Re-established Covered Calls in EEM

The Index Covered Call Trading Plan  (aka: ICC) is CCI's approach for managing a position of index ETFs and related covered calls.  The most recent trade against this plan is described below.  A reader can find details about the rational and management of the trades at the ICC trading plan tab on CCI's home page.
  

UNDERLYING ETF: EEM    

DESCRIPTION: iShares Emerging Market Shares 

TRANSACTION TYPE: Covered Call

Frequent readers know that the ICC Trading Plan has called for selling weekly covered calls against an EEM. This strategy has worked well given the relative sideways movement of EEM, the high implied volatility in the options and options priced in $.50 increments.  Much to my chagrin, this week there were no $.50 increment option in EEM.  I'm not sure if this is a one time development or a permanent change.  In any event, if forced to choose between strikes $1 wide (almost 2.5% wide) the trading plan will have to be adjusted to select options with more duration.  In conjunction with that change CCI will be examining which other index might be worthwhile to decrease the option strikes selcted to one-week to preserve the time diversification of the strategy.

 

That leads to this weeks EEM  trade described below.

TRANSACTION DATE: Mon. 3/28/13 

Action: Sell to Open  

Exp. Date: Apr. 12, 2013 (two weeks out) 

Strike: $43.00 

Price: $.30 

 

Net Credit/contract: $.29 after commissions

Rolled Short Call in C, Out and Up

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

* * *  

As discussed in this March 14 post CCI rolled out the short position in C with that hopes that a little more duration would allow noise about the stress tests and capital plans of the banks to settle into the market, and potentially cause a small pull back in C.  Not sure if that thesis was right, but then along comes the "Cyprus crisis". This seems to cause the bank stocks to gyrate.  This created the opportunity to roll the short side of this trade. On Monday, CCI rolled the March 28 $44 call to the April 12 $44.5 call for a $.23/contract credit.  FYI, C reports earnings on Apr 15.

Since the position was established on Jan. 8 the approximate performance numbers are

• 6.6% - simply holding xlf
• 14.8% - holding the Jan $15 Leap (due to the increased risk/reward of the leverage)
• 11.9% - the combined position described here

Currently, this position is providing a nice balance of leveraged returns with some downside hedged protection. There is plenty of time left on the position (Jan 15) to see how it evolves.

Rolled QQQ Covered Call Position

The Index Covered Call (aka: ICC) trading plan is CCI's approach for managing a position of index ETFs and related covered calls.  The most recent trade against this plan is described below.  A reader can find details about the rational and management of the trades at the ICC trading plan tab on CCI's home page.

UNDERLYING ETF: QQQ 
DESCRIPTION: Power Shares NASDAQ 100 

TRANSACTION TYPE: Roll

 

 DESCRIPTION:   QQQ pulled back last Thursday and CCI took some option premium profits ($.23 or .33%) by rolling the covered call position as described below. 

 

TRANSACTION DATE: Thurs. 3/21/13

Action: Buy to Close

Exp. Date: Mar 28, 2013

Price: $.11

 

Action: Sell to Open

 Exp. Date: Apr. 12, 2013 (out an additional 2 weeks ) 

 Strike: $68.5

 Price: $.53

 

Net Credit: $.39/contract  after commissions

Cyprus "Events" = Time for TLT Covered Calls

The Index Covered Call Trading Plan  (aka: ICC) is CCI's approach for managing a position of index ETFs and related covered calls.  The most recent trade against this plan is described below.  A reader can find details about the rational and management of the trades at the ICC trading plan tab on CCI's home page.

UNDERLYING ETF:  TLT   

DESCRIPTION: iShares Barclays 20+ Year Treasury Bond

TRANSACTION TYPE: Established Apr $119 Covered Call

TRANSACTION RATIONALE:  As discussed  here another covered call candidate is the long term bond ETF.   With the Cyprus banking system making the US banking systems look good, and EU dysfunctional bureaucrats making US bureaucrats look like the picture of rationale, stability the US bond market is getting a "safe haven bounce".   CCI used this situation to re-established a covered call position of this bond etf as shown below. 

