I'm way out on the ice

This post may also be read at: http://www.cboeoptionshub.com/2015/10/02/im-way-out-on-the-ice/

Let me get right down to numbers, since there will be a lot of numbers amongst the words.

In the last post I detailed a bunch of long calls, and an update on those is overdue.  In review:  I had allocated a large (to me) (when it is a risky proposition) amount of money toward seven of the December SVXY calls at the 40 strike, paying about $12.30 each for them (translated to real cost:  $1,230.00 each or $8,610 in total - I'm rounding and ignoring commissions here) when SVXY was about 47.

Just about a week later, I sold them for a modest (but not nearly what I had set out to make) profit and later replaced them with different calls.  Here depicts the disposition of the original calls:

 
SVXY was in the 50+ range on September 15th, and I got scared out and sold the contracts. This was one of my more painful misses.  Later that day and over the next few days, SVXY ripped up to 62.  I recall being in a very bad mood over these particular days.  At least I got a small profit, but I didn't open the trade to make just a small profit.  I had loftier goals in mind.  I shouldn't have done this, but I computed what I would have made (a mentally ill trading behavior) had I held for a few more days, and I don't want to talk about it.  I'm trying to block it out of my mind.

I will not type here how much I might have made. Believe me, I calculated it and made myself sick.  On the other hand, had I been the one to dump these options this afternoon at $9.90, I would have lost $2.40 per contract, or $1,680, so I'll be glad for the similar profit I booked instead.  Moving out of the world of "what could have happened" and back into "what actually did happen," let's continue.

On the 16th, in the throes of the above-mentioned bad mood, I took the proceeds gleaned from the long option closing and bought 240 shares of SVXY at the price of $56.44 per share.  This looked like an ace move for about one day while SVXY shot up to nearly 63.  After it didn't look so ace anymore, on the 18th and 21st, I sold 140 of those shares for the average price of 52.77, booking red ink in the amount of $535  (thus the reference to persistent bad moods.)  I didn't do it because I thought the purchase had been a mistake - in fact, I'm loathe to book any loss and it was like pulling out splinters to do it, but I did it to raise cash for the below:

With $535 loss in hand, I set out to do "long calls, part II."  On September 21st, with SVXY trading for $53-ish still, I decided to change my risky bet... ahem, I mean, long call strategy just a little this time around. In the previous incarnation, I had kept 800 shares of SVXY and added seven long calls on as a sidecar.  This time I kept 900 shares (remember how I bought 240 shares, bringing my total up to 1,040, and then liquidated 140?  So I had 100 more remaining in the account this time.)  The other changes were:  Fewer calls, a higher strike, a farther-out expiration, and less premium paid (because of the strike being higher and the expiration farther into the future.)

On September 21st I bought six of the SVXY $55 calls (this time a few dollars out-of-the-money instead of in-the-money as previously done) for $8.50 each, expiring January 15th.  The total cost was about $5,100.  At expiration, SVXY will have to rise to at least $63.50 just to get my money back out of these.  By contrast, had I simply held the stock (which I sold for $52.77, so let's use that as a comparison point)  I could have 96 shares of SVXY instead of the expensive out-of-the-money calls I bought.   I'm comparing 96 shares, not 140, to the long calls, because I did something else (another story for another day) with the rest of the proceeds of the 140 shares, and 96 shares at 52.77 equals $5,066, which is essentially the same total as the purchase price of the abovementioned options.  96 shares would appreciate by $1,030 on the climb from $52.77 to the hoped-for $63.50, and by comparison, SVXY at 63.50 would bring me merely to flat with the calls I saddled myself with now.

Above the expiration day price of about $65.50, I'd start to make more profit by holding the calls vs. the alternate reality world where I might have opted not to do this maneuver and just kept shares instead.  Let's dream big for a minute and fantasize about SVXY being $80 on January 15th.  (I lie awake at night thinking about these things.)  I would stand to make $2,614 on the 96 shares (which I don't have anymore) but I could sell the calls on expiration day for about $25 each, which is a total sale price of $15,000, with my cost being $5,100 (remember, I paid $8.50 each), for a profit of $9,900.  This is why I bought calls:  To try to bring in more profit from the sale of the calls than I would on simply holding appreciating shares.

As of this writing (September 29th), those calls have most recently traded for $4.64, which is 45% lower than my purchase price, and the shares most recently traded for 45.68 (after hours), which is 13% lower than the comparison price of $52.77.  Good thing I'm not booking anything today, but the shares never expire, and the options expire in January, so I'm on thin ice. We'll see if the ice thickens up by mid-winter.