Profitable Trade: Caterpillar (CAT) Naked Puts

Today I closed the following transaction for a profit:

09/04/12   STO 2 CAT Sep22 2012 77.5 Puts @.57   102.46
09/14/12   BTC 2 CAT Sep 22 2012 77.5 Puts @.01    -2.04

I was able to close this trade for a penny and without commissions so I did. When I originally sold the puts CAT was down to $82.20. Ten days later it was over $93/share. Due to the steady rise in the stock, margin maintenance averaged down to ~$1700. As such, we earned $100.42 in 10 days on $1700 in margin maintenance. This equates to a 5.9% return on maintenance or 215% annual.

That's another thing I love about put selling. If the price of the stock skyrockets, you can close out your trade early. Each day the stock rises the amount of margin maintenance needed decreases thereby freeing capital for other trades. I remember when I exclusively traded covered calls that it would not be beneficial if the stock rose too much or too quickly. Buying back the calls when volatility was in an uptrend was not very profitable.

Trade Continuation: Conoco-Phillips (COP) Covered Calls

Today in a traditional IRA I continued the following transaction:

01/13/2012    Bought 200 COP @ 70.29                               -14,067.97
01/13/2012    STO 2 COP Jan 21 2012 70 Calls @.99                   186.47
01/20/2012    BTC 2 COP Jan 21 2012 70 Calls @.77                  -165.52
01/20/2012    STO 2 COP Jan 27 2012 70 Calls @1.35                +258.45
01/30/2012    STO 2 COP Feb 18 2012 70 Calls @.58                 +104.47

Our January calls expired worthless so I wrote new calls. Due to a family emergency it will be hard to trade weekly options so I wrote these 19 days out. This lowers our out of pocket to $13684.10 or $68.42/share. COP goes ex-dividend on Feb. 17 so if the stock price rises above 70 I may roll the position to make sure I collect the dividend. The dividend will most likely rise this quarter.

Trade Continuation: Conoco Phillips (COP) Covered Calls

Today in a taxable account I continued the following transaction:

01/13/2012    Bought 200 COP @ 70.29                               -14,067.97
01/13/2012    STO 2 COP Jan 21 2012 70 Calls @.99                   186.47
01/20/2012    BTC 2 COP Jan 21 2012 70 Calls @.77                  -165.52
01/20/2012    STO 2 COP Jan 27 2012 70 Calls @1.35                +258.45

We rolled the covered call for a net credit of $92.93. This lowers our out of pocket to $13788.57 or $68.94/share. If we get called away we will make $190.43 in 2 weeks. This equates to a return of 1.4% or 35.9% annual. Before we get exercised we will look to roll the options again with an eye on the weeklys.

Profitable Trade: AT&T Covered Calls

Today in a traditional IRA our shares of AT&T were assigned so that the investor on the other side could capture the dividend. The entire set of transactions looks like this:

06/27/2011    Bought 200 T @ 30.889                                      -6187.79
06/27/2011    STO 2 Aug 20 2011 31 Calls @.53                       +94.50
08/01/2011    Dividend                                                           +86.00
08/03/2011    BTC 2 Aug 20 2011 31 Calls@.05                        -10.00
08/03/2011    STO 2 Jan 21 2012 31 Calls@.66                      +120.50
11/01/2011    Dividend                                                           +86.00
11/22/2011    BTC 2 Jan 21 2012 31 Calls@.05                       -10.00
12/02/2011    STO 2 Dec 17 2011 29 Calls@.38                      +64.47
12/19/2011    STO 2 Feb 18 2012 29 Calls@.59                     +106.47
01/06/2012    Sold 200 T @ 29                                             +5779.89

We made $130.04 in this series of of transactions. This equates to ~ 2.2% or ~4.1% annual. We're fine with this as we probably paid too much to enter the position and it was sitting there as dead money waiting for the dividend. I thought in December when the T-Mobile deal was falling through that the price would stay below 29. Oh well, I'll enter this position again at my price through the selling of puts. In this particular account we are sitting on a ton of cash, waiting for the next downturn to enter new positions.

Even though the profit on this was small, a profit still it was. I guessed wrong a couple of times but still pulled in enough income to pull a profit.

