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| Mar 5 10 |
66.37 |
BTO (Bought) 5 Calls Jan 2011 $60.00 @ 8.80
This puts my stock cost at $68.80 |
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13.25 |
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4413.25 |
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Update Mar 5 2010: Put Selling And Spread
Strategies
There is a lengthy article which describes the process
by which I determined the suitability of this stock for
a bull call spread, among other strategies.
You can read the
entire article by clicking here. |
| Mar 5 10 |
66.37 |
STO (Sold) 5 Calls Jan 2011 $70 @
3.35
If the stock by Jan 2011 is above $70 I will be
exercised at $70 and I will then exercise my 5 contracts to
close the position. Remember though any time this stock is
above $70 I could be exercised. |
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13.25 |
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1661.75 |
1661.75 |
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AT THIS POINT MY TOTAL RISK ON THIS TRADE IS $4413.25
less $1661.75 = $2751.50
As I want to eventually own 1300 shares I will also sell
some naked puts for the additional shares. |
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| Mar 5 10 |
66.37 |
BTO 10 April $55 puts @ .08
Comments: This is basically catastrophe insurance. I will
roll this up if the stock moves higher. I will buy this
monthly at the cheapest possible price. Remember it is just
for catastrophe. |
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19.50 |
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(99.50) |
1562.25 |
| Mar 5 10 |
66.37 |
STO 5 Naked Puts Jan 2011 $55.00 @ 1.97
Comments: This will help pay for the monthly cost of buying
some protection. At $55.00 I would definitely own this
stock, but if it fails to reach this level, at least the
money is being used to purchase protection. |
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13.25 |
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971.75 |
2534.00 |
| Mar 5 10 |
66.37 |
STO 3 Naked Puts Jul 60 @ 1.25
Comments: This is in case the stock should fall as I think
$60.00 is an excellent price point. I will roll this however
if premiums allow. |
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10.75 |
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364.25 |
2898.25 |
Update Mar 10 2010:
These ideas from an email I received from a
reader of the XOM trade, may be of interest:
I am mulling your option strategies on XOM. In your
comments about protection you said.
"As these are all naked
puts which means the risk to the downside is
unprotected, we could add a monthly catastrophe
insurance by buying cheap OTM puts. The April $55
put is trading for .08 cents. With the above
strategy I could add cheap insurance in the event of
a plunge by looking at monthly far OTM puts, sort of
like "Term Insurance"".
Just another suggestion
on protective puts. Buying the March 65 puts for .15
buys you a lot more protection if the stock dives.
Each month place a GTC (GOOD TILL CANCELLED) order
to buy ATM (at the money) puts at .15. Its kind of
fun to place long term orders that if filled are
great and don't cost anything to have out there. I
call it fishing and with the crazy trading these do
get filled more times than not. This is throw away
money, just like our personal insurance costs and
most months you will lose your cost. If no fill, no
loss either. One of these months and we don't know
when it will happen but we know it will happen,
those cheap puts could be a huge windfall and pay
for all the months you may have been paying for this
insurance so your cost will be zero for very good
protection. You have a Jan11 65 put so why not sell
a Jan11 80 call for 1.00 to use as money to pay for
the .15 puts. Just another option.
My Answer:
These are excellent suggestions and I will look into
incorporating them in the future. The only problem I
have ever had with fishing was that when I really
needed the puts, I always found my fishing hadn’t
caught the fish so it cost far more to buy the fish
at market prices, when I could have got them for
next to nothing when no one else wanted to eat fish.
You can tell that I love your fishing example.
The fish market
example is a good one. I can see the value of just
fishing for .15 cents on an ATM put. However you are
assuming that you will possibly get filled for the
ATM put. The fill will come if the stock moves
higher, but should the stock move lower, I will end
up paying a lot more for the protective put.
