Today had to be a day for the bulls after Europe made a big step in getting their act together and GDP came in at 2.5% for the third quarter. I saw the first 30 points in the S&P 500 and thought it was nice and was curious if it would hold. We sent sideways for a while, got a little choppy and then launched way beyond what I thought the day had in it. I think short covering is playing a large part of this rally, but a good part of it is well deserved too. We might get another small pull back, but I don’t think we’re headed back below 1,100 any time soon.
Before the second leg of the breakout today I made a couple of call option trades on JPM and AFL. While JPM was trading at $35.96 I sold two JPM December $38 covered calls for $0.95 and received $188.55 after commissions. With JPM up about 4.5% on the day when I made the trade I didn’t think it had a ton of upside left in it over the next few hours so I pulled the trigger sooner than I should’ve. After I made this trade and was putting the figures into my spreadsheet I saw that if assigned, I’ll finish the series of trades with a profit. That’s always nice, but wasn’t a decision making factor. I could see JPM back in the $40s eventually, but think it’ll hit resistance between $38-39 and give another buying opportunity on a pull back before it makes it back up there. If I’m wrong, then I exit and rethink my next move. I might sell new naked puts out of the money to create an option strangle. I want to see how tomorrow opens up before I give that much more serious thought.
After JPM I moved back to my most recent mistake, aka AFL. When AFL was down in the dumps I sold an extra set of calls at the $36 strike in addition to the $50 strike puts which seemed an eternity away. AFL rebounded very soon after my trade, so I added $36 strike naked puts to create an option straddle to go with my long/covered call position. The trouble is that AFL hasn’t slowed down and it appears I’ll be forced to sell my shares down at $36. I’ve known that for a while and was letting the $50 strike calls sit and expire worthless later. The second set of trouble came from AFL’s continued ascent. While AFL was trading at $47.10 I bought to close two AFL November $50 calls for $0.44 each and paid $88.78 with commissions. I tried to buy these same calls yesterday for a nickel, but missed by a few cents. I could’ve bought with a market order for 10 cents, if not nine cents. It’s not much of a difference between today and yesterday, but you hate to give up easy money. I might get back into AFL when all of this series of trades is over, but I won’t be rushing back to it until I get this bad taste out of my mouth.
I thought about selling covered calls on my CSX shares, but the premiums aren’t worth the potential lost upside yet. I’ll get there eventually. My in the money MDY, MVV and UWM naked puts have been huge for me today with their underlying share prices rising and volatility dropping. The same goes for my uncovered SSO shares. I couldn’t be happier about buying back my SSO covered calls recently. I might sell covered calls on these shares again soon to start wiping my slate clean and getting ready to start over in the new year. After today’s monster rally I’ll probably wish I had sold covered calls this afternoon if we get a little give-back tomorrow.