TRANSACTION DATE: Tues.  Mar. 19, 2013

Action: Sell to Open

Exp. Date: Apr. 20, 2013

Strike: $119

Price: $0.81

 

Net credit: $0.76/contract after commission

Monday's EEM Activity

The Index Covered Call Trading Plan  (aka: ICC) is CCI's approach for managing a position of index ETFs and related covered calls.  The most recent trade against this plan is described below.  A reader can find details about the rational and management of the trades at the ICC trading plan tab on CCI's home page.
  

UNDERLYING ETF: EEM    

DESCRIPTION: iShares Emerging Market Shares 

TRANSACTION TYPE: Covered Call

Emerging market stocks fell over the past week, and last weeks covered call expired worthless  With EEM trading around $42.50 today CCI re-established a covered call position for the week as shown below.  Obviously not a very large premium collected this week, but every little bit helps.

TRANSACTION DATE: Mon. 3/18/13 

Action: Sell to Open  

Exp. Date: Mar. 22, 2013 (one week out) 

Strike: $43.00 

Price: $.10 

 

Net Credit/contract: $.09 after commissions

Sold Call Against Apple LEAP

Apple (AAPL)“surged” about 2.5% Friday to $443.  Possibly because

• Samsung's new phone announcement did not blow away expectations.
•  Possibly because Bill Miller was on CNBC Friday morning highlighting the low valuation of Apple especially compared to Google and Samsung. He also suggested that long dated calls in Apple might be a good strategy. Of course readers of Common Cents (see here) already know this and it did not even cost them 2 and 20...lol

Whatever the reason for the gyration of Apple stock., CCI took the opportunity to sell an April $480 call for $3.45 after commissions. This short call position somewhat offsets the Jan 15 $300 call the portfolio is long. The $480 call was selected because it is slightly above technical resistance of the 50dma and just above the gap down level from the last round of earnings. (i.e. I'm thinking the stock won't get that high that fast)

A few scenarios:

• Worse Case – As previously discussed the long LEAP is a leveraged position. Hence the biggest risk in this overall position by far is Apple stock price falling. Hopefully, Apple's low valuation minimizes the risk of that happening.  However, to try to reduce this risk, the sale of this call reduces the capital at risk in this position be 2.5% and lowers the break even point to $434 (1%). Obviously those are small changes, but every little bit helps. Further, if the stock stalls/falls from this point the opportunity to repeat this process many times before Jan 15 will exist. Hopefully, over time these small reductions in risk will add up to a reasonable risk reduction.

• Best Case – Apple climbs back over $480 in the next month. (FYI, while I don't expect Apple to move that far that fast, that level is only 9% form here, and according to option pricing theory there is about a 1 in 3 chance of the stock touching $480 before April expiration.) As the stock climbs past $480, the profit on the trade will be capped near 30% . If this happens, CCI will be “forced” to take that profit and re-evaluate any Apple position going forward.

• "Expected" Case – The stock trades in the mid $400s for the next month. CCI pockets all/most of this option premium and repeats the process with an option a little further out in time.

March Madness Buzzer Beater - Rolled IWM Up and Out

The Index Covered Call Trading Plan  (aka: ICC) is CCI's approach for managing a position of index ETFs and related covered calls.  The most recent trade against this plan is described below.  A reader can find details about the rational and management of the trades at the ICC trading plan tab on CCI's home page.

UNDERLYING ETF:  IWM   

DESCRIPTION: iShares Russell 2000

TRANSACTION TYPE: Roll

Held this position until the final hour (something I don't usually like to do) but the market never provided any even small pull back to use as an opportunity to roll the position.   The upward movement in the underlying means that the covered call contract was a drain on performance over the past month.  With IWM trading around $94.60 this afternoon, the covered call position was re-established by rolling up and out as shown below.

 

TRANSACTION DATE: Fri March 15

Action: Buy to close

Exp. Date: Mar. 16, 2013

Strike: $92

Price: $2.66

 

Action: Sell to Open

Exp. Date: Apr. 20, 2013

Strike: $96

Price: $0.73

 

Net Cost/Contract after commissions: $2.02

QQQ Covered Call Position Re-established

The Index Covered Call (aka: ICC) trading plan is CCI's approach for managing a position of index ETFs and related covered calls.  The most recent trade against this plan is described below.  A reader can find details about the rational and management of the trades at the ICC trading plan tab on CCI's home page.

