I’m very happy I didn’t chase the UCO trade yesterday to close out my vertical spread portion of my UCO position. I didn’t know if I was going to have a chance to get out at the same price after the first two contracts hit in the morning yesterday and then UCO recovered. Luckily for me, I was patient and I did even better with today’s trade than I did yesterday. While UCO was trading at $28.02, right after the open, my limit order for $1.10 hit for $1.55 and I sold four UCO April $30 puts for $2.00 and bought four UCO April $27 puts for $0.45. I received $619.84 after paying only $0.16 in commission.
By closing the vertical spread portion of my ratio spread, I’m left with six naked puts on UCO at the April $28 strike. I might end up regretting closing the $27 strike contracts instead of the $28 strike contracts. I have a week to go before I’ll know if the risk was worth the improved profit. I didn’t look at the time the order hit, but three hours later it looks like I would’ve paid about $0.50 more to close the $28 strike puts. That’s a $300 difference (in addition to the extra $20-$30+ I would’ve paid yesterday), which I’m glad I have for now, but could change my mind by this time next week.
UCO made it down to $27.30 this morning before heading north again. That’s dead-on one of the trend lines I drew for support. Admittedly, the leveraged oil ETF traded right through my planned support within an hour after opening on the first trend line I drew. As I’m writing this, UCO is trading at $27.74, still below my strike, but in a very manageable place. Today’s net premium intake brings my potential profit on this trade up to $915.04. I still have nearly $150 in intrinsic value on my $28 strike short puts, so my profit could come down some. I didn’t even consider dumping the $28 strike puts today. It would cost me about $510 if I did buy them back in the middle of the current bid/ask. A chunk of that cost is from time value, which I expect to melt quickly in the coming days, especially if UCO climbs any more.
At this point, I think I’d be willing to take the 600 shares assignment on UCO, lower my average purchase price per share and sell new covered calls at the $28 strike for more than $2.00 each. I bought my original shares at $33 and $37 (300 shares at each price) and have brought my cost per share down to almost $29 when I include the premiums I’ve received. That’s not even factoring in the profit I have so far on this part of the trade series. I’ll update my cost per share once the $28 strike naked puts are closed. As an estimate, I think that’ll drop my cost per share under $27.00. I won’t sell any new UCO naked puts in the foreseeable future since it’s getting to be too big of portion of my account to be smart.