Options Expiry Update July 2008

Arbitrage Account:

  • Own 800 XHB @ average cost of $21.26 (400 @ $22.72, 400 @ $19.80) : XHB closed at $17.01 (position at -$3,400)
  • Own 400 DDM at cost of $74.30 : DDM closed at $62.35 (position at -$4,780)

Mini Account:

  • Own 200 DDM at $77.80 : DDM closed at $62.35 (position at -$3,090)

Power Account:

  • Own 500 DDM at $71.95 : DDM closed at $62.35 (position at -$4,800)
  • Own 200 QID at $46.75 : QID closed at $45.25 (position at -$300)
  • Own 200 SSO at $66.30 : SSO closed at $59.37 (position at -$1,386)
  • Sold 2 SSOGO for $2.00, these options expired worthless
  • Sold 2 SSOSM for $1.65, these naked puts will be assigned and I’ve been assigned 200 SSO at $65.00
  • Sold 2 SUCTC for $2.80, these naked puts will expire/assign during August expiry (August $55.00 Strikes)

So the potential for profits here are in SSO, DDM and QID for August (or later) expiry. SSO August $65 calls are trading for $0.60 or about 1% return in under 28 days. DDM October $72 strikes are selling for $1.40 or about 2% return in 3 months. QID August $47 strikes are trading at $2.20 or 4.5% in under 30 days. Profit opportunities are not quite ideal except on QID so I’ll hold until better opportunities surface.

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4 Responses to Options Expiry Update July 2008

  1. Damian says:

    Question – when you say a position closed at -3,800, what does that mean vs. your options position?

  2. RichSlick says:

    It means that as of Friday, if I liquidated all my positions, I would be negative from where I started. This doesn’t include any adjustments for profits made during shorting (e.g. selling calls). To see the profits click on the tabs at the top labeled: Power Funds, Arbitrage, Mini at the top.

    In terms of XHB, I bought 400 at $22.72 then 400 more at $19.80 for an average of 800 shares at $21.26. Because XHB is at $17.01, I have a paper “loss” of $3,400.

    So if I panicked and sold all my shares on Monday for $17.01, I would have lost $3400 (minus profits from calls). I have no intention of selling, the preferred way of selling my positions is to be called after selling short during expiry.

    So with XHB, I could sell January $23 strikes for about $0.50 and earn $400 (or 2% in 6 months). It’s not the greatest return so I’ll wait for XHB to climb back to around $20 then sell January $23 strikes for about $1 or $1.50, otherwise I’ll ride it out.

    I started posting during expiry my positions because people were asking me about updating my portfolio positions periodically. Let’s face it, the market is down but as long as you don’t sell and the market recovers, those positions will revert (eventually) to where you bought them.

    I also have a cash position of about 50k right now.

  3. The Travelin' Man says:

    I have a question for you. On these positions with theoretical losses right now, would you consider selling DEC calls sometime in November for a strike price at/near the money – even if it is still in the red – in the hopes of cashing out the position at a loss, and taking a little tax advantage?

    For example, in your example above, if you could sell XHB calls for $1 premium – but, only at $19 – would that be something to consider? I realize that everyone’s thinking will be slightly different on this – and the real advantage is in off-setting short-term cap gains, but it seems like it might make sense for some folks, no?

  4. RichSlick says:

    I wouldn’t do that and sell for a loss unless I felt this market was going to deteriorate horribly more from here.

    If you need to unwind some positions then the strategy you lay out would be prudent. I’m fairly confident that XHB will recover toward the latter part of the year. The government is, in theory, supporting the GSE’s and Congress will likely pass some sort of housing bill. This along with November elections will set a different mood and give the markets some confidence.

    The ONLY thing I can think of that would derail the whole market is war with Iran or some disaster that sends oil rocketing to $200/barrel. If that happens, all bets are off and every man for himself.

    I have large losses that are tied to one ETF: DDM (Double Dow leveraged) and I’m comfortable holding the Dow 30 long term; other than that, most of my positions have been very profitable.

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