The Money Tree

Safely Generating Income in Retirement

Archive for February, 2010

GME – An Update

Posted by mounddweller on February 19, 2010

All,

I sold a new round of calls on GME today.  This is after having spent the better part of a week thinking through various scenarios and possible outcomes.  I initiated this position in late December, buying GME at $22.65.  I then sold the JAN $22.50 calls for $0.95.  These calls expired worthless.  I then sold NPs shortly after GME experienced a sharp sell-off.  This further reduced my cost basis.  Earlier this month I bought back the NPs for pennies on the dollar.  The result of all this activity was a reduction in my cost basis to $20.64.

As I mentioned above I considered several possible trades before making a final decision earlier today.  I looked at selling another round of NPs to further reduce my cost basis.  Specifically, I looked at the MAR and APR $18 puts.  However, I decided that wasn’t the most prudent course of action so I then began to look at selling another round of CCs.  The first strike price I considered was the MAR and APR $20s so that I could maximize the size of my premium and consequently the most reduction in my cost basis.  However, doing this would come at a price.  I had to decide if I would be happy be called away at $20 and recognizing a small loss (with the MAR $20s) or a very small profit (with the APR $20s).  I decided I didn’t like that outcome so I went back to the options tables and looked some more.

Here’s what I found and what I ultimately decided to sell: 2 APR $21 calls at $0.50.

Net of commissions this trade reduces my cost basis to $20.19.  Thus, if assigned at $21 in APR I will have achieved an acceptable, albeit modest, return on my investment.  My ROIC will be around 4% over a 4 month holding period.  While not great, I’m willing to bet on an annualized basis (say 12%) it will exceed the overall market returns for the year.

Also, I would be remiss if I didn’t acknowledge the sage counsel I received on this trade from Ed, my good investing buddy.

I’ll be back later this weekend with an update to my open positions and historical results.  I’ll also be posting a message about possible new trades.

Regards,

Troy

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WFR – An Update

Posted by mounddweller on February 16, 2010

All,

It appears I may be rather busy towards the end of this week so I went ahead and rolled out my calls on WFR.  I BTC the FEB $14 calls for $0.03 and STO the MAR $13 calls for $0.57.  This certainly was not the best price of the day but one I’m happy with.  I had to run some errands this morning so I put in a trade well above the current market price but one that I’d be happy with if the market did move before I got home.  It moved!  The MAR $13 calls were trading at about $0.65 when I got home.  They’ve since come back down and currently are trading at $0.59 bid.  Anyway, like I said I’m pleased with the trade.  At $0.54 (net) the return on my original cost of $12.57 is 4.3%.  My cost basis is now down to $11.29.  If assigned on 3/20 my ROIC will be 15.8%, unassigned return will  be 12.4%.  Not bad for a 90-day holding period!

Best of luck to all this expiration week.

Troy

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UNG Closeout

Posted by mounddweller on February 14, 2010

Well folks after 7 months of frustration I have thrown in the towel on my UNG trade.  On Friday I BTC my 10 FEB $11 naked put contracts.  I bought them back for $1.08.  I had originally sold this round of puts for $1.11.  My total profit over this 7 month period was a whopping $78! 

I just wasn’t able to ‘find the rythmm’ with this trade.  Early on I kept trying to trade it like any other NP or CC position.  I think this was a mistake.  By that I mean that I was selling the puts on the Monday after expiration and waiting and hoping they would expire worthless by the next expiration date.  Instead, I had to roll them out every month, always at a credit but never really gaining any ground on my overall position.

In the last month or so I finally turned onto the idea that the better way to trade UNG was to be more active and in tune with the daily moves.  I could have BTC my FEB puts multiple times in the last 30 days at a significant profit.  On more than one occasion I could have bought them back for $0.90 or less.  Each time this happened I hesitated, wanting to get just a ‘few pennies more’.   If, and when, I choose to try my hand again with UNG it will be with this strategy in mind.

Below is a complete history of my UNG trade.  I will update the information on my open positions and historical results pages after expiration on February 20th.

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Update on GME

Posted by mounddweller on February 4, 2010

All,

Yesterday I BTC my GME FEB $19 puts for $0.14. You’ll recall I sold these puts the day after GME’s most recent earnings release. All in all, I think I did pretty well. As a stand-alone NP trade it worked out very well. I earned 4.26% ROIC in just under a month. That’s 57.63% annualized.

The trade also helped out my overall position in GME. You’ll recall I originally bought 200 shares back on 12/21 at $22.65 and immediately sold calls against them. Between the CCs and my NPs I have now reduced my net cost basis in GME down to $20.64. If we get a bounce back from this recent sell-off in the overall market I should be able to sell some MAR $21 or $22 calls, further reducing my cost basis. Or if the market doesn’t cooperate I can again sell some $19 puts.

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What Others are Trading – February 2010

Posted by mounddweller on February 3, 2010

Oops!  I forgot to set-up the blog post for this month.  Rich reminded me of it today when he had to post his latest trade to the January post.

So here you go.  Let’s hear about those picks.

Posted in Your Picks | 15 Comments »