My account balance has come down considerably from its recent highs. I figured it would whenever UCO stopped its ascent. It still isn’t fun to see this, even knowing the decline was bound to happen eventually. I mistimed the long options I bought earlier this month by a few days. Had I bought longer dated contracts, I’d be sitting much prettier right now. There’s nothing I can do about that now, but learn from my mistake and try to avoid repeating it next time.
I’ve been trying to figure out a way to hedge my leveraged oil position more cheaply. I started trying to work out how I could do something on UCO similar to the SPY ratio spread trade I made a couple of days ago. Yesterday afternoon, I tried an order, but it didn’t hit by the close. I tried the same order this morning and it didn’t hit quickly enough for me, so I entered a new order with different/higher strikes.
While UCO was trading at $29.10, only two cents above yesterday’s close, I bought to open six UCO April $30 puts for $2.403 each and sold six UCO April $28 puts for 1.453 each. As soon as this spread hit, I sold six UCO April $27 naked puts for $1.10. I paid $579.23 for the $30-28 portion. That includes $9.23 in commission. My naked puts at the $27 strike netted $657.51 after I paid $2.49 in commission. The combined order of all three legs gives me $78.28 in net premiums. My original order went in as a single order with three legs, one long and two shorts. Since it didn’t hit, even with the various bid/ask prices seemingly in alignment, I didn’t bother trying the same single order strategy on the second attempt of the day. To get this to work, I had to break it out a little. I thought about risking three single trades and pushing for better individual trades, but didn’t want the short sides to lose value before I could sell them if UCO popped higher too fast for me to react. The result is the same as I would’ve gotten on my planned single order execution and this path was quicker to execute as a bonus.
Remember, I still have 600 shares of UCO I’m long coupled with six April $35 covered calls. The covered calls have fallen to a bid/ask of $0.20/0.30. I could roll those lower to the $33 strike, but I’d only get an extra quarter for losing $2.00 of upside potential. That hardly seems worth the trade and it’s too early to stretch it out to July yet.
I like what I did more, for now. I cut my downside risk by $2.13 per share (or $1,278, 600 shares x $2.13) up until UCO makes it below $27.00. This will be a profitable addition to my UCO position until UCO falls below $24.87 ($27 – $2.13). My cost per share if I’m forced to buy at $27 will actually be $24.87 due to the premium intake and profit from the $30/28 put spread. I’ll be happy to add to my position at $24.87. That’ll reduce my average cost per share for my total UCO holdings and will set me up in a great position for the next oil bounce. I’m screwed if the US dollar has a massive rally and oil prices tumble. I don’t think that’s going to happen, but it’s important to recognize the risk. The US economy will have to improve for the dollar to strengthen much. If it does improve, that should increase demand for oil, which should keep the price per barrel from sliding below $80.
If UCO stays below $30, I’ll be able to close the naked puts of this trade for a full profit and I’ll be able to get some money back from my put spread that’s in the money. If UCO rallies, I’ll make money on the 600 shares I own and will still come out with a $78.28 net profit from this little trade.
As a side note, I closed the tiny position I had in the penny stock, SNVR. I bought this almost three years ago with the plan to day-trade it for a nickel or a dime at a time. I made a couple of profitable sales and then it jumped higher in what looked like a pump and dump type move. I stopped following it as closely to sit back and see how high it could go. I should have entered a trailing stop, but ignored it instead. I sold my 50 reverse split (1 for 10) adjusted shares for $0.10 this morning and took in $9.00 after paying $1.00 in commission. I think I’ll end up with a realized loss on these 10 shares of around $720 total. Including my small gains I made in the early months, I think I’ll finish with a realized loss of more than $600 on the series of trades. I didn’t have time for this little penny stock and should’ve dumped it with everyone else when I realized that. The only reason I took the loss today for only $9 in revenue was to get the loss on my books for tax purposes. I’m up more than $4k in 2013 and see no reason to hang onto a loser like this when it can save me some on taxes next year.