Oil prices have been rising for the past month, but started to look shaky this week with as UCO fell below its 10-day moving average. Actually, oil is still in its upward trend that started in three months ago, but I’ve already made the easy money on my UCO option trade. While UCO was trading at $35.36, I bought to close two UCO July $25 naked puts for $0.15 each and paid $29.88 after getting a $0.12 commission rebate from the BATS exchange.
While I don’t think UCO will fall below $25 before the middle of the summer (aka July options expiration), $30 was not worth waiting around for another three months to see a black swan event cost me more. I’m giving up 0.6% by closing the position early. That’s only 2.5% annualized. I’m quite sure I can find another investment that will pay me more than 2.5% annualized. I could buy an iShares Corporate Bond ETF with a better yield than that. I’m going to avoid oil for a while. I’d like to see it back in the low $90s per barrel (compared to $101+ right now) before I get overly bullish again. Instead, I’ll stick with equities and see what else I can dig up for a much better return.
Stocks have had a great six days favoring the bulls, but today looks weaker. I’d like to see a small consolidation of the recent rally. A quick retest of the 20-day moving average would give the 10-day moving average time to ascend above the 20-day, showing a bullish crossover. Even another 10 points lower on the S&P would help option premium prices.
I have more than $22,000 in cash that isn’t being used. I have approximately $2,235 in time value left to evaporate if prices don’t drop much. I might sell a SPY naked put out-of-the-money or could sell a credit put spread in-the-money. Either way, I’m not planning to make another trade today. Maybe FB or AAPL will drop after earnings are released after the close today and I’ll be able to sell a farther out-of-the-money naked put or two on the fear that should only be temporary. I think both companies are worth buying on a dip. We’ll see what I think after their earnings calls.
Unrelated, my wife lost her job yesterday (first time ever). I’m very happy I segregated our investment accounts into one that was less risky in addition to our emergency fund that holds six months of expenses. She has a three-month severance package and has been interviewing for the past few weeks in anticipation that this was coming. Hopefully, she’ll get an offer she likes for somewhere more fun within a couple of weeks to alleviate some stress. The good news is that I can continue to invest this account the way I see fit for the market conditions without having to worry about pulling cash from it for a long time. These are the days we planned for when we socked money away and had it earning almost no return. Based on the nibbles she’s had so far, I don’t think she’ll be out of work when her severance ends. At least that’s my plan/hope.
Hey Alex, looks like a great trade and a good stock for options trading. Thanks for sharing it. I used it as a tip and added to my watch list for further study and maybe a trade. But I like what I could see so far.