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Was the December Option Expiry with Christmas Spirit or was it what Scrooge brought? I can only say: OOH, what is this market doing? All underlying shares in my positions cannot be said to in demand! Covered calls option trading is a bullish strategy, so will this malign market decimate my positions completely? See for yourself.
Following from my previous posts, these are my on going trades positions just before expiry.
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EWH
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Long 5 June 2010 $16 put – Insurance
Short 5 December $16 put – My method to enter a covered call trade
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EWH went below $16 and my short $16 put would have been assigned. I would have welcomed the opportunity to acquire the shares to complete a covered call position. Unfortunately, I was also close to being assigned 500 RCII shares for $20 each. My account was not able to support buying both RCII and EWH at the same time.
With the market condition lately, I also considered it wise to wait and see for a while, so I rolled the EWH put to the January $16 put for a net receipt of $0.28. Although no profit was made from the December expiry, as long as EWH stays at the current level, it should be a profitable trade eventually and with only a very small risk. The current cost of the position was only $0.85 net per share, protected at the downside till June 2010, providing several months of profit opportunity. It suits my risk profile perfectly.
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RCII
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Long 5 contracts of RCII June $20 put – Insurance
Short 5 contracts of RCII December $20 put
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With shares at around $18.30 all month, this trade has been giving me a headache. I had the opportunity to exit the position altogether a few days ago for a loss of about 20 cents per share. It would be a loss of $100 in total. Unwilling to succumb to certain loss, I decided to hang on. Who said I was a wise man!
Hanging around the $18 mark, there was not a lot of demand of RCII options be it put or call. I did not want my $20 put be assigned. It was no fun owning the shares when there was no reasonable $20 call premium on offer.
The only manoeuvre available was to roll all the way out to the March $20 put. I was able to do that for a net receipt of $0.70. With the move I can forget RCII till March 2010 expiry. The cost of the position was reduced to about $0.82 net per share. That will be the new limit of loss plus the fees. There are also 3 months for RCII to shoot back up to $20!??
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CHT
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Long June 2010 $17.5 put – protecting the downside
Short December $17.5 put – for collecting premium
Short December $17.5 call – for collecting premium
Long June 2010 $20 call – protecting the upside
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As can be seen above, CHT position was made up of a call calendar spread and a put calendar spread.
CHT was behaving as expected to be range bound. My short December $17.5 call position was in the money when it was first opened. Since CHT share price hardly moved, it was necessary to roll to the January $17.5 call. It was done for a net receipt of $0.15. This worked out marvellously. It helped to reduce the overall cost of the position to $0.63.
The December $17.5 put expired out of money, ripe to be replaced by next money’s put for more money. I shall do that as soon as possible, should be around $0.20 per share. I really like these types of option trades.
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AUY
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Long 500 shares – Covered call in place, but not hatched!
Short 5 contracts of AUY December $14 call – To harvest the premium
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AUY share price was affected by the drop in gold price. Last month’s premium of $0.56 was safely pocketed. I will wait a little while for better market condition before placing the next short call option trade for a better premium.
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EWC
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Long 500 shares – Covered call in place
Long 5 contracts March $27 put – hatched but not too many months left.
Short 5 contracts December $27 call – Last month’s $0.50 premium pocketed
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Along with the market condition, EWC share price also dropped quite a bit. Hopefully, it will recover some otherwise it will limit call premiums on offer. I am waiting for EWC share price and the market confidence to recover a bit before I place the next short $27 call.
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The market was behaving most unfriendly during the last few days and was very bearish especially so for the underling stocks of all my five positions. I was specially surprised by the constant dropping in the share price of my favourite AUY. This is the only one of my positions not protected. I hope the retreat would not turn into a rut. I am not buying any insurance yet, relying on the price of gold as final support.
In general, with the exception of RCII, my portfolio of covered call positions is still very healthy despite the poor market conditions. I might still be able to exit RCII position in profit! RCII shares need to play ball though