UNDERLYING ETF: QQQ 
DESCRIPTION: Power Shares NASDAQ 100 

TRANSACTION TYPE:Re-establish Buy/Write

 

 DESCRIPTION:  The continual move up of  QQQ continually and the old position in QQQ was assigned on Friday.  Over the holding period of this lot (since 12/13/12) the position gained 4.0%.  Simply buying and holding the QQQ over the same period would have gain 5.5%.  So as expected, the covered call portfolio underperformed in an up market.  That is the price an investor pays for improved performance in less robust markets.The position was re-established with the trade below.

 

TRANSACTION DATE: Fri. 3/15/13

Action: Buy 

Price: $68.45

 

Action: Sell to Open

 Exp. Date: Mar.28 , 2013 (out 2 weeks ) 

 Strike: $69

 Price: $.35

 

Net Debit: $68.13  after commissions

Rolled Option in Citigroup (C) Against XLF Position

As discussed here, CCI has a long position in the financial sector etf (xlf) via the Jan 15 $10 LEAP, hedged via  and a a shorter term short call in Citigroup (C).

* * *

With only two days until March expiration, CCI rolled the Mar $44 call in C out two weeks to the Mar $28 $44 call for a modest credit.  The intent of the relatively short duration roll was to give more time for information about the stress tests and capital plans of the banks to settle into the market.

Since the position was established, simply holding xlf would have gained 7.4%.  This specific position benefits from the leverage generated by substituting a LEAP for the ETF but has suffered because  the rapid rise in Citigroup stock has made the hedge a liability.  Those offsetting situations result in this specific position being up only 6.3% at this point in time.     Less than ideal, but that is the cost of having the hedge in place and seeing the market go up.  However, there is plenty of time left on the position (Jan 15). The hedge will provide more value in the event the market levels off or pulls back. .

Rolled SPY Covered Calls Up and Out...Again

The Index Covered Call Trading Plan  (aka: ICC) is CCI's approach for managing a position of index ETFs and related covered calls.  The most recent trade against this plan is described below.  A reader can find details about the rational and management of the trades at the ICC trading plan tab on CCI's home page.

UNDERLYING ETF:  SPY   

DESCRIPTION: SPDRs S&P500

TRANSACTION TYPE: Roll the March $154 Call to the April $157 Call

TRANSACTION RATIONALE:  The market continues its melt up and Mar. option expiration is here, so it was time to take the loss on the covered call, preserve the gain in the underlying and move out to the April expiration.

TRANSACTION DATE: Wed.   Mar. 13, 2013

Action: Buy to Close

Exp. Date Mar. 16, 2013

Strike: $154

Price: $1.73 Action: Sell to Open Exp. Date: Apr. 20, 2013 Strike: $157 Price: $1.18

 

Net debit: $.64/contract after commissions.

Rolling Options in Gold at a Loss

As last discussed here,  CCI continues to get portfolio exposure to gold via holding options in the gold etf (GLD) and funding that purchase via selling puts in the gold miners etf (GDX).

 Since CCI views gold as primary a hedge against a down market, and the market has pretty much been going straight up this year,  a drop in gold should be expected and.... it has indeed dropped!     With only three days until expiration, CCI rolled the short put position in GDX from the Mar. $45 strike to Apr. and all the way down to the $36 strike.  The proceeds from the sale of these puts was used to buy an Apr$156 call in GLD.

The March GDX option lost a whopping 15.3% of the cash secured value. That is about twice the drop of just holding gold. Hence, this strategy has not met its objective of losing less than gold when the price falls.  This discrepancy is because the gold miner stocks have gone down a lot more than gold .  Hopefully the correlation between those entities will revert to its mean over a longer time period, and the portfolio will recoup that underperformance at that time.

   CCI continues to pursue this approach and current holdings are:

• Short 3 Apr $36 GDX puts for every 1 long Apr $156 call. 
  