Therefore I assume that each month I can buy
catastrophe insurance for less than .10 cents. I
would rather spend the money upfront, rather than
find out that suddenly I am paying a lot more for
what the insurance would have cost, basically wiping
out months of just paying .10 cents or less. It is
sort of like having a term life policy but not
really paying for it. You have your "term life
quote" in hand and you just keep fishing for a
better quote. Then suddenly you are diagnosed with
cancer or such and your premium skyrockets. That's
why I labeled it catastrophe insurance.
It's
only for a catastrophic (life threatening) event. As
to the 80 call (or basically any far OTM call), I
love the idea and will look to incorporate it.
ADDENDUM TO THE ABOVE QUESTION:
For many investors
it may make
sense to consider selling monthly far out of the
money naked calls to assist in reducing the cost of
the protective put, rather than my Jan 2011 55 put.
For example as of Mar 10 2010, the April 70 call is
trading for .46 BID. I could short just 2 Apr 70
call and that would pay for 10 Apr 55 put contracts
at .08 cents. Meanwhile should XOM move to $70.00 I
could purchase 200 shares and turn it into a covered
call (similar
to my trades on RIM which can be seen here).
That reduces the amount of capital I require for
this stock and by selling the $70.00 call it is
exactly what I would like the stock to do - move up.
I could monitor the stock monthly and consider my
strike points with each month. Right now though for
my own trade, I like the 5 naked puts Jan 2011
$55.00 as I wouldn't mind being assigned at $55 and
if not, they will have paid for my catastrophe
insurance. REMEMBER THAT NAKED CALLS ARE AS RISKY AS
NAKED PUTS, and perhaps more so. With a naked put
your risk is zero, while with naked calls the risk
is endless if the stock just keeps rising. I have
never been concerned about either naked puts or
calls. With naked calls, the stock is doing
something you want it to do, move up. For me, when
the stock moves up I buy the required number of
shares and turn the trade into a covered call
position. Remember that investing can result in
large losses. Nothing on my website is financial
advice or recommendations. Trade at your own risk. |
| Apr 16 10 |
67.93 |
Expiry: 10 Apr 55 Puts expired |
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| Apr 16 10 |
67.93 |
BTO (Bought) 10 May 55 Puts @ .10 |
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19.50 |
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(119.50) |
2778.75 |
| May 6 10 |
60.55 |
STC 10 MAY 55 PUTS @ .18 |
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19.50 |
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160.50 |
2939.25 |
| May 6 10 |
60.55 |
BTO (Bought) 10 JUN 50 Puts @ .08 |
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19.50 |
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(99.50) |
2839.75 |
| May 21 10 |
59.50 |
STO 3 NP JUN 55.00 @ .89 |
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10.75 |
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256.25 |
3096.00 |
| May 21 10 |
59.50 |
STC 10 JUN 50 PUTS @ .40 |
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19.50 |
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380.50 |
3476.50 |
| May 27 10 |
61.50 |
STO 3 Naked Calls JUL 67.50 @ .42 |
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10.75 |
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115.25 |
3591.75 |
| Jun 18 10 |
63.10 |
Expiry: 3 NP JUN 55 expired |
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| Jun 18 10 |
63.10 |
(BTO) Bought 10 Jul 55 Puts @ .15 |
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19.50 |
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(169.50) |
3422.25 |
| Jun 29 10 |
57.29 |
(STC) Sold 10 JUL 55 PUTS @ .77 |
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19.50 |
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750.50 |
4172.75 |
| Jun 29 10 |
57.29 |
BTC 3 Naked Puts Jul 60 @ 3.20 |
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10.75 |
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(970.75) |
3202.00 |
| Jun 29 10 |
57.29 |
STO 3 Naked Puts Oct 57.50 @ 4.05 |
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10.75 |
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1204.25 |
4406.25 |
| Jun 30 10 |
57.55 |
BTO 5 PUTS 21AUG10 45 put @ .30
Comments: Where is a rally when you need one. (Just kidding)
With the market pullback, puts are becoming increasingly
expensive. I have only done 5 puts and for August at the 45
level! The chance of getting this low is pretty small but
