I’ve been waiting for Mr. Bernanke’s speech tomorrow morning before covering a lot of the stocks and ETFs I was assigned at last week’s option expiration. We could see a “sell on the news” (or lack of news) reaction, but I still want to see what happens before putting a ceiling on my potential profits. The past couple of days made me happy with my waiting as prices increased, but today is a quick reminder of how fickle the market is. I’m actually glad to see some downside today. If we had three back to back to back days leading up to the speech the selling frenzy afterward would be bigger. Today’s losses take the sting out of the reaction tomorrow and open the door back to a possible pop on any positive news from the Fed Chief.
As I’m waiting I decided to clean up a couple of positions that were going nowhere. The first was on DSX. While DSX was trading at $8.25 I exercised 10 DSX September $11 long puts and received $11,000 from the 1,000 DSX shares I sold at $11.00. (IB doesn’t charge commissions on option exercises.) This let me break even on the shares themselves, but I took a loss on the puts. My original cost on this portion of the trade was $114.44, so that’s what I lost after keeping the premiums I originally received and getting back none of the premiums I paid. I never planned on making much on the trade, but the small dollar risk was worth the shot. I won’t be repeating this trade again for a while. I’m still long 300 DSX shares with three covered calls that are so far out of the money they’re almost worthless. With so little money on the table I’m going to let it play out.
A few months ago I sold a UUP put bull spread based on my expectation that the US dollar had some upside in it. I was very wrong and saw UUP fall. Although there’s a very slight chance something could change in the next few weeks before this option combination expires I decided to get it off of my plate. While UUP was trading at $21.10 I bought to close 10 September 23 short puts and sold to close 10 September $22 long puts for $984.47 after commissions. After taking in $705.55 back in May, this trade gives me a realized loss of $278.92. My potential gain was $705.55 which made my risk/reward ratio pretty nice, but this time the risk won and I lost. I might make a similar trade like this one again, but not in the near term. The beauty of a trade like this is that I can do it wrong two of three attempts and still come out on top.
I have a few positions I still might need to “clean up” or lower my covered call strikes, but some of these could snap higher still and have limited downside from here most likely. AFL, CSX, JPM and QCOM are on the top of that list for much better potential upside than downside. For now these are simply long positions with no covered calls. I like each of them for longer term holds, but wouldn’t mind taking in more premiums if I could figure out where I think they could face resistance. The rest of my uncovered long positions are in ETFs and my decision on what to do with them could come as soon as tomorrow morning.