Another stock/option multi-legged trade that includes red ink

Here's another "adventure" trade.  As always, look at the dates.  For some reason I don't recall in precise detail at this moment, on May 22nd I bought 400 shares of SVXY at 91.30.  I think it had to do with some calls, and I wanted to protect myself by owning the underlying, and I decided to keep the shares and realize full profit on the short calls.  I do not pick and choose which trades to show unless it's because only some of them are pertinent to a conversation; all trades are posted each month in this space and also in the "all trades" tab.  So anyway, here we are going into the trade with 400 shares of SVXY  under my belt, so to speak.

So on June 1, with SVXY trading in the 89 range or thereabouts, some wild hare or other influenced me to write four puts at the 85 strike for the June 26th expiration.  I received $3.20 for each of these.  Translated, this means I expected to receive $1,280 for these at expiration, assuming the strike would not hit.

Then on June 9th, when SVXY was trading around 86 during the day, I decided to put a top on the cake by writing four calls for the same expiration, at the 91.50 strike.  Note that this is just a few cents higher than the price at which I bought the shares.  My expectation was that the shares could be called away for a tiny profit (any profit being better than any loss) and I would just keep the premium of $732.

On June 15th, I got bored with just waiting and waiting for this trade to unfold, so I "traded out of boredom" and wrote more calls (naked, because I didn't own any more shares to support these) but this time for the July 3rd expiration, and at the 93 strike.  SVXY was trading at around 88 this day.

So now I had a "strangle sandwich" (or you could say some naked puts and a set of covered calls) for the June 26th expiration and some naked calls for the July 3rd expiration.  On June 22nd, I got nervous as I saw SVXY creep up near the strike of my naked calls.  Being the responsible option writer that I sometimes am, I shelled out big $$$ to buy 400 freaking more SVXY at a cost of 92.90 per share (gulp), which is just below the strike on my naked calls of 93.00.

What do you think I did with this strangle? Any guesses?  Anyone followed along and read about how I closed some of this out?  Hint:  Look at my June 23rd post, a few inches down the page.  I feel bad that I just explained the same thing that I explained a week ago (on June 23rd, titled "Finished a $700 project 3 days early").  If anyone is enjoying reading this, then good for you - I am glad.  I think the only difference here is that I explained my strategy in more detail, and I included in the screen shot the short puts, which were a crucial part of the original strategy, which was a short strangle.  Can't have a strangle without both sides!  It's like having a sandwich with only one piece of bread.

The extra content in this post, as opposed to the one a week ago, is this explanation:  I bought the puts back on June 18th because I anticipated I would soon buy shares to make my naked calls into covered calls, and I didn't have the capital to do that without closing the naked puts.  Then I took my time watching the price of SVXY, hoping I would not have to buy shares, but that hope turned out to be in vain.

When you look at this all together, including the puts which were an integral part of the original strategy, you see that it came out to profit of $1,594, which is not bad for approximately 3 weeks' worth of shuffling, if you don't factor into that the date at which I bought the original 400 shares of SVXY, which, in all fairness, I bought during the legerdemain of some other past strategy.

Of course, if I had a crystal ball, or some as-yet-invented future-viewing goggles, I might not have bought that second lot of shares, and might have just realized the full $890 profit from the calls which were set to expire this week.  Instead I netted the buyback of the calls with the buying and selling of the stock for just a fraction of that.  But I do not have clairvoyant superpowers.  And SVXY ran up nearly to 98 three trading days ago.  What's a trader to do with their short calls, stand there with a "ROB ME"sign on the chest and back? And I decided I could "roll" those calls and maybe still get some good meat off the bone.  (Which remains to be seen.)

I really hope someone is enjoying reading this, and it isn't simply my own record, but if that's what it is, then it's better than a kick in the shins on a cold rainy day after missing the bus.