then that's what I thought when i bought the Jul 55 puts. If
though XOM keeps falling I will sell the Aug 45 put in all
likelihood. |
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13.25 |
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(163.25) |
4243.00 |
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June 30 2010: With
the odds about a double dip recession rising from
1 in 10 to now 5 out of 10, oil is selling off. XOM
is under pressure and I am on the verge of closing
my spread. In any uptick I will sell my Jan 60 calls
but I will keep the Jan 70 calls naked for a bit
longer. I believe oil could easily fall
to 65.00 by this fall. (2010). Meanwhile looking at
the very ugly technicals on XOM, we really should
see some bounce soon. The 50 day has crossed the 150
and 200 and all technicals point to a lower stock
price. Anything this ugly should bounce soon and
then sell lower. On May 6 (I highlighted it), the
day of the "flash crash" the stock fell a shocking
11.73% to a low of 58.46. It is important to
remember that events like the "flash crash" are very
important technical indicators. They tell you that
the trend has changed, even if only for a while. In
that crash the stock hit 58.46 and many analysts
claimed it was just an error. In retrospect it was
not. The stock was broken on that day and it has
returned to those levels. Look at the technicals for
that very day. You can see where the yellow line is
on May 6. At that point all the moving averages
crossed to the downside indicating a severe blow had
been caused to the stock. This will take some time
to recover and could easily be into next year before
the stock sees 65 or higher. Only an amazing return
to a strong bull market can make my bull call spread
work in my favor. Therefore I will be closing it on
any bounce.
|
| Jun 30 10 |
57.55 |
STO 5 Naked calls August 62.50 @ .65 |
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13.25 |
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311.75 |
4554.75 |
| Jun 30 10 |
57.55 |
BTC 3 Naked Calls Jul 67.50 @ .03 |
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10.75 |
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(19.75) |
4535.00 |
| Jul 13 10 |
59.65 |
STC 5 CALLS JAN 60 @ 3.70
COMMENTS: SEE MY COMMENTS UNDER JUL 15 2010 below. I have
ended the spread on this stock. |
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13.25 |
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(1836.75) |
(2576.50) |
1958.50 |
| JUL 16 10 |
57.96 |
STO 2 Naked Puts Oct 52.50 @ 1.20 |
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9.50 |
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230.50 |
2189.00 |
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July 16 2010: As I
discussed on June 30, I planned to close the spread
and did so over the past few days. I have adjusted
back to sell naked calls and puts on the stock.
Overall I feel oil probably cannot move higher until
the worries over the possible recession recedes.
However I have always been a follower of selling
naked options and I think the spread was heading
into a loss situation. I would much rather continue
with the strategy of selling options on this quality
oil company and possibly end up with some shares at
a reduced cost. |
| JUL 16 10 |
57.96 |
STC 5 PUTS AUG 45 @ .11 |
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13.25 |
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41.75 |
2230.75 |
| Aug 20 10 |
58.89 |
Expiry: 5 Naked Calls August 62.50
expired |
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| Sep 17 10 |
60.78 |
BTC 2 Naked Puts Oct 52.50 @ .10 |
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9.50 |
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(29.50) |
2201.25 |
| Sep 17 10 |
60.78 |
BTC 3 Naked Puts Oct 57.50 @ .35 |
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10.75 |
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(115.75) |
2085.50 |
| Sep 17 10 |
60.78 |
STO 5 Naked Puts Jan 52.50 @ .93 |
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13.25 |
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451.75 |
2537.25 |
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Sep 17 2010: With
the end of my planned spread I am back to my
favorite strategy, selling naked puts. I have closed
my Oct naked puts early and moved to Jan and grouped
them together. As I already have 5 naked puts at Jan
55 I am selling this group at $52.50
|
| Sep 23 10 |
61.23 |
STO 5 Naked Puts Dec 57.50 @ 1.15 |
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13.25 |
