CAT, CHK,EEM, EWZ, SSO, SLB, TNA, TZA, AIG, NBR, FCX, SBUX, SO, BA, MSFT, JPM, RGLD
FROM THE LOG: Thursday, July 19, 2012
-1 Jul27W(8) 85 Calls @ 1.31
-3 Jul27W(8) 80 Put @ 1.18
+5 Jul21W(2) 18 Calls @ 1.26
-10 Jul27W(8) 19 Calls @ .63
+5 Jul21W(2) 19 Puts @ .13
-10 Jul27W(8)19 Puts @ .38
We rolled the options out and improved our position by moving the call strike up $1.
+5 Jul21W(2) 38 Calls @ .91
-5 Jul27W(8) 38 Calls @ 1.06
Rolled these calls out one more week.
+5 Jul21W(2)52 Calls @ .47
-5 Jul27W(8) 52 Puts @ .86
Rolled these calls out one more week.
+2 Jul21W(2) 54 Calls @ 1.68
-2 Jul27W(8) 54 Calls @ .21
+3 Jul21W(2) 67.5 Calls @ 1.71
-3 Jul27W(8) 67.5 Calls @ 2.06
Rolled these calls out one more week.
+3 Jul21W(2) 57 Calls @ .19
+3 Jul21W(2) 51 Puts @ .09
-10 Jul27W(8) 57 Calls @ .93
-10 Jul27W(8) 52 Puts @ .77
Rolled out and moved the put strike up $1.
+5 Jul21W(8) 31 Calls @ .74
-5 Jul27W(8) 31 Calls @ .96
Rolled these out one more week.
-3 Aug 15 Calls @ .54
-10 Jul27W(8) 35 Calls @ .52
-10 Jul27W(8) 34 Puts @ .39
-10 Jul27W(8)55 Calls @ .72
-10 Jul27W(8)50 Puts @ .29
-10 Aug 48 Calls @ .23
-10 Aug 47 Puts @ .57
-3 Jul27W(8) 75 Calls @ 1.04
-3 Jul27W(8) 72.5 Puts @ .54
-10 Jul27W(8) 31 Calls @ .36
-10 Jul27W(8) 30 Puts @ .33
-10 Jul27W(8) 35 Calls @ .27
-10 Jul27W(8) 30 Puts @ .33
+3 Aug 75 Puts @ 4.15
-3 Oct 72.5 Puts @ 4.76
Rolled these In-the-Money puts out one month and down in strike for slightly more money.
+10 Jul21W(2) 18 Puts @ .58
-10 Jul27W(8) 18 Calls @ .45
-10 Jul27W(8) 17 Puts @ .29
In each case where we adjusted a prior position we ALWAYS sold more premium than we paid to buy back the position. That is a standing rule.
Upon receiving a fill, we immediately place GTC orders to buy back the sold position. We do this on ALL positions (except the AGQ Condor which has 1 day to go to expiration) at 15% of the premium received. Another standing rule.
WHAT HAVE WE ACCOMPLISHED?
Monday through Thursday, we sold a total of $12,397 in premium (Not all commissions included). We still have tomorrow, Friday, to go.
Net Premium sold: $ 12,397
Bought Back: $ 5,141
Weekly Premium Sold: $ 10,017
Net Premium Sold: $ 7,256
FCX, SBUX, SO, BA, MSFT, JPM
Are these positions naked strangles? Or, are they covered short strangles (with stock purchased previously in an earlier post)?
EWZ, CLNE, CHK, SSO, AGNC, ETP, GTLS, NBR, PAA, PBT, SO, WPZ, AIG, BA, CAT, EEM, FCX, JPM, MSFT, RGLD, SBUX, SLB, TNA, TZA, XLE
FROM THE LOG: Friday, July 20, 2012
-5 Jul 28W(8) 51 Puts @ .34
+3 Aug 16 Calls @ .10
-10 Jul28W(8) 19 Calls @ .10
-5 Jul28W(8) 17 Puts @ .53
-4 Jul28W(8) 54 Puts @ .56
-3 Jul28W(8) 67.5 Puts @ .62
Reply to Tom,
Thanks for the question and reply.
