The Disney (DIS) trade I made a couple of months ago for April expiration wasn’t quite aggressive enough. I sold those two DIS April $55 puts while the contracts were in-the-money by $0.05 and then saw DIS slide lower some. I didn’t sweat the dip, but didn’t take advantage of it either. Last year, I changed my overall strategy (outside of UCO) to not “double down” on any trades that move against me. That keeps me from adding to losers, but it also causes me to miss buying opportunities sometimes. The amount I save on limiting losses beats out the gains on reversals most of the time. DIS was not one of those times.
The stock went on a steady climb after the little dip and I opted to take a nice profit today on my April puts and move the risk out to May. While DIS was trading at $58.67, I bought to close two DIS April $55 naked puts for $.05 (paid $11.04 including commission) and sold to open two DIS May $57.50 puts for $1.08 each. I received $214.46 after paying $1.54 in commission on the new naked puts. I thought about selling in-the-money contracts again, but the risk/reward worked for me on the out of the money puts. I stand to make 1.9% in less than six weeks. That’s 17.0% annualized. I still get a 3.79% cushion before this turns into a losing trade. I don’t think there’s much of a chance that my April puts would’ve been assigned, but with just under two weeks to go on the contracts, a nickel was easy to spend to remove all of the risk. I thought about going farther out on the calendar, but I wouldn’t have gained much. The June contracts cut the potential annualized gain substantially and didn’t add much more downside protection. In addition, I was able to add to my pitiful amount scheduled to expire in May.
My cost per share will be $56.43 if the options are assigned. I see strong support around $55.76, the mid-March intraday low. Before that can happen, there’s an ascending trend line of higher lows that could catch the stock around $57.00. If I’m simply wrong about support, I’ll be OK taking the assignment and buying 200 shares of DIS and its 1.27% dividend yield. I tried to make this trade yesterday, but didn’t have my limit order priced to hit. I could’ve sold at market prices for a quarter more per contract and only paid a couple of cents more to close my April contracts. Sometimes patience works for you and sometimes it costs you. I like the stock long-term and will keep it in my rotation of individual stocks as long as possible along with QCOM.
Speaking of QCOM, my two April $65 covered calls are only $0.72 in-the-money. I might end up with the opportunity next week to close the calls for a profit and roll them out a couple of months. At a minimum, I plan to write new naked puts if the shares are called away before I change my position. The debate to roll the calls will depend on the price of QCOM over the next few days. I’ll also have to decide what strike I use. I could increase my profit potential and go as high as $67.50, but $65.00 strike contracts would lock in a better profit. Other than QCOM, I have slightly in-the-money QQQ puts and a collection of UCO puts, some long and more short. I doubt I’ll let the long puts run all of the way to expiration so I can sell a few cents of time value if possible. As volatile as UCO is, I don’t want to dump the long puts too soon and then have all of my short puts assigned. For now, the time value on my six long UCO puts outweighs the time value on all 12 of my short UCO puts.