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561.75 |
3099.00 |
| Oct 11 10 |
64.55 |
BTC 5 Naked Puts Jan 52.50 @ .20 |
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13.25 |
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(113.25) |
2985.75 |
| Oct 11 10 |
64.55 |
STO 5 Naked Puts Dec $62.50 @ 1.25 |
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13.25 |
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611.75 |
3597.50 |
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Oct 27 10 |
65.20 |
BTC 5 Naked Puts Jan 55.00 @ .28 |
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13.25 |
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(153.75) |
3444.25 |
| Oct 27 10 |
65.20 |
STO 5 Naked Puts Dec 65 @ 1.88 |
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13.25 |
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926.75 |
4371.00 |
| Nov 3 10 |
68.10 |
BTC 5 Naked Puts Dec 57.50 @ .27 |
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13.25 |
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(148.75) |
4222.75 |
| Nov 3 10 |
68.10 |
STO 5 Naked Puts Dec 67.50 @ 1.57 |
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13.25 |
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771.75 |
4994.50 |
| Nov 9 10 |
70.82 |
BTC 5 Naked Puts Dec $62.50 @ .16 |
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13.25 |
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(93.25) |
4901.25 |
| Nov 9 10 |
70.82 |
STO 5 Naked Puts Jan $70.00 @ 1.88 |
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13.25 |
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926.75 |
5828.00 |
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NOV 9 2010:
With the weakness in the US dollar, commodities are
rallying higher. As oil moves higher, XOM is in a
general uptrend. While oil may not move a lot higher
this year, I believe it will next year. I have
closed my naked puts for December already and sold
at the Jan 70 strike. I am still holding the Dec
67.50 strike but I will roll it shortly should XOM
continue the rally.
I started back
in September rolling my naked puts as the stock
moved higher. In hindsight perhaps I should have
owned the stock, but I have made a fair return for
the effort I have put into rolling every so many
weeks. When a stock such as XOM which is commodity
based, is in a general uptrend, I find it better to
roll up as the stock moves up, in order to capture
premium as the stock moves higher. This is something
a lot of investors do with covered calls. When a
stock begins to move up, they close the covered call
and roll up with the stock. The main thing I never
liked about the roll up with covered calls is that
each roll up usually was for a net debit. Then if
the stock pulled back, there is a loss from
constantly rolling higher as the stock moved up.
Instead I have always felt that naked puts are
better as stocks move higher. The naked put loses
its value the higher the stock moves, allowing me to
roll higher always for more income. If the rise
should stall and the stock fall, I may be assigned,
but I have made a decent income from the continuous
roll higher, making my cost basis in the stock lower
than my assigned price. For the time being this will
be my strategy for XOM until the uptrend stops.
|
| Nov 10 10 |
71.00 |
BTC 5 Naked Puts Dec 65 @ .26 |
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13.25 |
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(143.25) |
5684.75 |
| Dec 7 10 |
71.55 |
BTC 5 Naked Puts Dec 67.50 @ .10 |
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13.25 |
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(63.25) |
5621.50 |
| Dec 7 10 |
71.55 |
STO 5 Naked Puts Jan 70 @ 1.05 |
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13.25 |
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511.75 |
6133.25 |
| Dec 23 10 |
73.00 |
BTC 10 Naked Puts Jan 70 @ .29 |
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19.50 |
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(309.50) |
5823.75 |
| Dec 23 10 |
73.00 |
STO 10 Naked Puts Feb 70 @ .95
COMMENTS: I am convinced that the price of oil is moving
higher. I closed early for Jan and rolled into Feb to take
advantage of the increased premium. I will close these
early and move higher in Feb should the price of oil
continue to climb. |
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19.50 |
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930.50 |
6754.25 |
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END OF YEAR 2010
- INCOME - $6754.25 = 9.6% |
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