• Short 3 June $39 GDX puts for every 1 long Jun $162 call.

GDX and GLD closed the trading day at day trading at $36.92 and $153.71 respectively. 

Monday's EEM Buy/Write Trade

The Index Covered Call Trading Plan  (aka: ICC) is CCI's approach for managing a position of index ETFs and related covered calls.  The most recent trade against this plan is described below.  A reader can find details about the rational and management of the trades at the ICC trading plan tab on CCI's home page.
 

UNDERLYING ETF: EEM    

DESCRIPTION: iShares Emerging Market Shares 
TRANSACTION TYPE: Buy/Write

Emerging market stocks rebounded last week and the stock was called away by last weeks option position. During the holding period of this lot of stock the capital loss in the stock was almost exactly equal to the  premium collected.  Since the stock was called away,  this Monday the full position was re-established.   

TRANSACTION DATE: Mon. 3/11/13 

Action: Buy Price: $43.82

 

Action: Sell to Open Exp. Date: Mar. 16, 2013 (one week out)  Strike: $44.00 Price: $.20 

 

Net Debit/contract: $.43.67 after commissions

If Its Monday, It Is Time to Sell a Call in EEM

The Index Covered Call Trading Plan  (aka: ICC) is CCI's approach for managing a position of index ETFs and related covered calls.  The most recent trade against this plan is described below.  A reader can find details about the rational and management of the trades at the ICC trading plan tab on CCI's home page.

UNDERLYING ETF: EEM    

DESCRIPTION: iShares Emerging Market Shares 

TRANSACTION TYPE: Sell Call to Open. 

Emerging market stocks continue to drift lower, and last weeks covered call expired.  Time to put this weeks call back on.     

TRANSACTION DATE: Mon. 3/4/13

Action: Sell to Open
Exp. Date: Mar. 8, 2013 (one week out) 
Strike: $43.00
Price: $.24

Net Credit/contract: $.23 after commissions

Taking a Bite of the APPLE

Many investors in the technology sector debate the relative merits of Apple and Google.   CCI missed the early and large run in Apple over the past several years.  However, as documented  here, CCI believes Google (Goog) would be the better investment than Apple of the past year.  Not to say I told you so but...Google is now trading up to over $800 and Apple down to around $430.

At this point,  Google's TTM P/E is now 25 while Apple's is now single digits. While CCI still believes Google is more likely to be the technology leader,over the longer term, these valuations levels make a compelling case for an Apple now. 

Apple (AAPL) hit a 52 week low on Friday and CCI decided it was time to take a bite of the Apple. My overall thesis is not so much that Apple will soar back to $700, but rather believe/hope that the bull/bear debate about Apple will mean there is a high probability of trading in a range over the next year or two.  To try to capitalize on that thesis, with Apple trading around $433, CCI bought the January 14, $300 call for $137/contract.  In its simplest from this is a long position in Apple leveraged about 3x.  To offset the risk of this leverage and try to capitalize on a potential sideways volatility of Apple CCi intends to sell call against this position.

Stay tuned.
,

Rolled QQQ Calls Out and Up....Again

The Index Covered Call (aka: ICC) trading plan is CCI's approach for managing a position of index ETFs and related covered calls.  The most recent trade against this plan is described below.  A reader can find details about the rational and management of the trades at the ICC trading plan tab on CCI's home page.

UNDERLYING ETF: QQQ 
DESCRIPTION: Power Shares NASDAQ 100 

TRANSACTION TYPE: Roll

 

 DESCRIPTION:  Rolled the QQQ covered calls out two weeks and up $.50.  The Mar. 1 calls generate a modest profit in a week  (Sold at $.88 bought back at $.60).  Moving out to $67 strike gets the position to nearer to OTM  where we would ideally would like to return the option position. 

 

TRANSACTION DATE: Thur. 3/1/13

Action: Buy to Close

Exp. Date: Mar. 1, 2013 (weekly) 

 Strike: $66.50

Price: $.60
 

Action: Sell to Open

 Exp. Date: Mar.16 , 2013 (out 2 weeks ) 

 Strike: $67

 Price: $.79

 

Net Credit: $.14  after commissions