I’ll admit I was kind of happy to see the futures down this morning when I turned on CNBC. I knew that meant I could get into some positions at better option prices than if I had sold the options last week. Then I saw oil was up pretty big on the Libya news and I knew I missed a great opportunity for lower oil prices by a day, but I didn’t have a choice due to the wash rule keeping me out of UCO until today. Of course I could’ve used USO or something else, but I like UCO better for selling options since it’s even more volatile and fairly liquid. On the spike at the open I sold covered calls for a few of my clients who took assignments at $11 on Friday. This was golden for them, but meant I had to wait for the excitement to cool some before I could get in even close to where I wanted for my naked puts. I also had to consider the email I received from Interactive Brokers last night – UCO is set to do a reverse split (1 for 4). This will apply to shareholders of record as of the close of the markets on February 24, 2011. The funds will trade at their post-split prices on February 25, 2011. Instead of targeting 10 contracts like I did last time I figured I needed the number to be divisible by four so I’d have “whole” contracts after the reverse split. While UCO was down to $11.59 after hitting $12.16 near the open, I sold eight UCO April $11 naked puts at $0.60 each and received $474.28 after commissions.
I don’t consider this really a half position as much as a partial position. I might sell another four contracts (or one after the split) if UCO calms down soon. I want to have enough to be able to work a strangle again if I’m assigned shares. As bullish as I am long term on oil I don’t mind taking an assignment and then adding to it on further weakness. I feel oil will be much higher this summer and even higher than that within the next few years. UCO isn’t the best long term play on oil maybe because of its contagion issues, but it tends to work great when playing it for shorter periods and consistently reducing your cost with options. I didn’t aim any higher than the $11 strike since I know my timing might not be ideal and think a 37% annualized return is plenty without taking more risk.
Before I got around to trading on UCO I started with VXX. I wanted to strike with volatility up this morning, but didn’t want to go in right at the open in case the drop caught some wind and got worse. I waited about 40 minutes and while VXX was trading at $30.20 I sold one VXX April $33 covered call at $2.05 and received $204.29 after commissions. I timed this almost completely wrong as my trade came in about $0.10 above the low of the day (through 2:30). Just a few hours later VXX was almost $2.50 higher and above my strike. I’m not actually worried about this one though. I still have 200 shares long, two June $50 puts long and two June $70 calls short. I don’t see the $70 strike calls coming into play and in the extremely remote chance VXX makes it back up to $50 I’ll close my full position while I can still sell the puts for something. I think the more likely scenario is for VXX to ride this volatility wave for a few days, maybe a few weeks at the very most, and then start its decline again. I can see that happening even if the VIX climbs a little more. By April I expect my new covered call to be out of the money again with room to spare.
After getting my VXX option in place I moved on to JPM. I was kept out of JPM like I was with UCO until today. I’m a long term bull on JPM and reopened my position with an out of the money put just in case today’s correction has legs. While JPM was trading at $46.99 I sold one JPM April $46 naked put at $1.47 and received $146.54 after commissions. I only sold one put to start with so I could work a strangle again if assigned like I did last time around. I’m also not sure how hard JPM is going to get hit in a new correction. The chart shows possible support at a trend line of higher highs that’s around $45.50 today and moving higher quickly. I see another horizontal line of support just below $44.50. If that holds it would be around my cost per share if assigned. I expect all the action to take place well before my April contract expires. If JPM breaks $44.50 for more than a day it could go all the way back down to the $41.50 range and if that happens I’ll be ready to load up with another put, possibly even before this first one is assigned. $37 seems like a solid floor and an area I’d even consider adding a third put if we got that low. I’m getting way ahead of myself, but trying to stay realistic about how quickly JPM can move in either direction.
I’m also still considering selling naked puts on ABT, CVS and BA, but I’ve added enough for today. I have a busy day planned for tomorrow, so it might not be until Thursday before I can get back to it.
ENTR seems to be dropping like a stone still. I sold 4 additional Naked Puts – this time at a $7.50 strike with an April expiry. This trade was yesterday at a $0.25 Premium. Then, today, I sold 3 Call Options at a strike of $10 with a April expiry.
My open positions now are:
3 March 10 Naked Puts
4 April 7.50 Naked Puts
3 April 10 Calls
Total Premium after commissions was $452.90. It’s hard to know what will happen as it’s such a volatile stock but I’m hoping it hovers around current levels – however, that’s unlikely.
I’ve just sold a couple of CSCO April 18 Naked Puts at $0.56. A $17.45 basis if assigned (after commissions) is amazing and would represent a 2-year low come April. There’s no earnings before expiry and, if assigned, I’ll be selling Covered Calls and Naked Puts – as this is only a half-position.
Have you considered the shippers at all yet or are you going to wait on an upturn. I’d considered adding to DCIX that was spun off by DSX but, instead, I’m going to sell those off and concentrate on the optionable DSX.
Here’s an interesting article from the fool website:
http://www.fool.com/investing/general/2011/02/24/why-diana-still-refuses-to-pounce.aspx
I’m just as confused about ENTR as you and that’s why I’m staying out of it. I think that CSCO trade will work. It’s still on my list, but I keep going after others in front of it. I just sold a NP on AFL which I’ll write about this afternoon. I still plan to get to CSCO at some point again though. DSX is interesting. The April 12 puts look worthwhile and support looks like it’s around $11.50 +-. Probably a low risk trade. I might leave an order out there above the ask to see if it hits on a random dip. I’m getting curious about how low this dip will go and want to be sure to have some firepower ready when I see a bottom or at least enough easy losses out of the way.