10 Responses to Trade – Buy/Write UNG

  1. will says:

    Is your only risk with the covered call, the limitation of potential gains?

  2. Rich Slick says:

    That’s the main “risk” if you want to call it that. UNG went from 39.60 to 41.74 as I write this. I am OBLIGATED to sell at 40 next week. UNG may shoot to 100 by next week and I still have to sell at 40. I am fine with 40 because I know I’ve locked in a 4% gain in under 11 days.

    The other “risk” is if UNG drops to 10 from 41.74 and you’re forced to hold your shares until you buy back your options or liquidated (at a loss) but if you’re a long term investor then you know that eventually it may go back up.

  3. Chris says:

    Hey Rich..I was wondering if you do any naked put writing..I just got approved for level 3 on Etrade and am looking into some prospects on these large down days and writing some naked puts so I don’t have to sit on margin paying interest…if I get assigned that’s fine cause I know I’m in a stock that I want and the premium is similar to that of covered calls just without sitting on the margin doing that strategy…just wanted to get your take on the naked put writing…the amount that i would write would be equal to the amount that I can possibly purchase if assigned

  4. RichSlick says:

    Chris, I’ve been exploring doing the naked put but the biggest downside (in my opinion) is that you don’t capture dividends with naked puts. I generally don’t put the dividend transactions on my blog because it would be too cumbersome to list every single dividend payment but it does add up to 1/2 to 1% over the period.

    The other “downside” is that you have to have the cash available should you get assigned so in essence the cash is being “wasted” just sitting there waiting for a possible put.

    I have tweaked the ETF-Cashinator and ETF-Putinator to use bid quote instead of Last quote to provide more realistic returns and once I finish that up, I’ll focus on using long term LEAP rolls with calls AND puts.

    Stay tuned and good luck with the puts.

  5. Chris says:

    Hey,

    Well for me it’s not using Margin instead of my own cash…GDX is all my cash but I have 17k of margin available but with using the naked puts I’m not paying all that margin interest doing the covered calls so in essence, my margin is waiting for a possible call not my unused cash…this is a better situation for me :) Hope it works out well :)

  6. Chris says:

    hey…so I did my first naked put writing…4 XLF 32s…got .5 so around 190$ profit if it stays above 32$ and if it falls below my new cost basis would be 31.50 which I can then either turn around and sell right away or I can write covered calls for the month of september…I love having level 3 options now :) I can make a possible 190$ sitting on the sides not putting up any capital and using margin :) BTW, traded GDX this morning from 39.29 and sold at 39.90 for a cool 170$ in 45 minutes :) my core position is 200 shares with aug 41 calls on it which at this point look to be worthless but I hope I get called :) would net 3% on that trade :)

  7. RichSlick says:

    So if I understand, you’re keeping 400 x 32 = $12,800 on the sidelines in case of a put assignment? I’m assuming the XLF 32s were August puts?

    If XLF drops to say 30, you’ll buy at 32 then sell the September 32 calls for whatever the going rate?

  8. Chris says:

    well the 12,800 is in margin, in reality I have more margin than that but didn’t wnat to get all margined out..and yes they are august 32 puts…my basis would be around 31.50 and then I can do sept. calls if I choose but looking at the chart 32 seems like pretty good support so I’m banking on the fact that I won’t get called…if I do it’s not the worst thing in the world as I’ve been trading pretty well this year so far, up over 20% on the year and now with having level 3 options I have more maneuverability within the system if I need it :) Let me know if you got any experience with nakeds :)

  9. jon says:

    I sold 10 sept 62 XLE puts for .80 hopefully oil will stop its free fall so I don’t get assigned. I am glad to find this sight I only sell options on ETF’s

  10. RichSlick says:

    Oil may drop a little more and that’s a hefty 62k assignment. I’ll check the stats on my ETF-Cashinator and Putinator tomorrow to see how they look.

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