Our rather long answer follows: We have a mix of covered and naked positions. We often combine covered calls and naked puts in positions where we want to increase our stock holdings, or when we want to recover loses we have had on certain positions, or just to drive our Cost per Share down. This combination is a highly effective way to generate cash fairly quickly and is not as risky as some would say. While covered calls can get annual returns of 20-30% on a portfolio, adding sold puts can juice up the returns above 80%. Weekly options can further move annual yield towards 200%.
We sell naked puts on underlying we would like to own… before we own it… in as many cycles as we can, to, 1) generate cash and 2) drive down our eventual purchase price so we buy the underlying at an ever larger and larger discount below market price using cash donated by other hapless traders. This is not as risky as some might say if you are okay with owning the underlying at the strike price you have sold (minus previous cash generation, of course). We look at it as buying the underlying at a discount. We look at the risk factor to include what we would after the assignment of the underlying, such as sell more covered calls and naked puts to generate even more cash.
As time passes on a position and if the strike price is threatened there will be opportunities to hedge or cover all or part of the position, roll into another month, move the strike further away from the underlying, without incurring a large debit. Usually, the penalty is a trade off of adding more time to the position without a large change in the credit received. This is especially true of Weekly options.
Finally, we sell naked straddles and strangles on stock, futures, ETF’s and Index Funds to generate cash. This is the higher risk process and needs to be strictly controlled, although there are some distinct advantages.
Our overall greater Portfolio Risk is a Black Swan event that we cannot escape and which overwhelms our hedges and defenses.
Major Positions in our reportable portfolio as of Friday close are as follows:
AGQ Iron Condor (Expired Friday). We booked $653.
GLD Iron Condor (28 days to go)
SPY Iron Condor (28 days to go)
Naked Puts. Stock closed at $34.33. If assigned we would have to buy 500 shares @ 35 (actual cost $$35.00 - 1.07 = 33.93, or $17500- 535 = 16,965. We would then immediately sell At-the-Money or slightly In-the-Money calls for around .85 driving down our CPS –Cost per Share- to $33.08. Dividends go ex about Sep 18 at 1.25, or $625, which would be another 1.25 off of the CPS.
-10 Aug 14 Puts…Naked. Stock closed at $13.99. Own 300 shares at CPS $21.94. Waiting for up tick to sell covered calls.
Here are the first level of choices:
What if we do get assigned?
Suppose we get early assignment or somehow get assigned during this process before we can roll the puts out or sell 3 covered calls. We would have to buy another 1000 shares @ $14, but keep the put premium of .50, or $500, which would bring our total shares to 1300, our CPS to $15.83 and our net investment to $20,582.79. We would immediately sell At or In-the-money front month calls on 1300 shares bringing in perhaps .65 to .95. At .65 our CPS drops to $15.18. Net cost would be $6582.79 +14,000 – 845 = 19,737.79/1300 = 15.18.
If after acquiring 1300 shares we wanted out of the position for any reason, we could always sell the stock, or better, sell 13 short term In-the-Money calls and let it be taken for a premium over market and book the profit.
This MLP closed at 45.62 We own 400 units which we acquired by previous assignment at $45. We then sold -4 Sep 45 Covered Calls.
The puts which caused the assignment (we wanted the units) paid us .90 and our covered calls, paid .95, giving us a CPS of $41.20. Subsequent calling of our shares at $45, would leave us with a profit of $3.80, or $1,520. However, before it goes to a call and as long as premiums hold up we would likely create another premium cycle in or near Sep and collect another $1, or so. This MLP also pays a nice dividend (Ex-Dividend about Aug 1) of .894 x 400 = $358, or almost another $1 a unit and is a long term keeper.
