ETF Covered Calls 07-17-2009

July expiry is here and OIH didn’t breach the $110 mark so I’m still holding on to those 400 shares of OIH.   The August and October options look fairly savory but I may opt to simply liquidate.   If things with the economy don’t improve soon it’s not out of the question for oil to drop down to $30 or $20 per barrel in the upcoming months.   The ETF-Cashinator is showing a great deal of volatility for August calls & puts so no reprieve there.

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2 Responses to ETF Covered Calls 07-17-2009

  1. davmp says:

    Since OIH is a fund of oil services rather than oil itself, how much of an impact do you think OIH would see if oil prices did drop to $30/barrel? Given the long term nature of most oil service contracts am I wrong in expecting little short-term correlation?

    BTW, could you help me understand something? I just took a look at OIH options for Jan10 and noticed that there are a number of different symbols for the exact same strike. i.e. a $110 strike has symbols DXM AV, OIH AB, LGO AE, and KXN AV — all sporting different bids and asks. Am I correct that these are simply longer term options (such as LEAPs) that just happen to coincide with expiration in Jan? Or is something else going on?

  2. RichSlick says:

    You are correct, OIH is an oil services ETF rather than an Oil ETF but that’s the point. Oil Service companies (drilling & exploration) are driven by demand for oil and gas. If oil is $30/barrel that means no one wants oil, demand is slow. This in turn means no company is going to shell out big bucks (day rates) for OIH companies. For OIH to do well Oil needs to be above $70/barrel and natural gas needs to be above $7/mBTU. Anything less and OIH companies bleed….some to death.

    As for your second question, the Jan strikes are for different reasons. Some are LEAPS other are ADJUSTED options.

    You can get a quick primer on adjusted options here
    http://www.optiontradingpedia.com/adjusted_options.htm

    You can read about adjustments here.
    http://www.optionsclearing.com/market/infomemos/info_memos_form.jsp

    ADJUSTED options occur for various reasons. For example, OIH has

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