started to drop more and I rethought my approach. Finally when it hit $22.50 I decided to change my order. While AVAV was trading at $22.53 I bought to close two AVAV October 22.50 covered calls at $0.10 and paid $21.43 with commissions. I went right back in and placed a limit order at $1.60 to sell new calls for December. They didn’t hit within the next two minutes, so at 3:59 while AVAV was trading at $22.50 again I sold two AVAV December $22.50 covered calls at the bid of $1.40 and received $278.57 after commission. I changed my mind at the end because I thought AVAV might drop below $22.50 at the close and I’d still have my shares, but no covered calls. I didn’t want to go into Monday with the shares uncovered, so I tried to close my October puts for two cents of time value, but then AVAV dipped quickly and I ended up paying seven cents for five minutes of time. (Not much of a difference, but it all adds up.) I think AVAV has limited downside to around $21.00 Selling these covered calls gives me about that much new downside protection, but opens me up to more than a 6% gain in nine weeks or nearly 36% annualized. This also takes my cost per share down to $19.49 which I feel comfortable with.
- CSX – Two October 50 Covered Calls – I undershot my best strike by a long shot on CSX. It even traded over $60 briefly today. I still finish the series of trades with a net profit of $345.65 (including dividends). That’s less than a 3.5% gain in four months, so around 10% annualized. I’ll get back in CSX again, but have to wait 30 days due to the wash rule since I’m taking a loss on the shares. I might give NSC a try in the meantime, but waiting until Monday at least to decide.
- ITRI – One October 60 Covered Call – I debated my plans on ITRI today too. It’s been faltering some the past few days after a good recovery and I couldn’t decide if that was due to some profit taking or the start of a bigger fall. The December contracts aren’t posted yet, but based on the November and January premiums I think closing the current call and waiting until Monday to sell a new one isn’t a bad risk. $63 has turned into a solid ceiling of resistance, but at the same time the downside doesn’t look too bad from here. With that in mind, while ITRI was trading at $62.06 I bought to close one October 60 call for $2.10 and paid $210.71 with commission. ITRI traded as low as $61.60 this morning very briefly, but before I could get an order in it was back up above $62.00. Now the wait is on to see how it opens on Monday. I’m actually thinking about selling the December 65 strike instead of the 60 strike. There’s more risk in it since I don’t reduce my cost per share as much, but there’s also more potential profit too.
- VXX – Three October 20 Puts – I’ll be getting assigned 300 shares deep in the money. I don’t know if I’m going to sell any covered calls on these shares right away. I might enter a limit order to sell all my shares at $25+ in case we get a random spike one day soon. If not, I’ll keep this as a hedge. These additional 300 shares will pull me up to 800 shares total.