Look, though:  If you follow this blog, you'll know that just a few days ago I turned around and sold naked 99 calls (this is what I referred to regarding chomping some more meat off the bone).  What's going to happen with those?  I own no shares to go with them (hence, the designation "naked.")  What do you think will happen this week?  They expire on Friday.

Why I show a loss on some options (multi-legged trade explained)

Let's go back to May and take a look at something, and I will explain what I did.

This started as a simple short strangle; the reason you see two lots of three and one lot of one is because I made a mistake. I didn't realize a trade had partially filled, so I ended up with just one contract. I thought about dumping it right away but decided to just keep it and see if it worked out in my favor. As you can see, it did. But here is why there is a loss on one side of the trade, and why I bought stock, and why it was profitable overall.

Look at the dates. On April 30th, when SVXY was $78, on average, during the day, I wrote puts for the 77 strike for the May 22nd expiration.  I didn't think my order filled, so I cancelled it and moved on, but it turns out that one was filled, and you see it there. I didn't even see it until I had written the three puts (described below.)  The price for this was $3.30.  I kept it in my arsenal of hopeful money-bringer-inners.  Then I:

Wrote three puts at the 77.50 strike for $3.41 each

Wrote three calls at the 85 strike for $1.55 each

Then things got interesting, as SVXY went on a tear, leaving my sweating forehead behind in the dust.  I had a contingency plan, though, since the last thing I would want is to get assigned to make good on calls that were way in the money, if I have no shares to have "called away."  So when it looked like SVXY was not returning to seventies-town anytime soon, I bought 300 shares of it for $84.35, as you see above.  Obviously this was just cents under my call strike of 85.

That same day (May 15th), I cashed in the lone 77 put for a handy $268, as you see above.  I didn't do it because I wanted the money or because I thought 77 was a threat.  I think I needed to make room in my account to buy the shares, and/or I was tired of looking at the lopsided trade - I can't remember what my main motivation was.  But this simplified things.  Now I had a "strangle sandwich," as I call it, or a short strangle with some shares in between the short put strike of 77.50 and the short call strike of 85.


So then it was expiration week, and I think I wanted to do something else with my account and needed to make room, so on May 19th I bought back the 77.50 puts for a gain of $964.

With SVXY climbing every day, and expiration just one day away, I had a [virtually] known and guaranteed outcome for what was now just a set of covered calls.  I bought the shares specifically so they could be called away (at a small profit of $195), and I would keep the premium from the short calls.  The known profit would be proceeds from the liquidation of the shares plus $465 from the short calls at expiration, assuming they would expire worthless to the buyer, for a total of $660.

Then, although I didn't plan to do it this way, and would have done a few hundred dollars'-worth better, had I just stuck to my plan of allowing the shares to be called away, I got greedy and sold the shares one day before expiration for a gain of $1,694.  This left me really sweating it out, because I had gotten on the "greed train" at this point, hoping that I could buy back the calls the next day for less than the price at that moment.  I hoped for SVXY to pull back, in other words, and the time premium to evaporate.  Unfortunately, SVXY traded higher on May 22nd than on May 21st for most of the day, or at least for the parts important to me, because I bought the calls back for $5.83, resulting in a loss to me on the calls of $1,304.  (Instead of the approximate loss of several hundred less I was looking at when I hatched this last-minute daredevil plan.)  Netted together with the shares, the end result of the covered call adventure was a gain of $390, though.

The covered call move would have netted me $660, remember, had I simply let the calls expire and allow the stock to be called away from me.  Lesson learned on last-minute attempts to squeeze a little bit more out of an already-winning strategy.  But it was a winning move, overall, anyway, so I can't complain too much.

So, let's sum up the whole shebang now:
Short "mistake" put at 77 strike: $268 profit
Short 77.50 puts:  $964 profit
Covered calls:  $390 profit
Total for three weeks:  $1,622
(would have been $1,818 at expiration, excluding commission, had the underlying simply remained between the strikes.)
(would have been  $2,013, excluding commission, had I let the puts expire and had I not messed with the covered call near the end.)  I didn't let the puts expire because I needed the capital in order to protect myself by owning shares on the call side.  Maybe I would have been fine by leaving the puts alone and letting the calls do what they wanted, but I didn't know that, and I wasn't going to risk it.