Stock closed at $65.09. We own 100 shares and have sold a covered Sep 70 call for 7.00, or $700. We also sold -3 Aug 65 (28 days to expiration) Naked Puts. Our CPS is $51.58, well below closing today.
If we were to be assigned, we would be obligated to buy another 300 shares at $65, or $19,500. Since our CPS is currently well below that strike price, our CPS would rise to $61.64. Rather than have that happen, we would roll out the 3 Aug 65 puts into the next month, selling 4 Sep 60 puts. By decreasing the strike price we widen the profit zone. That caused us to increase the number of contracts to 4 which gave us more premium than we paid to cover the 65 puts. For example, if we had done this Friday, our results would have decreased our CPS from $51.58 to $49.58.
When making adjustments such as rolling options, we ALWAYS sell MORE premium than we buy in order to keep pushing CPS down.
Stock closed at $14.29. We own 300 shares and have sold 3 Aug 15 (28 days to expiration) covered calls at .54. We also sold 10 Aug (28) 14 puts @ .68. Our net CPS is $11.01.
Stock goes above 15 and is called: We receive $15, or $4,500. Our profit is $1,198.
Stock declines below 14 and we are assigned: We pay $14, or $14,000. Our CPS goes up to $13.31, so it is likely we would roll this put into Sep for about .40, OR, roll it into Sep and down to 13 strike for about even. Even if assigned, we would make a profit.
Most likely possibility is the calls and puts get bought back at the 15% level and we sell another cycle.
Stock closed at $88.00. We are naked 2 Nov 75 Puts at $3.20. This stock moved up so quickly we are getting close to buying them back at the 15% level.
This is a top-notch Pipeline MLP and we would love to be assigned at $75. We will continue selling puts against this underlying to build up a nice fund of $ to eventually acquire the units.
Units closed at 18.54. We are naked 5 Sep 20 Puts at $1.15. With all the monthly dividends on these Oil Royalty trust units over many, many years, our CPS is in low single digits. When Sep comes near we will likely roll these puts forward and collect a little more premium because to allow an assignment of stock would raise our CPS. The options are not very liquid so premiums are skinny and executions difficult so we do not expect to set records with this one. Where practical, we like to have premium collection on ALL stocks we own.
Stock closed at $74.21. We are naked 3 Oct 72.5 Puts. We would eventually like to own this Royalty Gold Miner. We have been through a number of cycles with this stock and have a credit of $541 to post against any future purchase or assignment. If assigned, we would have to buy 300 shares at $72.5 less credits. $21,750 - 541 = $21,209.
Closed at $44.77. We are naked 10 Aug 48 Calls and 10 Aug 47 Puts. We would most likely roll the calls forward and up if necessary. We would roll the puts forward and maybe down, although this is a premier utility stock and we would like to own shares. Another way to hedge the calls is to simply buy the shares and turn naked calls into covered calls. Our brokers would probably sleep easier if we did that.
Stock closed at $55.21. We are naked 5 Sep 55 (63 days to expiration) puts at $3.36. Our net cost if assigned would be $55-3.36 = 51.64.
Stock closed at $68.79. We are naked 5 Sep 70 Calls @ $1.08 and 5 Sep 61 Puts @ $1.25. Our total received, net of commissions, is $1,140. In the event we were to buy 500 shares, they would cost $34395-1140 = 33,255, or $66.51.
If called, we receive $35,000, close out the puts and book a profit of $1745.
If assigned, we own 500 shares at 61, or $30,500, and close out the calls.
Then we sell more calls and puts to further reduce our CPS.
Stock closed at $31.03. We sold 5 Jul28(7 days to expiration) 31 Covered Calls @ .96. CPS is $30.35.
Stock closed at $73.89. We are naked 3 Jul28W(7) 75 Calls @ 1.04, and 3 Jul28W(7) 72.5 Puts @ .54.
Stock closed at $80.85. We own 100 shares bought 2/13 @ $112.68. We sold 1 Jul28W(7)85 covered call and 3 Jul27W(7)80 naked puts. Our CPS is $83.31, which is still above the market price. We will continue to sell the Weekly Options to get the CPS below the market.
Stock closed at $17.20. We own 500 shares. Our 10 Jul28W(8) 19 Calls were auto covered at .10 today, leaving us naked 10 Jul28W(8) 19 Puts and 5 Jul28W(8) 17 puts. Our CPS is $13.33. We will look for an opportunity to sell more covered calls Monday for a possible double dip this week. We will also look for opportunities to lower our put strikes to be more in line with our $13.33 CPS, so should we allow or get assigned, we do not impact our CPS adversely. Ideally, put strikes should be BELOW our CPS.
Stock closed at $38.59. We are naked 5 Jul28W(8)38 Calls @ 1.06. Our put order did not get filled. We like to initiate strangles because while one side is giving us trouble the other side is draining away to nothing. We are looking for an opportunity to complete this one and balance it out.
Stock closed at $51.72. We are naked 5 Jul28W(7) 52 Calls @ .86 and 5 Jul27W(7) 51 Puts @.34.
Stock closed at $33.77. We are naked 10 Jul28W(7)35 Calls @ .52 and 10 Jul27W(7) puts @ .39.
Stock closed at $33.90. We own 500 shares. We are short 10 Jul28W(7) 36 Covered Calls and 10 naked Jul28W(7) 24 puts @ .33.
Stock closed at $30.12. We are naked 10 Jul28W(7)31 Calls @ .36 and 10 Jul28W(7) 30 Puts @ .33.
Stock closed at $51.96. We are naked 10 Jul28W(7)55 calls @ .72 and 10 Jul28W(7)50 puts @ .29.
Stock closed at $54.75. We own 200 shares. We sold 2 Jul28W(7)54calls @ 1.95. We are naked 5 Jul28W(7)54 Puts @ .56. Our CPS is $55.79
Stock closed at $69.33. We are naked 3 Jul28W(7)67.5 Calls @ 2.06 and 3 Jul28W(7) 67.5 puts @ .62.
Stock closed at $52.55. We are naked 10 Jul28W(7)52 Puts @ .74.
Stock closed at $18.36. We are naked 10 Jul18(7)18 Calls @ .45 and 10 Jul28W(7)17 Puts @ .29.
Our Full Week results are:
Options Sold: $12,807
Options Bought: $ 4,673
Net Purchases: $ 8,134
General thoughts on our strategy:
Weekly Options are a whole different category. Obviously, Weekly options are VERY short term, their rate of decay is rapid and things happen fast. Trading them is not necessarily as intuitive as with regular options. Weekly Options give us 52 bites out of the apple per year, which can drive our annual percentage returns and cash returns to large numbers.
What goes up can also come down. We normally hedge positions in order to limit risk with such spreads as Iron Condors, Bear or Bull Spreads or Covered Calls. Naked options have less hedging than other types of spreads. With straddles and strangles both sides cannot be threatened at once. That is an advantage to us. Obviously, we can make more money with naked straddles, strangles, or singles, because hedging costs money, but we can also lose more money faster without the protection of a hedge. That says nothing of the larger margin requirements for naked positions.
We rely on our attention to the markets when they are open and our rapid ability to respond to changes in the market place. While some functions can be automated, such as GTC or contingent orders to Buy to Close at our 15% level, we do not at this point automate buy to close orders when an option moves against us. Often, our potential hedge moves with the option price and because it is relative, does not greatly affect the NET outcome of the position very much. In other words, we can hedge today when an option is threatened or we can hedge tomorrow when the position is even more threatened without much net difference in premium cost.
