I’ve been working my UCO position since March and have at least another seven weeks in it. My January $10 covered calls are almost $2 in the money and look like they’ll be called away next month, but UCO can drop that much in a week let alone seven weeks. Even with that in mind I decided to add some naked puts to my position. While UCO was trading at $11.96 I sold to open 10 UCO January $10 naked put at $0.25 and received $242.86 after commissions. The premium is fairly small, but that makes sense with it needing a drop of more than 18% to cause me a loss.
I actually wouldn’t mind buying more UCO at $10. It’s been my most profitable position this year and any drop below $10 should be looked at as a longer term buying opportunity. If it’s not assigned I’m still set up for an 18%+ annualized return. I’ll also get to keep my other 1,000 shares if it drops below $10.00. If my first 1,000 shares are assigned with my covered calls I sold a few weeks ago I’ll be selling at $10 with a cost basis of $6.53. I’ll actually take a loss on the shares themselves of $3.00 each. I’ve just taken in that much in premiums this year to bring my cost per share down so much. Since I’ll probably be taking a $3,000 realized loss on the shares I’ll plan to wait out the wash rule and start it over the next month.
Based on the chart I wouldn’t be surprised to see UCO head back to $11.00-$11.25 before long. I didn’t wait for that to happen in case it didn’t. I’ve waited too long already to get my second leg in place on this position and don’t think the overall risk is too great with this trade listed above.