So much for patience. My plan to wait on selling covered calls on UCO didn’t last more than a few trading hours. At least I’m glad I waited overnight, because UCO moved more than 1.7% higher this morning from yesterday’s close and the call option prices came back to more acceptable levels for my needs. I wasn’t asking for much. I was able to get $0.10-.015 more than I would’ve been able to get yesterday. That’s an extra $60-90 for me. While UCO was trading at $29.08, I sold six UCO July $33 covered calls for $0.95 each and received $570.18 after getting an $0.18 commission rebate. My other option would have been to take the risk of waiting and seeing if oil rose further, but by selling almost $4 out-of-the-money, I have plenty of upside available for my position. The $35 strike calls for UCO in July were only trading around $0.55 when I sold these $33 strike covered calls. I don’t think UCO will make it above $33.00-33.50 by July, which means it was probably worth getting the extra $240 (40 cents x 6 calls) for the lower strike calls.
I would’ve loved to sell closer dated contracts, but UCO options are odd in that they give better annualized returns for longer contracts. The October strike was even better annualized, but I couldn’t stomach going out over 30 weeks for them. My plan is for UCO to gain some ground before these July contracts expire and then I’ll be able to write new October covered calls for better premiums in late June or mid-July when I roll these out. If these run their course and my shares get called away, I’ll make a 16.72% gain (50.55% annualized). If they don’t get called away, I’ll still make 3.24% (9.8% annualized). It comes out to almost $3,000 in upside potential from the price of UCO when I made the trade. Even if UCO spikes over $35 again, I’ll be happy to have that much new cash on hand in just over 17 weeks.
I’m back to being roughly break-even on paper for all of my UCO trades in this series that started on April 17, 2012. I’ve taken in $5.95 in premiums and bought my shares for an average cost of $35.00. My next covered call trade should put me back to a paper profit and any growth from here is a bonus, as is any profit I can make from my April $30/28 long put spread.
AAPL has pushed above where I thought it would find resistance. Now, I think my long put spread is going to expire worthless next month. I tried to figure out other ways to adjust the trade to help me cut my losses on it. In the end, it made more sense just to dump my two spreads and move on. That wasn’t as easy as I thought it would be since nobody seemed to want to take my 10% out-of-the-money put spread. While AAPL was trading at $456.50 and 456.54, I sold my two April $410/405 put spreads for $0.35 and $0.33 and received $64.42 after paying $3.58 in commission.
I entered a different order that I canceled before I sold these spreads. Before I realized how illogical it was, I entered an order to sell four farther out-of-the-money $10 put spreads on AAPL. I would’ve been able to get about $0.35-0.36 for each and would’ve netted around $135, but then would’ve lost the remaining ~$65 on these contracts I just sold, so my net would’ve been about $70 or ~$5 better than I got by simply exiting the position. I also would’ve taken on more risk needlessly. Since I started this AAPL position by coupling it with QQQ naked puts, I didn’t consider the cost by itself. By selling these spreads this morning, I moved the combined trade back to a profit if the QQQ naked puts finish worthless. The trick now will be how much the QQQ puts are going to cost me. Right now, I have a paper profit, but they are $0.49 in-the-money. If assigned, I’ll be able to work covered calls on them easily to get a better profit.