CCs with a put sideshow on NSOL:
A preliminary note: I am using the myTrack contest as a paper
trading mechanism. It constrains users to opening option positions
at 5% or less of the existing Open Interest. This heavily
influences/determines my selection of strike prices and exercise
dates, and that complicates my positions. Also, while the money
supply is not unlimited, it is PAPER, so this is a bit like a kid
playing monopoly, but the numbers could be scaled down to match real
resources.
I'm curious about a CC strategy that takes the solid foundation of
the W.I.N.S approach and applies it to the wilder side of today's
market. I'm sharing this example here because I'm having fun with
it, and to get feedback from anyone else interested.
NSOL is NOT a prime example of a good solid underlying stock; it's
selling at well over 200 times earnings, with a float of 15.4
million that turns over every 4 to 5 days, about 125% in the past 2
days!! As Herm would I think say, a real viper. Yesterday it was
trading below it's lower BB with the RSI at just about 30%, territory
not seen since last fall. After a sell off of nearly 50% in the
last week, a hard bounce seemed a good possibility. I bought 1000
from a short-term trader's perspective at 64 and doubled down at 61 3/4.
It got down below 60, support was looking shakey, and I had to run
some errands. I had some choices:
(A) Stop out with a $6000 loss
(B) Go away and come back hours later to who knows what
(C) Think longer term, write some calls, and pocket some hefty premiums
I sold what I could (existing open interest) that gave me decent
upside potential, and deep downside protection. (Given the freedom
to pick dates for any existing options, I would have used May and
June only.) I bought some more stock later in the day as another
possible short term trade, and decided to write another round of
calls. I ended the day yesterday with NSOL closing at $60, and the
following, looking forward to an up day today to unload 1000
uncovered shares at a profit:
4/20
400 NSOL bought and sold at a profit of $1650
3600 NSOL @ $63.5 $228,600
8 Jul 65c @ $14.5 -$11,600
8 Oct 65c @ $20.75 -$16,600
10 Oct 70c @ $19.125 -$19,125
_________ ________
$228,600 -$47,325 = $181,275 ==> NUT=$50.35 for 3600
This morning, NSOL gapped up about $6, and I got rid of my uncovered
1000 at $65.25 (bad execution cost me $1000) just before I had to go
off and do other things, feeling pretty good about the total $3400
realized profit and 2600 covered shares with the stock sitting near
my strike prices with lots of downside protection. Later in the
afternoon, I returned to find NSOL hovering around $90, up 50% in one
day, creating a twinge of "shoulda, coulda, woulda" at the lost
profit opportunity had I simply bought and held 4000 shares of
an "internut" for one day (Actually could not have done that w/o the
premium income, so say only 3000 for a $90K profit- not too bad), or
at least just held the uncovered 1000 for an extra $25K. With myself
locked into a position I could not even buy my way out of (calls too
expensive to buy back except in smaller pieces) I started thinking
about a sideshow with some nice cheap puts. I wanted some longer
term puts to match up with my calls, but I took what I could get and
ended the day with NSOL at $92 and the following:
4/21
1400 (400 + 1000) NSOL bought and sold at a profit of $3400
2600 NSOL @ $63.5 $165,100
8 Jul 65c @ $14.5 -$11,600
8 Oct 65c @ $20.75 -$16,600
10 Oct 70c @ $19.125 -$19,125
26 May 60p @ $ 3.625 $ 9,425
_________ ________
$174,525 -$47,325 = $127,200 ==> NUT=$48.92 for 2600
If I do nothing and the stock goes to the moon, I make no more than
$46,800 and have to wait 6 months for most of it. A rough
calculation taking into account the different expiration dates and
strike prices puts this at about 90-95% annualized return. If the
stock comes down some, I can make some additional profit on the
puts. If the stock tanks, and if I can roll the puts to October
without additional cost (maybe even make a little more), the worst I
can do is sell 2600 shares at $60 for a $28,800 profit, roughly 58%
annualized return.
I won't even think about where I would be if I had the courage to leg
into this position buying the stock yesterday, and selling the calls
today; protection was the motivation, not astronomical returns. |
