Just a week ago UCO traded as high as $11.99. This afternoon (so far) it has traded as low as $9.97. That’s the kind of volatility that makes selling options fun when you can time it right or at least close to right. Last week I was convinced my UCO shares were finally going to get called away after I opened the position starting back in March of this year. I started wondering if I should’ve waited for a rebound before selling my calls since oil was so cheap at the time. By today I decided my decision, though not as profitable as it could’ve been, was the right one since UCO was back down to even with my strike.
As UCO paused from its decline for the first hour or so this morning I entered a limit order to buy back my November covered calls for a slight profit on a little dip. Instead of a little dip UCO fell more than 3% again. While UCO was trading at $10.15 I bought to close 10 UCO November 10 covered calls for $0.30 each and paid $307.14 with commissions. I didn’t try to roll the options in a single order because I’ve had a hard time getting the combined order to hit very easily on UCO and figured I could manage each leg easily enough in separate orders. The small trouble I ran into is that my order to close the November options hit while I was exercising during lunch and by the time I got back to my desk 30 minutes later UCO was down another dime.
I entered an order to sell January 10 calls for $1.10 and kept waiting for support to give UCO a bounce, but instead saw it sink further. I decided I could lower my ask price and still make a good return, but only went with half an order at first thinking I’d have the patience to wait for a bounce. While UCO was trading at $10.03 I sold to open 5 UCO January 10 covered calls for $1.00 each and received $496.43 after commissions. I stared at the chart hoping to see a sign of life in UCO still, but saw it drop another few cents. That’s when it hit me; I don’t need to time it exactly to get a solid return. I just need to make sure I get a good trade based on what’s in front of me now and not risk a further decline in the stock’s price. I went right back in and entered another order. While UCO was trading at $9.98 I sold to open five more UCO January 10 covered calls at $1.00 and received $496.43 with commissions again. That gave me $992.86 for the 10 covered calls. If it works out for me I see that as a return of 11% in just over two months for the new calls. [$10 x 1,000 underlying shares = $10,000, $992.86/($10,000 – $992.86) = 11.02%] I’m not going to sell new naked puts on UCO until I’m more comfortable that we’ve reach the end of this free fall. With this rolling out of call expirations, my cost per share for UCO is down to $6.77.
Yesterday was the ex-dividend date for MSFT and with little surprise my in-the-money MSFT covered call options were assigned meaning that I was forced to sell my shares at the close of the day Monday, before I had a claim to the dividends yesterday. I ended up losing $520 on the series of trades including the November 23 puts I still have short that expire at the end of this week.
With MSFT only trading at $25.72 right now, I don’t feel I missed too much with the final option strangle I sold to exit the position. I sold the covered calls for $0.74 each and the strangle total premium was $1.25. That more than makes up for missing out on the dividend. The goal at the time was to end this week with more money than I had at the time and I accomplished that. I also seem to have priced my strangle right to come out ahead of just using a buy and hold strategy.
With only a couple of days left before November options expire I am close to having more cash freed up. Selling my MSFT shares gave me another $5,000 in cash to back other options. Some of my other options might be too close to call even with such little time to go before they are worthless, but for the moment most should expire worthless. My GLD put spread looks like it’s going to be a loser just a few days after I looked, umm golden (sorry, bad pun). My SPY November 112 covered calls will be exercised and I’ll have another $11,200 freed up. I’ll plan to get a full summary posted by Friday afternoon.