The Money Tree

Safely Generating Income in Retirement

Update – FEB Expiration

Posted by mounddweller on February 18, 2013

Fellow Traders,

Just a short post tonight to update you on my trading activity this past week leading up to FEB expiration.

GDX – I thoroughly messed this trade up.  As you may recall I was short both the FEB $44 and $41 puts.  Earlier in the week GDX was trading above $42 and I could have bought back my $44 puts at a small profit.  The $41 puts could have been bought back for pennies.  However, with only a few days to expiration I decided to let both of them ride.  BIG MISTAKE!  Gold fell through support and the Gold Miners Index fell right along with it.  GDX closed Friday $39.89.  Thus, not wanting to accept assignment, I had to move quickly to roll my puts out.  Here’s what I decided to do:

(1) I rolled my FEB $44 puts out to the SEP $41.50 strike for a net credit of $0.05.  The small net credit essentially covered my commissions.  I did this because I expect we’ll get a bounce soon and by now having puts at the $41.50 strike I should be able to extract myself from this trade for a small profit.

(2) I rolled my FEB $41 puts out to the 22FEB $41 strike for a net credit of $0.22.  I thought $0.22 for one week was a fair trade.  If GDX doesn’t bounce by Friday I’ll roll out again and likely down to the $40 strike.

COH – Very strange transaction occurred with Coach.  Recall I was long 100 shares of COH and had sold a FEB $52.50 call.  In addition, I had sold 2 FEB $50 puts.  On Friday (the day BEFORE expiration) I had 200 shares of COH put to me at $50.  The owner of my puts put the stock to me!  Why I have no clue.  He/she could just as easily have sold to close and made a sizeable profit.  Oh well, it didn’t matter to me because I wanted to acquire the additional 200 shares anyway.  Now, I own 300 shares at a net cost of $49.94 share.  Tomorrow, I will sell OTM covered calls against my 300 shares and thereby set myself up to receive the $0.28 dividend in early March.

EXC – I had another embarassing gaff with Exelon.   Long-time readers will remember I have been holding EXC shares and trading puts and calls against them for three years.  My most recent trades had been to write covered calls at the $30 strike in anticipation of the stock going down after the dividend cut was finally announced.  Well, much to my chagrin EXC initially increased after the dividend cut announcement.  My calls were now deep in the money.  Long story short, someone called away my stock earlier this week so they could capture the hefty $0.525 dividend.  I waited too long to roll my calls.

Since I want to own EXC long-term I immediately sold another round of APR puts at the $30 strike for $0.60.

YUM – Last, but not least, I need to update you on my YUM trade.  The lesson to be learned in this trade is not to panic and to be patient.  Many of you know YUM is facing a strong headwind in their largest market, China.  The rumors of tainted chicken have caused sales to fall significantly.  The stock responded accordingly by falling to $60 earlier this month.  At that time my puts were $2.50 in the money and YUM looked like it could fall further.  Rather than panic, I heeded the sage advice of my friend Teddi over at www.fullyinformed.com.  By staying the course I was able to watch YUM recover, closing Friday at $63.99.

This trade resulted in a ROIC of 1.14% in 25 days or 16.7% annualized.

Best of luck to everyone trading this week.

Regards,

Troy

 

2 Responses to “Update – FEB Expiration”

  1. Tela said

    Hi, Troy! Good job on staying cool in the YUM trade. I’ve been browsing your blog for a couple weeks now and just wanted to introduce myself. I’ve been trading (off and on) for the past three years. But, I am now able to trade full time and just started my own blog as a way to journal my trades and solicit some feedback. If you ever find the time, you can check out my posts/trades at hokimstrading.wordpress.com.

    • mounddweller said

      Tela,

      Welcome to the world of blogging. As you can see I’ve been doing my trading blog for just over 4 years now. I go through fits and spurts, sometimes I write often, other times its all I can do to post once a month. I’m going to add you to my blogroll. Good luck

      Regards,
      Troy

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