Not bad for something that ran away from me immediately after I initiated it, and now you understand why sometimes you see big-ticket losses in my account.  Maybe they aren't actually losses at all, when you see them within the context of the overall trade of which those "losers" were just one important part.

Before the ink was dry

 - you know, I mean before the electrons were in place - I opened new short options.  This time July2nd 99 strike SVXY calls.  Let's see if this ends up being a winner or some market maker's dinner!

Finished a $700 project three days early

Let's see if anyone can look at this and see what I did. I'll give you a few clues (the only ones I understand. No, really, I know what I did, but I will tell you that I had to do some fancy stepping and then I got greedy and then I got out, and it turns out I could have done half the work and come out in the same place.) So, take a look:

Quick rundown: (this is not necessarily in order, even if it s numbered.)

1. Wrote naked 91.50 calls.
2. Bought shares at 91.30 to ensure that those would be covered, should shares be called away.
3. Wrote naked 93.00 calls.
4. Bought shares at 92.90 to ensure that those would be covered, should shares be called away.

Then I saw the stock run up to $96 or so and got greedy. Deciding to close all of it out at the same time, I did this:
5. Sold the shares that had been at an average price of 92.09 for 95.99, for a nifty profit of over $3K.

Then the prices of those options rose quickly (and I mean within seconds of closing the shares) and I did some cursing. Watched the prices a while, and finally decided I could roll those calls by buying them back at a loss (which still gives me an overall profit, when you combine it with the proceeds from the shares, but the profit is really just about exactly what I would have made from the first set of short calls - the $91.50 ones! It's like the 93 calls never happened. But look at all the steps I took, that I didn't need to take.

I should not be complaining. I made the $700 or so that I set out to make for this Friday, but I made it several days earlier, and I got rid of the risk of holding this highly volatile ETF. I have neither the risk of being taken to the cleaners via naked calls, nor the risk of taking a gut-punch to my account value via falling share value.

And it's just as well that the 93 calls are done away with, also, since the share price has surpassed that strike, and I didn't want to waste time and margin set-aside just to wait until July 2 to make an additional $900 (which is good money, and worth waiting for, but I think I can do something that is currently out of the money.)

 Now I have nothing, and I can go on to the next trade. Which will probably be short calls at a higher strike. When I say I have nothing, I mean that my slate is clean, but at least I wrapped all of this up for the same profit I set out to make when I opened the initial trade, which is the first one you see listed there (the short 91.50 calls written for a total of just over $700.)

Covered up

This morning, pre-market, I bought 400 SVXY at 92.90.  I had seen SVXY go well over 93.00 earlier in the pre-market session, and I didn't want to get left behind, so I jumped on the chance.

The reason I bought these is that I am short 4 calls expiring July 2nd at the 93 strike.  If shares are called away from me, I want to be able to say "thanks for the [tiny] profit." (on the shares. I intend to make full profit on the contracts.)  Better than "too bad I'm taking a loss on freshly bought expensive shares."  I don't like to take losses.

Will I regret buying so much SVXY?  We'll see.  So far I have made so much in premium against 400 shares that I can't keep track.  Now I have another 400 from which to make premium.  We will see whether this turns out to be a take of woe or a tale of dough.

Ooops! I blathered myself out

With all that blathering, I forgot to report that yesterday I closed SVXY June 26th 85 strike puts for 95 cents; I had collected $3.20 originally, so that's a profit of $2.24 per contract, times 100 for the standard block, times 4 contracts for a total of $879 profit booked after commission.

It's very possible I could have gotten a lot more out of that, but I could not resist the way the put lost so much value so quickly.  Plus, if the security does drop, I could always write that contract again for more than 95 cents and double-dip on the same thing.  Go back for seconds, in other words.  Nothing like making extra premium by timing the ups and downs of the decay of the contract.

