Tuesday, July 30, 2013

Rolled C Covered 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 moved mostly sideways over the past few days.  CCI took this opportunity to harvest a little option premium and provide a little more head room with the covered call. . Specifically, the Aug 9 $52,50 call was rolled to the Aug 23 $53 call for a credit of $.23/contract.

Since inception on Jan 8, the performance of various holdings are shown below

  • The XLF etf is up a very nice 20.1%! (including dividends)
  • The leverage obtained by instead simply holding the Jan 15 $10 call would have returned 48.8%.
  • The leveraged long/short strategy defined in this thread is up 42.4%.
Careful readers will notice that these results are very similar to those in the most recent post on this topic.  The main difference being that the hedged position is essentially flat, while the unhedged positions were down 1-2%. 

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.

Sunday, July 28, 2013

Rolled EEM Covered Call Out One Week

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:  Roll Out 
Emerging market stocks moved sideways again this week.  CCI rolled the covered call out one week as described below. 

TRANSACTION DATE: Fri. Jul 26
Action: Buy to close  
Exp. