This has not been my month for timing exits from my positions. I’ll go into more detail on this tomorrow about what “could’ve been” with other positions. In reference to UCO, it’s annoying me more than trades usually do. I had a chance to get out of my UCO ratio spread with a realized profit of roughly $500, but I didn’t and the position turned into a loss (on paper). I think I can still salvage it into a profitable series of trades by the time I exit, but it wouldn’t have been so bad to get out while I could.
I’m assuming oil isn’t going to have a massive rally between now and the close of trading tomorrow. That will mean my six UCO April $28 puts will be assigned and I’ll own a total of 1,200 UCO shares. Based on this assumption that UCO isn’t going to jump almost $4.50 in just over a day, I sold calls on UCO a little early. Technically these are naked calls until I own the shares, but that’ll happen soon enough. While UCO was trading at $25.59, I sold six UCO July $28 calls for $1.40 each and received $840.23 after receiving a $0.23 commission rebate. Apparently, the Trading Gods felt sorry for me and at least didn’t make me pay commission.
I debated this trade longer than I should have. I toyed with different strikes I could’ve worked and different expiration dates and then even tried a couple of higher ask prices before settling on $1.40 and leaving it alone. The bid was bouncing between $1.30-1.35 and the ask was $1.50-1.55 before I placed my order. I started at $1.75, good through tomorrow. I figured UCO could bounce again in the morning, like it did today and I could score a few extra bucks. Then I came down to $1.45 and finally to $1.40. My final logic was that I needed to get my covered calls sold before oil fell any further and I missed the opportunity. If oil has reached a bottom and starts heading higher, I’ll do well enough on these new 600 shares and covered calls. More importantly, the other half of my 1,200 shares will head north too and my covered calls on those shares won’t hit until $33.00. If UCO heads even lower, I’ll be happy I got my order in first to lessen the loss a little.
While I think oil should head higher again before the end of the year, there’s no telling if it is going to sink further before that. If UCO magically stayed flat, I’d earn 5.45% from these premiums (21.29% annualized). That’s a nice return for the underlying ETF not to gain any ground. If my shares are called away, I’ll have a gain of 14.95% (58.45% annualized). That’s based off the current price, not the price I bought the shares. It also doesn’t factor in the premiums I took in from the previous naked puts and the rest of the ratio spread I closed early. If UCO keeps falling, I just reduced my losses by an extra 5.48% with the premiums from these covered calls.
By the time I finished writing this, less than an hour after my order hit, it looks like I could’ve sold at $1.60 easily since the bid/ask was up to $1.55/1.70. UCO is up to $26.00, which I consider a good thing, even if I left some cash on the table. The best part of the oil reversal is that I’m up $750+ on paper for the day while the $SPX is down 10+ points.