I’ve been fairly quiet with my account over the past six weeks of market declines. I like to consider it patience more than paralysis by fear. Based on the way I structured my account this year using longer dated options, mostly out of the money I don’t have to chase the markets in either direction. I didn’t make much during yesterday’s rally, but I’ve lost less than the markets over the past six weeks also.
I called for today’s S&P 500 low (1,275, so far) as a potential area of support based on the support we’ve seen near there over the past five months. If this breaks we might get another 25 points to the downside. That’s about where I expect long term support to come back into play.
I thought about closing out my SSO June 50 naked put yesterday, but wanted to see if we’d get the rally to carry through today. That didn’t happen, but I’m still sitting on my short put position on the ultra ETF. I can handle taking the assignment with SSO trading around these levels. I’ll turn around and sell a covered call on it and might even add another naked put. Most likely I’ll wait for a clearer picture of when we might get a turn higher before selling.
With my expectation that we only have another 2% of downside risk I could have some good luck on the timing the purchase of SSO. Depending on how next week rolls out I might even consider staying long SSO with no covered call or at least farther out of the money with a covered call. Some of my other positions, like ITRI, are trading near the bottom of their trading channels and look ready to rebound some. My AFL position is starting to look ugly, but I’m still planning to ride it out longer and keep it as a long term hold. I’m not going to add any more short puts to my position, but plan to remain patient for the foreseeable future.
My other dog of the month is UCO. My June put looks pretty certain in its chances of being assigned. My July put still looks safe though. I’ll sell an out of the money covered call on the shares I’m forced to buy and will wait it out. I might even sell at a strike above where I’m assigned. I have no doubt the price of oil will go up again at some point. It might not be for months, but it will go higher and the premiums are good enough that I can keep selling out of the money covered calls while I wait for that day. I’m not sure if I’ll add another put before my July contract expires though. Again, I’m in no rush yet.
You have a nice profit on the SSO Jun 50 Puts — right now. You could close or roll it out to a lower strike and reduce your cost basis, which I think is preferable to covered calls.
That’s a valid point. There’s still 60 cents of time value left in the premium though and there are only 5 1/2 days left before expiration. SSO could fall another $1 on Monday and I don’t think I’ll lose more than another $0.50. If we get a bounce I could have another $1.35 from time value and intrinsic value. If the fall continues to get worse I’ll probably take your suggestion and roll it.