Options expiration was mixed again for me this month. I only had four options expire today on three underlying stocks/ETFs – UWM, UCO and AFL. Starting with the good, two of my naked puts expired worthless. On the other side one of my naked puts expired in the money which also left the covered call on the same underlying stock to expire worthless. With these four options set to expire I moved to new contracts to keep the exposure on the two puts that expired worthless. Sound confusing? Here are the details:
- UWM – July $40 naked put – expired worthless. One of the cool things about this put is that UWM is trading slightly below where it was when I sold this option in February. I was able to make money while the market dropped some. I’m still bullish on small caps for the rest of the year, but not so confident to think I can’t be wrong. To give myself some cushion I sold another out of the money naked put on UWM. While UWM was trading at $47.16 I sold one October $42 naked put for $2.75 and received $273.97 after commissions. UWM finished last year at $42.69. So if it stays positive for the year through October expiration I get to take a full profit. I don’t see a sell-off pushing small caps too far into negative territory so I wouldn’t be too upset about taking an assignment that low. The premium gives me a potential annualized gain of 25.8% and I have a cushion of 16.81% before I take a loss. That’s equivalent to about 8% or more of a loss in the Russell 2000 index.
- UCO – July $42 naked put – expired worthless. Just as I did with UWM, I made money on my UCO option as UCO lost money. In May I thought oil was close to a floor when UCO was trading over $48 so I sold this July put. I was wrong, but was smart enough to sell out of the money. That allowed me to take a full profit even when I was wrong. Now that I’ve proven that I can make money when wrong, I’m testing myself a little bit more boldly. While UCO was trading at $43.81 I sold one UCO August $43 naked put for $2.65 and received $264.52 after commissions. I picked this specific contract for a few reasons. I’m already long 100 shares and have a covered call at $47 that I’m afraid is too low to avoid assignment. If UCO takes off again I want to squeeze in some more profit while I can. I set the expiration to the same month as my other UCO options in place so I have an even table to make my next trades once everything expires. (I also have an August $34 put I’m short.) I wanted the strike to be high enough to give me a better profit on the series of trades if my 100 shares are called away at $47.00. I don’t mind going this high for my strike in case I’m wrong again and UCO drops further. It’ll still reduce my average cost per share which is at $43.24 including all UCO option premiums received in my IB account for this series of trades. If all my puts are assigned I’ll still only be less than 10% invested in oil with room to double my position still on a bigger drop where the prices are even more attractive. (I’m not even factoring in my new January $35 strike put I have in my AMTD account. Different account, different focus.) Today’s trade offers a potential annualized gain of 65.4% (yes, it’s that volatile). I only have a cushion of 7.64% and that can be wiped out in a day with UCO.
- AFL – July $50 naked put – expired $4.65 in the money, giving me a paper loss of $203 on this leg of the trade series and I’ll be forced to buy another 100 shares. More below…
- AFL – July $50 covered call – expired worthless which allowed me to hold onto my first lot of 100 shares. I’m not sure what I’m going to do with these 200 shares. I have a paper loss of more than $800 right now and I might make that a realized loss on Monday. I want to see what the September premiums look like when they post next week. I’ve debated selling my 200 shares and moving on, selling two covered calls or even adding another naked put. I have no doubt AFL will come back strong one day, but I’m trying to decide if that’s within the next month. I’ll cover the pros and cons in more detail when I make the next leg of this series of trades.