1,220 still seems to be the magic number for the S&P 500’s ($SPX) resistance. This morning’s start was good enough for me to add some more exposure though. I started with adding more UCO before lunch. I am long 300 shares already with a three covered calls at the January $40 strike. I’ve been debating selling new puts for months and after I missed the low I waited some more to see if it would retest those lows. Finally I decided to take a small chance. Small based on how far it is out of the money, but not by size as much since it will double my position if assigned. While UCO was trading at $31.65 I sold three UCO November $26 naked puts for $1.25 and received $373.73 after commissions.
UCO bottomed out early last week (10/4) at $24.58 and shot back up from there and didn’t close below $25 (above my cost if assigned new shares). I’m banking on WTI oil not falling below the low $70s and expect this trade to expire out of the money leaving me with a full profit. I’ll make a 5.0% return if the trade works out for me. That’s 46.6% annualized. I’m bullish enough on oil to have gone with a higher strike, but with a potential return this high there’s no need to take extra risk. My other 300 shares will give me a bigger upside return if oil continues to climb. I don’t think WTI will get back above $100 until the European mess is cleared up better than a handful of rumors and plans to make a plan. If I’m wrong I’ll enjoy pocketing these premiums and the next $1670 in growth from the shares I own before my covered calls come into play at $40.00. If the shares are assigned, my average cost per share will drop substantially and I’ll be selling six covered calls and maybe more naked puts again.
JPM reports earnings tomorrow. They’ve rocketed off their lows and I didn’t want to risk losing those gains if earnings disappoint. So I bought some insurance in the form of very short dated puts. While JPM was trading at $33.42 I bought two October 14 $34 puts for $1.05 each and paid $210.68 with commissions. Since I bought the puts in the money by $0.58 my protection to the downside will kick in sooner than if I bought the cheaper $33 strike puts. If JPM surprises to the upside the puts will quickly become worthless since they expire in two days. JPM gained $1.25 today and I think they have much more upside potential so I’ll make the $1.05 back quickly. I might even be able to sell these puts to get back a few cents if it doesn’t overshoot $34 too much. I thought about selling covered calls farther out of the money at a later expiration to capitalize on the high implied volatility, but want to see if this rally has legs still after failing at 1,220 today. JPM also faltered into the close and I already have a profit on my new long puts. That’ll be moot by tomorrow when the unknown is known.
Actually i was busy selling some positions…..i think the market will be down again in few days and that would be good buying opportunity again. Sold intc, s, f, and nok
I done a bit of a risky trade this morning. Usually, on the less volatile stocks, I look for a return of at least 1% on the Options 1-month out.
Obviously, AEM is far from what anyone would consider a low-volatility stock but it’s one I’ve been in and out of over the years.
I saw a 1% return available on the October 55 Puts, which expire next week. I sold them at $0.56 ($0.55 after commissions). The 52-week low is $54.09 and my basis, if assigned will be $54.45.
AEM announce earnings at the close on the 26th – the week after these Puts expire. If my Puts expire in the money, I’ll take the assignement and sell November 55 Calls at what I would expect to be a very good Premium considering the upcoming earnings.
AEM is now trading at $58.12. In an ideal world, they’d drop close to $55 and I could sell some November 55 Puts at a very good Premium after October expiry. We’ll see what the next week brings.
@ Khan, you might be correct. I took some off my plate today and will have a post up this afternoon.
@ Ronan, AEM and low-volatility shouldn’t be in the same sentence. 🙂 That’s probably not a bad trade though.
Yeah, what I was getting at is that AEM a week out from expiry gives me the return I normally like in a month due to it’s volatility. I assume you got that anyway.
It’s extremely volatile but, even looking at the five year chart, I’d happily take ownership at $54.45 and sell further Covered Calls. I don’t see Gold prices falling off a cliff anytime soon.
There’s what volatility can do. AEM dropped almost 20% today after closing one of it’s mines immediately. The mines was supposed to account for over 15% of output and will cause a huge write-down on the books.
With the uncertainty, I thought it might be prudent to close my position and look for returns elsewhere. I may regret the decision in a few weeks but I closed the November 55 Puts at $8.50 resulting in a $7.95 loss.
Wow, I saw the headline and thought of you, but hadn’t checked the price. Probably a good move to cut your losses quickly.
Yeah, it was a big loser for me but this week might turn out fine yet.
KCG is a position that I kept both my short October Naked 12.50 Puts and short October Naked 12.50 Calls open, perhaps stupidly with the earnings happening yesterday.
However, the announced higher profits – but analysts had been expecting higher due to the recent spikes in trading volumes. The stock dropped over 8% yesterday to $12.80 and I’m hoping for a drop below the $12.50 strike before Friday (I’d much rather go long than short at these levels).