The more positions we manage the more possibility for us to miss something or fail to act on something in a reasonable time. Because we manage more than one portfolio in real time, with large differences in available capital, this is a concern for us. Other traders may not operate under the same circumstances and would therefore have different results and concerns.
There are differences in settlement procedures of stock options, some ETF’s, cash settled indexes and Futures Options. It is important to understand option repair strategies in trading options, but especially with weekly options. It is also prudent to look at some of the risk factors and a warning.
This journal is not an endorsement of any stock, option or commodity or trading procedure or technique. The stocks, options and commodities listed are not recommendations to buy or sell. This Journal is merely a summarized and abbreviated record of our trading day and trading experiences, coupled with our often strong opinions on everything from trading to international relations, published many hours, and sometimes days, after the fact. Even if our trades were somehow immediately available, which they are not, different traders trading the same positions might well secure different results, better or worse.
Trading in options, and especially naked options, can be risky. While there are many things we can do to mitigate that risk, we can and do lose money. We can also make money. The markets are treacherous and appear well manipulated by government, wall street and anyone else who can get their nose under the tent.
Even with multiple computers, 14 screens and the latest software we can and do miss things.
Trading requires constant vigilance, attention and exquisite timing and, yes, much prayer. We never begin a trading day without prayer and credit to the Living God, the King of the Universe.
All that being said, there is no greater business in all the world.
Again, thank you for your response to my question. Your detailed insights are educational.
SSO, MSFT, SBUX, AIG, FCX, EWZ, TZA
FROM THE LOG: Monday, July 23, 2012
Today, we began the last full week in July with some large drops in the indexes. Interestingly, the VIX was up this morning to 20.49(it generally goes inverse to the market). It eased a bit at the end of the day, to close up 2.35 at 18.62. This measure of volatility is said to measure the amount of fear in the market. At one point, watching the tape we could almost feel the fear.
We used to get concerned too, but not now. We know that whatever the market does we will be profiting on one side of the other. Our main strategy is to sell volatility so the more of it (in moderation) the better. Today was no exception.
On those positions involving owning the stock and selling covered calls, we can see some equity decline during a market swoon, however, that very process gives us the opportunity to close out the sold calls and book that profit and sell more puts while we wait for the next nice big up day to re-sell the covered calls. All these trades drive down our Cost per Share (CPS), so short of a market catastrophe, our constantly lower and lower CPS protects us from losing money.
Today the sharp drop in the markets triggered automatic Buy to Close orders, buying back calls we sold Friday at our 15% level and making the cash register ring. Cash profit shown does not reflect all of today’s commission charges.
Of course, when a position is closed, it releases margin, to be recycled into new positions, although it is to be noted that when closing one side of a strangle, the margin is not affected very much. We turn that fact to an advantage because it then does not require much margin to put on the other side of a strangle, giving us much more premium and a hedge for not much margin. The reason is that the brokers know we cannot be threatened on both sides of a spread simultaneously, so do not require as much margin (collateral).
+2 Sep 48 Puts @ 1.35
This is the result of selling our one long position and was filled by an automatic preset order.
+10 Jul28W(5)31 Calls @ .05
$343- 50 = 293
+10 Jul28W(5) 55 Calls @ .11
703.45-110 = 693.45
+5 Jul28W(5) 31 Calls @ .14
476.20-70 = 406.20
+10 Jul28W(5) 35 Calls @ .08
512.40 – 80 = 432.40
+5 Jul28W(5) 52 Calls @ .13
426.20 – 116.54 = 309.66
+5 Jul28W(5) 17 Puts @ .04
443.35 – 40 = 403.35
Total Net Profit to book for the day: $2,538.06
Tomorrow, if the markets recover we may get opportunities to double dip this week by selling more call premium and some sold put positions may trigger to Close.
If the markets continue their plunge, we may nibble some at more puts and we will book more automatic Buy to Close Call fills.
If the markets go no place, we will make note of the rapid decay in premium, smile and probably go to lunch.