I changed my option position on Monsanto (MON) today, a week and a half after I opened a long put on MON that fluctuated a good bit over the past few days. I’ve stayed long on MON the whole time. They released earnings this morning and beat expectations jumped higher and then fell nearly $7 from there to within pennies of its 50 day moving average. That acted as support and MON came back to life. I took the opportunity to sell the put I bought for insurance while I could get a profit. I started out with an $11.00 limit order, reduced it to $10.00 and finally while MON was trading at $82.00 I sold my one MON April 90 put (MONPU) at $9.00 and received $889.25 after commissions. Originally I bought the put for a cost of $860.74, so I eeked out a small gain of $28.51 on the option, but lost $1.72 on the underlying stock.
With the belief that MON might actually hold support at the 50 day moving average now that earnings are out and it might have worked its jitters out early today I decided to go back to selling covered calls on it. While MON was trading at $82.11 I sold one MON April 85 covered call (MONDQ) at $2.50 and received $239.25 after commissions. One might ask why I would do that if I thought support would hold just under $80.00. I’d answer that I don’t have any delusions that I can’t be wrong and figure I should lower my cost again on it. I didn’t sell the lower strike call because I’m trying to get a little more growth from the stock itself, not just time value. Selling covered calls has worked for me on MON for the past few months each expiration and if MON does rally over $85 in the next 11 1/2 days before options expire then I’ll be up $500 more than I am now and can live with that gain as I move on to another volatile equity or roll the option and keep playing for May.
4/3/09 update – I made a big mistake with this trade. I should’ve stuck with my original move of holding the long put. MON dropped more than $4 this morning and my put gained more than $4 at one point. My call only lost a dollar meaning that I’d have been $300 better off by not changing my positions. Now I’m debating if I should roll my call lower or just get out of the MON position entirely.
Congratulations!!! Very good moviment to increase your $ 😉