As I mentioned when I sold this covered call I wasn’t really convinced it was the right order to place. I cut off my upside potential too low and had seller’s remorse right away. I almost bought it back a couple of times over the past few days, but kept thinking we’d get another blip lower that would allow me a small profit. Today I got that blip lower and then some. UCO fell big this morning (a full 10% at its low of the day) and then started to recover. I decided to take the opportunity to get out of my covered call a few weeks early. While UCO was trading at $38.99 (more than $1 above its low) I bought to close one UCO July $42 covered call for $1.25 and paid $125.47 with commissions. This gave me a $74.00 realized gain on the option while I chalked up another $125 paper loss on the long shares I own.
I’m not too confident in oil’s chance of recovery before July expiration, but for $125.47 I like leaving the room for a snap higher in place. Many of you will be surprised, but I’m actually considering adding in new UCO naked puts too. If you look at the one year chart for UCO you can see where support surfaced on the last major dips close to $33 and $35. When I’m not thinking of this as a short term trade, but a long term hold those areas start looking pretty safe. I’ve heard a lot of the talking heads mention the mid-$80s as a reasonable landing spot for oil. With it trading around $91 as I write this, we could see another 6-7% to the downside for WTI oil. For UCO that might translate to a floor around $33.00-34.00. That makes the UCO August $35 puts very tempting.
Of course any assignment down there would drastically help reduce my cost per share and even if UCO breaks through those levels I’ll be able to sell covered calls easily at my entry point for a decent return while I wait for the inevitable bounce to come back for oil. I’m entering a high limit order to see if it’ll hit on another sudden drop lower. If UCO doesn’t drop I’ll have my July $42 put ready to run higher along with my long 100 shares. I could stomach buying at least 200 more shares of UCO before I got nervous about it.
I’m thinking of selling puts on QCOM again too now that my wash rule limitation has passed. I’ve also thought about closing my AFL July $50 covered call early. It’s only selling for a nickel or so, but with more it more than $5.50 out of the money there’s no reason to waste five dollars right now. I’m not fully invested so I’m still considering this little correction as a good buying opportunity.