An Update on WFR
Posted by mounddweller on December 23, 2009
I sold a new round of calls this morning on WFR. As I mentioned in an earlier post I was looking to sell either the JAN $12.5s or the FEB $14s depending on which direction WFR decided to take. Well, over the past couple of days the direction has been up. Thus, this morning I sold the FEB $14 calls for $0.80. Some of you might be curious as to why I chose the FEB $14s instead of the JAN $14s. My regular readers know I usually sell the near month calls and puts. With WFR right now, that strategy just didn’t make sense. The JAN $14s were only selling for $0.30-0.35. Meanwhile the FEB $14s were at $0.75-0.85.
Usually calls and puts with a strike price two months out trade at a multiple of less than double the price of the near month options. That clearly isn’t the case with WFR right now. I suspect traders believe WFR is going to continue trending higher but that they don’t have much faith that it will get above $14 by January expiration. However, they are much more confident this will occur by February expiration, thus they are willing to pay a premium price for those options.
Below is a log of my WFR transactions. As you can see my cost (net of commissions) is now down to $11.80. If assigned at $14 in February my ROIC will be better than 17% in just 9 weeks. Not bad. If unassigned my ROIC will be around 8%.
Merry Christmas,
Troy
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