I placed a limit order (Good-Til-Cancelled) two weeks ago that finally started to hit today. The bid/ask for my six UCO April $35 calls was $0.05/0.15 at the time, with the last trade at $0.05. I figured I could rewrite new/better covered calls if I could get out for a nickel more than a few weeks ahead of expiration. I thought the order would hit within a day or two, but it didn’t work that way for me. Including some clients who have a similar position, I placed an order to close 17 UCO April $35 calls and they finally started trickling through today. There just aren’t many takers when you try to dump contracts so far out-of-the-money.
As UCO moved between $28.45 and $29.23 throughout the day, my six calls finally closed one by one. By the end of the day, I bought to close six UCO April $35 covered calls for $0.05 each and paid $33.22 including $3.22 in commission. I think I’m going to write $33 strike covered calls to replace these and might go out as far as July. With UCO down more than 3% on the day, I’m going to enter a new limit order to aim for better premiums on a day UCO spikes. I still have 600 shares long, six April $30/28 put spreads I’m long and six April $27 naked puts. The closer UCO closes towards $28 in April, the better off I am on my put spread and $27 strike naked puts, but the worse off I am if I don’t get new covered calls written soon.
I could’ve sold new UCO calls before I bought these six covered calls back since the risk is low of a run above $35 for the leveraged oil ETF. In hindsight, it’s easy to say I should have, but the risk didn’t feel right at the time. Now the call contracts are 15-20% cheaper than two weeks ago. I don’t think UCO has more than $0.50 to the downside before finding support. I’m going to try to stay patient with my next covered call order. If UCO falls deep enough, I’ll own more from my $27 strike puts and will write 12 covered calls at a lower strike.
I still had four SPY naked puts far out-of-the-money coming into today. I finally figured I should cut my total risk and rearrange my SPY exposure. While SPY was trading at $155.01, I bought to close two SPY April $146 puts for $0.36 each and paid $73.54 including commission. A second later, I bought two SPY April $145 puts for $0.31 each and paid $63.54 including commission. I knew I wanted to replace these four contracts with a single contract and took a few minutes to make a decision. While SPY was trading at $155.08, I sold one SPY May $155 naked put for $2.92 and received $290.93 after commission. My downside risk went up for the first 6% of lower SPY prices, but I’ll be much better off than if SPY falls below $145 before April expiration. I still expect SPY to finish the year with a gain of around 10%, so this trade might lose money for a few months, but should come back to a profit before the end of December.
The VIX is still relatively low, even with it up ~8% on the day to 13.70. The low volatility helped me when I closed the far out-of-the-money options, but did me no favors when I sold the at-the-money SPY put. I only have 1.92% upside potential on my SPY order over a little more than eight weeks. That’s 12.0% annualized. I get a 1.90% cushion before I take a loss for giving up any more upside potential. Both aren’t much to brag about. I could’ve gone out to the June contracts to get a better cushion, but the annualized gain would’ve dropped a percent. In addition, I don’t have any other May contracts and wanted to have something expire in May. I might be able to add more May contracts next week, but not if the market keeps behaving like it has lately.
I did a review of my account before I sold this put. I estimated which positions weren’t likely to be assigned and figured I had room to add in a contract that was closer-to-the-money since I don’t think all of my naked puts will be assigned. This puts me back in a place where I can be more patient with my next trades. I was in that comfort zone earlier this year, but somehow fell out of it. Now I can get back to placing orders that don’t matter if they don’t hit. If they do hit, it’s because there was a sudden drop in the underlying’s price and a spike in the premium. That should make the reward worth the risk. Either way, I’m fully invested now if nothing new hits and everything I have is assigned.