Trade Continuation AT&T (T) Covered Call

Today in a traditional IRA I continued the following transaction:

06/27/2011    Bought 200 T @ 30.889                                      -6187.79
06/27/2011    STO 2 Aug 20 2011 31 Calls @.53                     +94.50
08/01/2011    Dividend                                                           +86.00
08/03/2011    BTC 2 Aug 20 2011 31 Calls@.05                      -10.00
08/03/2011    STO 2 Jan 21 2012 31 Calls@.66                      +120.50
11/01/2011    Dividend                                                           +86.00
11/22/2011    BTC 2 Jan 21 2012 31 Calls@.05                       -10.00
12/02/2011    STO 2 Dec 17 2011 29 Calls@.38                      +64.47
12/19/2011    STO 2 Feb 18 2012 29 Calls@.59                     +106.47

With this latest transaction we have lowered our out of pocket to $5649.85 or $28.24/share. AT&T goes ex-dividend on January 6 with their raised dividend of .44/share. We might get called out but I doubt it since our expiration date is 6 weeks later.

We are recovering nicely in this trade after arguably paying too much for the stock to start. I wasn't religiously following the charts and only entering an investment at the bottom of the trade cycle when I entered this trade. Nevertheless if we collect the dividend our amount out of pocket will drop to $5561.85 or $27.81/share.

If we get called away in February and don't roll the position our profit will be $218.15 which equates to 3.5% or 5.3% annual. This is not great but it is still a profit on a stock that dropped in price from the time we bought it. I like the stock at cheaper entry points and have written some out of the money puts at the 27.5 strike price in other accounts.

Put Selling or Covered Calls?

In this article the author makes some good points as to why put selling is superior to covered calls. I found the double commission one pays on covered calls to be an excellent point.

Profitable Trade: SLV Silver Miner ETF

The trade looks something like this:

 10/20/2011  15:43:21         Bought 200 SLV @ 29.6899                                       -5,947.97          
   
 10/20/2011  15:43:45         Sold 2 SLV Oct 28 2011 29.0 Call @ 1.49                       286.47            
 10/31/2011  10:18:09         OPTION ASSIGNED (SLV Oct 28 2011 29.0 Call)

 10/31/2011  10:18:09         Sold 200 SLV @ 29                                                    5,779.89

In 11 days we made $118.39 on an investment of $5661.50 or  2.1%, including commissions.This equates to an annual return of 69.7%.

Report Card: For those keeping track our success rate is at 100% since the inception of this blog although the sample rate of 2 closed transactions is admittedly rather small.

Profitable Trade: Realty Income (O) Covered Call

The trade with commissions is as follows:

10/4/11 Bought 100 shares of O - $3,034.27
10/4/11 STO 1 Nov 19, 2011 30 @1.75 - $164.23
10/28/11 Option assigned at 30 - $2979.95

At the time I bought Realty Income it was trading near the bottom of it's trade channel. We then sold an in the money call which I figured would get assigned. This call was assigned for the dividend. Realty Income pays a monthly dividend of 14.5 cents a share (and rising). I made $109.91 in 24 days or 3.83%, 58.24% annualized. I would have bought more but I have other Realty Income holdings and didn't want to get too heavily weighted in the REIT. Not bad for an in the money call...

BTW, here is a good article on Realty Income's future prospects.

Trade continuation: SLV Silver ETF covered call

SLV has risen sharply in the last few days. I find it hard to resist rolling forward for a short period of time, getting a net credit and increasing the strike price so I can participate some more in the price increase. I had that opportunity today with SLV.

BTC 4 SLV Oct 28 32 Calls @ 1.71
STO 4 SLV Nov 19 33 Calls @ 1.92

This trade brought in $21/contract, lowers our cost basis, increases downside protection and allows us to participate more in the rise in price. With the market rising overall with the easing of Europe fears I'm not particularly excited about entering into new income positions.

Weekly Options

I'm going to open this blog with a post about weekly options. For an income investor who sells options, the advent of weekly options is the greatest thing since sliced bread. For many option income strategies, time decay will be the option sellers best friend. In a weekly option, time value decays extremely fast. In addition, a new option can be sold weekly rather than monthly. (Of course some savvy traders buy and sell an option multiple times in a month as it moves through it's chart's price cycle.)