Wednesday, July 24, 2013

Rolled C Short Call Up and Out

As discussed here CCI has a long position in the financial sector etf (xlf) via the Jan 15 $10 Call, that has usually been hedged via a shorter duration short call in Citigroup (C).

Both the XLF etf and C have continued to move up over the past few weeks.  With the short call position in C nearing expiration (Friday), CCI used today's minor pull back to roll out and up this option position. Specifically, the Jul 26$52 call was rolled to the Aug 9 $52.50 call for a credit of $.27/contract. As expected in an up-market, the July 26 short call hedge acted as a drag to overall performance losing a modest $.07/contract.

Since inception on Jan 8, the performance of various holdings are shown below
  • The XLF etf is up a very nice 21.1%! (including dividends)
  • The leverage obtained by instead simply holding the Jan 15 $10 call would have returned 50.9%.
  • The leveraged long/short strategy defined in this thread is up 42.7%.
Obviously, being long a market that goes up 21% is going to be a good thing! (if only all my selections went 20% in the right  This approach, which doubled the returns with the leverage of the Leap while somewhat offseting the related risk with the short call position, has worked well.

As described above, the position remains in place. Most of the big financial services firms (especially C) earnings reports are complete, and the usual August market doldrums are seemingly starting.  Hopefully, that creates a dull/drifting market for the next few weeks in which this position will continue to perform well.

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