I got a renewed bullish outlook after hearing Jamie Dimon’s bullish comments last night on top of seeing the successful debt offerings from Greece and Italy (yesterday) and then from Germany and Portugal (today). I haven’t even bothered to close any of my short options expiring at the end of next week that are far out of the money and have decided to let them ride it out. I could get bitten in a sudden crash, but don’t see that as much of a possibility right now and am willing to take the risk. I have cash available to buy the underlying stocks and wouldn’t mind owning any of these at the prices down there. I did think about buying my JPM covered call back (sticking with the Dimon theme), but decided to let the position expire next week in the money and free up that cash for other positions. I might end up regretting that since I can see more upside for JPM.
Instead of extending my JPM position I decided to add more to my SSO exposure. While SSO was trading at $49.77 I sold two SSO January 2012 $55 naked put (LEAPS) for $10.10 each and received $2,019.07 after commissions. I need SSO to gain 10.51% to take a full profit. That’s around 6% or so growth in the S&P 500 index over the next 53 1/2 weeks. I don’t see that as a too high of a wall to climb for the broad markets. If that happens I can get an annualized return of 21.8% on the money it would take to pay for this option assignment minus the premium I’ve already received. I have a 9.77% cushion which is probably close to 4-4.5% downside in the S&P 500. I could see that happen any time between now and the end of the summer, but given enough time (a full year plus a couple of weeks) I think the markets will be higher. If SSO just stays flat and finishes next January at this morning’s price then I’ll still end with a 10.84% gain.
Based on all of my longer term options and LEAPS I have in place I’m set up for a gain in 2011 of around 14.5% if they all work out and that’s with just using 35% of my account. I plan to increase that exposure more and more as long as the markets continue to melt up, but after I reach 50% of my account in LEAPS I’ll probably start shying away from the ultra ETFs more and use more regular index ETFs that offer less risk, albeit with less reward.
Hi,
I told you I’d update you when I made any trades on my SKX position. SKX has had a big run up today. My short Jan 20 Calls rose in value very quickly – partially offset by the rise in my long Jan 2012 Calls.
The lesson learned is to be VERY careful with short close to the money options when using this approach – in particular when near expiration.
Anyway, I purchased the Jan 20 Calls back for $1.66 (sold for $0.79). I then sold Feb 23 Calls for $0.89. The Feb 23 Calls have the added risk of earnings though.
As it stands, I’ve taken in $0.02 in premium so we can forget about that. Obviously, my long Calls have made quite a bit of profit and I’m now just hoping it stays below $23 for Feb expiry (I’ll probably buy the short Calls back before earnings if they turn quite profitable).
Thanks for the update Ronan. Good luck on this position.
No problem. Just had a look at VXX there. It’s mental these days. Even with it’s 4-1 reverse split, it’s lower than it was at the open of 2010. Crazy.
Good timing on your comment. Check the post that just when live about 5 minutes after you comment hit. I sold another covered call on VXX slightly ITM.