The Money Tree

Safely Generating Income in Retirement

Rollouts on FRX and UNG

Posted by mounddweller on July 14, 2009

Guys and gals,

I executed two rollouts today against my open positions in FRX and UNG.  Those of you who have been following my trades know that I’ve been in FRX since January.  I originally entered the position by buying 200 shares at around $25 and change.  I then sold the February $25 calls.   Since then I’ve acquired an additional 200 shares after having shares put to me at $22.50.  I’ve also been able to sell the $25  calls almost every month.  This month, like last month, I decided to rollout my position rather than wait for expiration day on Friday.  However, my reasoning this month was different than last month.  Last month you’ll recall I wanted to roll early because I felt there was an opportunity for the stock to go ITM prior to expiration.   Not wanting to take a chance on getting assigned I decided to take advantage of a decent premium on the rollout.  This month my reasoning was just the opposite.  The market has rallied sharply the past couple of days but I fear we may have a sell-off before Friday expiration.  Thus, I wanted to capture the relatively high premium tied to today’s price rather than chance having to sell another round of calls after expiration at a much lower premium.    The bottom line result is I was able to rollout to the AUG $25 calls for a net credit of $0.75.   My net cost basis is now $20.50 while my ROIC is now 18.71% (31.19% annualized). 

For those of you who don’t yet own FRX, it isn’t too late to get into this high quality stock.  With a market cap of $7B FRX has $2B in bare cash!  Below is a current VISIONS chart of FRX.

VISIONS - FRX Chart

 

Now, let’s talk about my NP position in UNG.  Those of you who follow the natural gas market know there is currently a glut.  Thus, prices are very low.  Since UNG is an ETF whose price is determined by the price of natural gas futures it too has continued to fall.  When I originally initiated my position in UNG naked puts UNG was trading over $15/share.  It had never closed below $13 so I felt reasonably safe in writing the JUL $13 naked puts.  Well, never say never.  Over the past couple of weeks UNG sliced through $13 on its way to setting a new 52-wk low of $12.03.  It has since recovered and moved back up to around $12.50.  Seeing this I decided to take advantage by rolling to the AUG $13 naked puts for a net credit of $0.70.  If UNG remains below $13 at expiration in AUG and I choose to allow the stock to be put to me I will have a net cost basis of $12.00.  If unassigned my ROIC will be 7.69% for two months.  That sure beats the interest Schwab is paying me on my cash reserves!

Best of luck to y’all in your trading. 

Regards,

Troy

PS.  My NP trades in O and TK remain open.  I’ll be updating you on them after expiration Friday.

2 Responses to “Rollouts on FRX and UNG”

  1. Rich said

    Troy,

    I also rolled some calls forward today. I have positions in GE and XLF which are currently upside down so I’ve been trying to roll the calls forward whenever possible, gaining a little of the basis back at a time. I bought GE back in the fall when their dividend was still at 30 cents a share. They subsequently lowered the dividend to 10 cents as the market took another downturn. So now I’m trying to play catch up. I bought back JUL 12 calls on both positions and sold Aug 12 calls. I’m hoping as the market slowly moves up I can sell calls at 13 eventually. I gained an extra $66 in premiums combined in the roll forward.

    Rich

  2. mounddweller said

    Rich,

    I am under water in GE as well. Bought it last year long before I started using VISIONS and following Ron’s methodology. Also was in XLF last year. Thankfully I got out of XLF before it crashed. It was one of the few trades I got right in 2008. I’m doing much better this year now that I am using VISIONS. Haven’t had any losers.

    Good luck!

    Regards,
    Troy

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