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What an expiry day! It revealed my mistake of selling the Chunghwa Telecom Co. Ltd. (CHT) January 17.5 call! I will explain later.

Among my 5 open positions, Yamana Gold Inc. (AUY) and Rent-A-Center Inc (RCII) were not affected by the January expiration. Even so, I was closely watching the RCII options on offer in case any opportunity should manifest. There was none, no action taken.

AUY is still trending sideways, nothing could be done, so did nothing.

Of the other 3 positions, CHT gave me a big headache. I have to own up making a big mistake by selling the CHT January $17.5 call, banking on CHT shares to stay put, thus collecting premiums from both a short put and a short call option. It will cost me, read on.
My CHT position before expiry:
Long 5 June $17.5 puts / Short 5 January $17.5 puts
Long 5 June $20 calls / Short 5 January $17.5 calls
Two days to expiry, CHT was hovering around $18.40, well in the money for my short January $17.50 call. Urgent action was needed. The usual rescue would be to roll over the call to next month. When I checked the CHT call options on offer, I found I had fallen into my own trap. The problem was as below:
The underlining CHT share was trading Bid: $18.44 Ask: $18.45
The first thing I noticed was the February call has no time value at all, if anything, for a short period, the January 17.5 call option was asking for more money than the February call option, with the CHT January $17.5 call was asking for $1.25 as compared to the February value of $1.20.

I was clearly in a short squeeze situation. I can only assume there was quite a few short CHT $17.5 call open at the time, all had to be closed. The Market Makers knew that well and made good use of the situation. The Bid and Ask price spread was very high too, because the Market Makers knew all the demand would be on the buy side in order to close any short positions.

Although I was protected by my long $20 call, it was not helping any. There was a long gap between the $17.5 call and the $20 call compared to the share price. The very low volatility of CHT option also made matter worse. As a result the increase in the CHT share price did not increase in the value of my long June calls.

What could I do? Nothing much except bit the bullet and pay the price as the cost of a good lesson. From this experience I now learned that shorting both the call and put side was not a good idea. I decided to close out the call side of the position. The way I did that was to buy 500 CHT shares as soon as I could for $18.44 each. I could have left till the final moment of expiry but I was worried if I left it any later, CHT shares could rally further. It turned out, at expiry day, there seemed to be a market down day, I could have saved $0.12 or so per share. I could not have known that!

This mistake increased the net cost of my remaining CHT position from $0.46 to $1.44 with. Without a doubt, it is a severe setback. It might be difficult but not impossible for the position to close out in June in the black. Wait and see.

My next position is iShares MSCI Hong Kong Index Fund (EWH).
Long 5 June $16 put / Short 5 January $16 put.

Two days before expiry, EWH was out of money, just over $16, either way, I was not too bothered. If the share price remained over $16, the January $16 put would expire, creating a vacancy for next month’s $16 put premium in the region of $0.40 per share.
As it turned out, at the day of expiry, my screen showed all red and EWH fell to $15.71. My short puts were exercised at $16 plus cost. When market next opened, I sold 5 February $16 call for $0.35. I could wait for a better premium but I did not want to second guess the market.

My final position is iShares MSCI Canada Index fund (EWC). Two days before expiry assignment of my short January $27 call position was very likely. Next day, the situation was completely changed, EWC shares fell in the general market pull back. Either way, it would not have made a great deal of difference. If my shares were called away, I would have short the February $26 put for about $0.45 per share.

As it turned out, with the January $27 call expired out of money, I shorted the February $27 call for $0.55, I was expecting the net position to be in profit this month, unfortunately, I found I made a mistake in my previous calculation. After careful recalculation, I found the actual net cost of the position is definitely $27.15. If I can place either a call or put option for a premium of at least $0.20 after next expiry, the position will be in profit.

Conclusion, despite the market was trading the wrong way for most of my positions, the prospect is still reasonable. EWC position is in very good shape.
I am confident of EWH position too.
RCII is currently making a come back, not quite sure which way it will eventually go though.
AUY is currently in bad form, I shall hold on for as long as required.
CHT was hurt by my mistake. There is a vacancy for a $7.5 put to earn some income. I am waiting for better premium on offer before taking the plunge.

It has not been what you would call a profitable period. Hopefully it could be squared to the long holiday period?

Among my 5 open positions, I had 2 short call vacancies, Yamana Gold Inc. (AUY) and iShares MSCI Canada Index fund (EWC). These are the bread and butter of Covered Call Option Trades. Due to the low value of AUY January call on offer, I could only manage to sell 5 February $14 calls for a lowly $0.21, after waiting since December expiry until my patience ran out today. It was the opposite for the EWC short call vacancy. I sold 5 January $27 calls for $0.15 soon after last expiry. I found I could sell that for $0.35 today. That is investment, you are expected to play hide and seek with prices constantly. What matter most is the eventual bottom line of the entire portfolio.

For now net cost of my EWC position is reduced to $27.05 while insured by the long March $27 put, guaranteed to a negligible loss. It is a different story with the AUY position, it is one position I am taking the risk of totally unhedged. The total net cost was further reduced from $13.16 to $12.98 per share by today’s short calls, not taking into account of past profit already taken. Right now the share price is languishing in the $12 range. I am still relying on Gold price to provide the floor for it even if down to just at $8 if necessary. Hopefully, it would not get to that!

My Rent A Center INC (RCII) is still in the dog house. Hey still months for it to come right!? To be honest though, I am not hopeful, expect an eventual bottom line loss to be about $0.5 per share. Occasional loss positions can be expected, part of the investment process. As mentioned earlier, it is the bottom line of the whole portfolio that counts.

My remaining 2 positions EWH and CHT are progressing as planned. No further action needed till January option expiry!

From results so far, I have to say I wish I have latched on this method of investing long time ago. However, it is fair to say that I shall need to evaluate these 5 positions much further, at least for several 6 month cycles before I will devote more assets to it. Due to the much reduced risk level of my positions with the exception of AUY, I can only expect single digit yearly yields, unlike the annualised 150% profit from the previous closed AUY covered call position. As mentioned AUY position has no put option insurance. You take the risk and you reap the reward, or the loss. Right now my current AUY covered call position is showing a loss not that I am very worried, at least not yet.

In my previous post, I reported some defensive moves needed because the market condition was working against all my five covered call positions.
Today is Monday after expiry. My positions are still intact, having rolled over my short call CHT position and my Short put RCII to avoid being exercised.
I was keeping an eye on the market and found my Yamana Gold Inc (AUY) was still losing ground because of falling gold price and investors were taking profits. I am not that disturbed by this setback yet because I am confident that the price of gold will eventually stand firm even if at $1000 mark.
Current retrenchment did cause a bit of inconvenience though because share price of AUY fell from over $14 to the current value of around $11.20. Right now I needed a reasonable premium to short the AUY January $14 call which is not on offer. It is still possible to sell the February $14 call for about $0.15 gross. Even that might be withdrawn if AUY retreat continues. I will stand firm and wait and see. It is part of excitement of investing using the covered call option strategy.
My EWC position is in a similar situation of AUY. I am ready to sell the January EWC $17 call for premium but not worth it unless I am willing to sell the February $17 call. I am also taking the stand of wait and see with EWC! Never know, the market may turn in the next few days?

On a happier note, I was able to sell the CHT January $17.5 put for $0.20 today and reduced the overall cost of my CHT position to about $0.46 net per share.