Options Expiration – August 2011

Not that it’s a surprise to anyone, but this is not a good options expiration Friday for my account.  All of my naked puts finished in the money and all of my covered calls finished out of the money.

These are the 11 options I was short going into the day.

• CSX – 1 August $25 put – Expiring in the money CSX rallied nicely for a few days from its lows, but then fell off a cliff again this week.  I like the stock long term and am going to take the assignment and not even sell covered calls yet.  I think it’s going to pull itself back up before long and when it’s closer to $25 (or at least closer to $24) I’m going to sell a covered call then.  It’s a solid company with good revenue and earnings, a forward P/E ratio of 10.38 and a dividend yield of 2.1%.  I’d be happier if the chart showed a better picture, but the downside looks like it might be limited to $20.00, the low from 8/8/11.
• DSX – 10 August $11 puts – Expiring in the money, DSX had a chance to work out for me if it stayed closer to the money, but it dropped sharply and I lost any chance of selling my long puts’ time value.  Since the underlying shares were so far below the strike (in the money) the intrinsic value took over the whole premium and left virtually no time value to sell.  I have a limit order in to sell my straddle for $0.00, just to get out, but I can’t find a taker yet.  I’m not at risk for more downside since I’m long 10 puts with the 1,000 shares I’m about to buy, but want to exit the position and be done.
• ITRI – 1 August $50 call – Expiring out of the money, ITRI has been a dog for me, so I sold my 100 ITRI shares for $35.30 and received $3,529.00 after commissions.  The series of trades cost me a realized loss of $1,423.44.  I only had $3,530 left to lose if ITRI went to $0 (which I don’t think it will), but I opted to cut my losses and move on to better opportunities that I understand better.  With the European troubles and US government debt issues ITRI’s prospects might not be as bright as they claim them to be.  Maybe they are, but I won’t be around to profit from it.
• JPM – 1 August $40 put – Expiring in the money, JPM hit $33.69 twice recently.  I expect that low to hold.  I’m staying long JPM for now with my 200 shares (including the 100 about to be assigned.  JPM has a forward P/E ratio of 6.25 and a dividend yield of 2.7%.  Assuming they don’t take too big of a hit in the near term to earnings I think JPM will be a strong long term hold.
• JPM – 1 August $41 call – Expiring worthless, see above
• QCOM – 1 August $52.50 put – Expiring in the money, QCOM hit a low of $46.70 recently.  I’m expecting that low to hold support and am staying long these new 100 shares without a covered call yet, but I’m considering a $52.50 strike covered call for October.  That would let me get out at the price where I’ll be buying and the premiums are worth pocketing.  My hesitation is due to my expectation QCOM will recover quickly and I can do better by waiting.
• SSO – 1 August $50 put – Expiring in the money, not only do I have this SSO naked put and the one listed just below, but also I have a September $45, January $50 and $55.  That leaves me in a situation where I don’t want to add more SSO exposure yet.  At the same time, I’m not really in such a bad hole that I can’t sell my way out of it with new covered calls.  Any new covered calls will have to be long dated and far out of the money, but with my puts expiring later I took in enough premium up front that I’m fine with my cost per share.  I want to see how the next couple of days trade and then maybe sell a couple of December $45 covered calls.  If we get a bounce in the S&P 500 I might make the calls September $45 strikes to go with my September $45 naked put.  That would force one side to finish in the money while the other expired with a full profit.
• SSO – 1 August $53 put – Expiring in the money, this put might go down as one of my worst timed trades ever.  I have a friend (another advisor here in Atlanta who runs a market timing service) who warned me against going long when I did, but I didn’t listen and am paying for it.   See above for more on my SSO plans.
• UCO – 1 August $34 put – Expiring in the money, I’ll sell a covered call at $34 on these 100 shares.  I’m not sure when I’ll get to it. The downside in oil really seems limited from here though.  I’m up to a half position in UCO so far and plan to sell new naked puts with any covered calls I sell.  I might even sell puts first.
• UCO – 1 August $43 put – Expiring in the money, see above.
• UCO – 1 August $47 call – Expiring out of the money, see above.