Along with my 600 shares of UCO and the covered calls that go with them, I started the day long six UCO April $30 puts, short six April $28 puts and short six more April $27 puts. The six long puts cover six of the short puts, but it’s really semantics for which one until I close them. When I sold this UCO ratio spread, I planned for the $27 strike to be left until the end (with the $30/28 contracts being a vertical spread), but a couple of days ago I changed my mind and entered a limit order, good-til-cancelled, to close the long puts and the short $27 strike puts. I don’t expect the $28 strike puts to come back into play by the end of next week’s options expiration and noticed that closing the $27 strike puts would save me $10-15 per pair. That’s $60-90 and I decided the extra $1.00 between strikes was worth the risk.
While UCO was trading at $28.97, within a penny of its low of the day, two of my combinations traded. I sold two UCO April $30 puts for $1.26 each and bought two UCO April $27 puts for $0.16 each. I received $216.92 after paying $3.08 in commission. UCO was trading at $29.10 when I started this ratio trade a month and a half ago. I had a net premium intake of $78.28 from the original ratio spread. Today’s addition brings my net premium intake up to $295.20 and I still have four more vertical spreads left on my limit order. I almost sold these for $0.70 yesterday, but the chart told me UCO had a chance to dip again before the end of the contract dates. Too bad for me that all six spreads didn’t hit today since UCO recovered a little and could be back in rally mode tomorrow. I opted not to chase the order yet since we have six trading days left and the $30 strike puts still $0.82 in-the-money. I might do some chasing tomorrow or Monday if UCO runs much higher.
It won’t take much more of a drop for the rest of my order to be filled. I still see support just above $27, where it bottomed in early March. I’m being more aggressive by leaving my $28 strike puts in place instead of the $27 strike puts. My plan is for it not to come into play, but if it does, I could do well by buying at $28, having support work above $27 and then catching a rally while I’m long an extra 600 shares. I don’t know if I would sell covered calls right away or try to just get out at any price over $28 and then repeat the order at lower strikes. I think getting out would be the safer move and will have to decide based on what kind of momentum oil is showing by then.