Monday, July 28, 2014

Endless Summer

Still waiting for a meaningful correction, but could not resist a trade on Calumet (CLMT) - DITM covered call of Feb 30, with the stock at $33 (10% protection through the best months of the year - Nov.-Jan.
Had to wait for it to go ex-dividend , which it just did. 8% plus some downward Insurance of a few pence.

N.B. as of May 1 - 2014  , 4(closed) trades have netted 14%  annualized; Including closed trades (8) started in 2013 - up 13.4%. No losses, but low Volatility (IV).

Also covered in this blog is the LEAP portfolio, which offers more safety and yield by selling covered LEAP (longterm) strangles - out-of-the-money covered calls and puts. One can put on a trade an just let it stand for months (years), or fine-tune it for more yield and safety (cash brought in.
In the latter case, I rolled my AA (Alcoa) puts upward and out to 2016 for a $300 gain, as the stock has jumped more than a double since I bought it. With the LEAP plan, although my covered calls of 2105 are at the 10 strike (now ITM) it will most likely be called away in January (rolling out deep in-the-money calls is seldom very profitable - extrinsic premium).
2017 LEAPS should be coming out in October, but why sit on a way ITM put that sells for $.02??

Finally, as an example of how DITM can act as a hedge as well as conservative yield-provider (consistently 10%), another trade rears its pretty head today. Just as an infrequent loss can be devastating (but less than just owning the stock) since one can keep from getting "shaken out" with the lower covered call, so can a pleasant outlier occur to the upside:

This week Kinder MLP (KMP) was called away from my IRA after 6 months - with 6 months left on the January 2015 call!!! Very unusual, but happens if the buyer wants to exercise it way ahead!
I bought KMP at above $80 and sold the in-the-money (ITM) call at 77.50; the stock immediately dropped 10 points, but I held on due to the June call, which became int the money again in June, and I rolled out to January '15. Called away at 77.50 I would have lost $300 - but with DITM (call premiums and dividends) I netted $437 after commissions, for a 10.85% annualized profit - right on its usual mark.  

Friday, July 11, 2014


In my latest DITM trade the good news for FCX - Freeport Copper- is that the annualized return, net of commissions, spreads, and other slippage, was 11% - too bad it only lasted 3 months! Buying it in April and having the August call (the 31 ITM) exercised on my, with the stock over $38 it was too ITM to be rolled out in time.

Since this 200 share trade was in my small IRA, I shall probably do another DITM trade soon to keep this statistic "pure", not mingled with the LEAP Strangle plan, which I now prefer, with Volatility as low as it is these days.

Per my Schwab account statement for the semi-annual 2014 period, what with above slippage and sloth, Reg T-3 (3 day settlement of funds, etc.) the IRA gained 3.40%, making it an annualized 6/80%, unless the VIX picks up, and premium returns.

Keep the Faith!