June wasn’t the prettiest options expiration I’ve had. My covered calls expired out of the money leaving me farther below my purchase price for the shares and my puts expired in the money. That’s basically the opposite of how I like it to roll out at expiration, so I’m adjusting my stance. I’m somewhat more neutral now and have positioned my new holdings and options to show that view. Without having as strong a view on the near term direction I sold newer options closer to the money to give me a higher probability of ending the next couple of option expirations with more money than I have now. I might leave money on the table in a new rally, but can always add more exposure if a new rally appears to have legs. This is how my June options finished the day:
- DSX – Three June $12 naked puts – Expired in the money. I’ll be assigned 300 shares on Monday at $12 and will be sitting on a paper loss, even after deducting the put premiums. I’m waiting until Monday to make my final decision on what to do with DSX. I’ve thought about cutting my losses and jumping ship, but I have so little at stake the risk isn’t too great if I hold on. The question becomes if I should add more exposure. I don’t think DSX’s ship is sinking yet. (Sorry, blatant cliche.) They’re still making money in this interesting economy and I expect them to gain or at least flatten out again once the economy finds stable footing again. With a sizable wad of cash on hand (I could’ve said boatload, but that’s going overboard), DSX isn’t going bankrupt any time soon. Adding more puts along with covered calls would bring me back to a paper profit and set me up for a nice gain. I want to see the August premiums before I make a trade though. If they aren’t good enough I might be forced to go out as far as September with my option straddle.
- VXX – Two June $35 calls and two June $70 calls – both expired worthless. I exercised my two long VXX puts yesterday which triggered the sale of my shares at $50. I’m done with VXX for at least 30 days, maybe longer.
- JPM – One June $46 covered call expired worthless. I’ll hold onto my 100 shares and am giving it another try. JPM is yielding 2.50% and is beaten down on fear right now. Those fears of what changes are going to hit banking could become a reality, but it appears a lot of that is baked into the price now. JPM trades close to historic low P/E range near nine on trailing earnings and its forward P/E ratio is at 7.20. That’s cheap for a money maker and should provide good support soon. I’m not certain JPM will rally soon, but do think any more downside price action will not last for too long. With that in mind I decided to sell an option strangle with a tight range. While JPM was trading at $40.80 I sold one JPM August $41 covered call for $1.70 and one JPM August $40 naked put for $1.67 and received $335.38 after commissions.
- UCO – One June $54 naked put – finished deep in the money and will be assigned. I’ll own 100 shares on Monday and still have a UCO July $42 naked put in place. I knew better than to open this position while oil was so high without putting a hedge in place, but I just didn’t do it. Once I saw oil starting to roll over I knew better than to stay long without adding insurance, but I just didn’t do it. Now that I’m about to own 100 shares of UCO at close to an $11 paper loss I decided to change my approach a bit. I might regret this trade since it’s not my original plan, but I wasn’t planning for UCO to fall this fast either and I’m adjusting. While UCO was trading at $40.35 I sold one July $42 covered call for $2.00 and received $199.53 after commissions. This turns July $42 into an option straddle for me since I already have a July $42 naked put in place. I’m actually hoping oil doesn’t recover in the next four weeks. For one, it’ll help our economy having cheaper fuel. Also, I’ll be forced to buy 100 shares of UCO again, but this time at $42 and my average cost per share will plummet. I don’t want oil to tank in reference to this position, but if it does I’ll be long 200 shares (not quite a full position for me) and will then start adding more exposure through naked puts at much cheaper levels. If UCO climbs I’ll exit the position with a $500+ lesson re-learned.
- ITRI – One June $55 Covered Call – Like JPM, ITRI is trading near its historical P/E ratio low range. The trouble is that the smart meter leader has lost its mojo in Wall Street’s eyes. I think it will recover based on valuation soon, but I decided not to risk waiting without reducing my cost per share a little bit more. While at $47.68 I sold one August $50 covered call for $1.45 and received $144.23 after commissions. This brings my average cost per share under $50 and leaves room for a nice annualized return from today’s prices if it is assigned in nine weeks. I’m not confident in ITRI enough to sell another put yet, but am thinking about it since I only own 100 shares so far and the premiums are pretty good.
- SSO – One June $50 naked put – I bought it back yesterday just in case the decline in the markets didn’t change direction today. I could’ve done better by waiting another day, but it would’ve taken some timing the way the markets sold off as the day progressed.