I'm not expecting to do this; I've moved on, in my mind, but it would be a bonus.  I've done it before on some other eventually-worthless calls or puts (can't remember which), and it was great to collect free extra helpings!

I didn't buy those puts back for any reason other than needing buying power in my account, though.  I believed it would be necessary to buy some shares to secure my now-naked calls, and I may still have to do that (but haven't yet.)  Otherwise, I would have let those decay more, hopefully to zero.

I don't predict

One thing you will never see me predict is which way the market will move.  No, I take that back.  During an extreme, I may predict a reversion to the mean (of volatility.)  But during times like these, my guess is as good as a coin toss.

My strategy, therefore, is to figure out where certain securities won't go, and lay a little booby trap in those recesses of the options chains so that when settlement day comes, I will see some zeros on the bid and I can keep my pile of borrowed goods.  After all, when you borrow an expensive book from the library, and the library shuts its doors before the due date and tells all borrowers they can just keep whatever they checked out - well, that's one method by which valuable "books" can be accumulated.

Will the market fall a little, with "ProShares Short VIX Short-Term Futures ETF" (SVXY) also falling with it?  Not sure, but I have no short puts (promises to buy the security at a specified price, if that price is reached in trading on the security) so if the market falls, I'll be fine with that.  I do, however, have short calls (promises to sell the security to others at a certain specified price, if that price is reached in trading on the security), and since those prices I signed my name to are higher than the current price, I'd prefer that the market not rise very much.  But if it does - no biggie; I have the shares to sell, and will make a small profit if I'm forced to make good on my contracts.  Not to mention the premium I received for having entered into those contracts in the first place.  That's my bread and butter; that's the money I hope to make.

To complicate matters, I have some short calls that expire June 26th, and some more at a slightly higher strike (promised sales price) that expire July 2nd.  That second lot is not "covered," meaning, I do not own enough shares to make good on those.  If the price rises higher than the strike, I could be forced to buy at whatever the price of the day is and sell at my promised price, which would cause me to book a loss on the transaction (and that loss may or may not exceed the premium I received for the contract, which is how most people compute whether the covered call was profitable or not.)  My general practice is to buy the shares before it rises higher than the strike so that again, if I'm forced to sell, it would be no problem and cause no loss to my account.

I'd rather make money on writing calls and writing puts, and having no shares of fluctuating value to worry about.  I try to constantly leg in and out of various dates and strikes.  I also like to work with "ProShares Ultra VIX Short-Term Futures ETF" (UVXY), but only under certain market conditions (the VIX being stretched ridiculously in one direction or the other) and sometimes other securities.  I'm not in love with that brand; I just find the best premium with those.

And that, in a nutshell, is what I do!

New Page Tabs at the Top

I have added new tabs at the top so that monthly trades can be viewed there.  This is because I plan to comment extensively here, in the main blog space.  Let's start right away:

June is shaping up nicely enough.  I feel like I've been sitting around watching paint dry, but it's nice paint.  How many times can short options be cashed in around one core position?  Right now I have a short strangle with some shares right there in the middle (I prefer not to own shares but for various reasons, I might buy them - one reason being to make the short calls covered), and I also have some naked calls for farther out.  Let's see how this shapes up!

I have 400 shares of SVXY and 4 short calls against that for 91.50 at the June 26th expiration.  I paid 91.30 for the shares, so:  Easy come, easy go on the shares.

I also have 4 short calls at 93 on the July 2 expiration.  I will not let those remain uncovered, so depending on how fast the stock moves, I may have to cash in my short puts (at the 85 strike for June 26th) to allow me to buy shares to cover that.  We'll see.

May - It's a wrap!

Here is how the merry month of May went:

April Gain

Here is the gain for April.  See the Total ST Gain/(Loss) figure at the top.  If the figure in the Gain(Loss) column is black, it's a gain; if it's red, it's a loss.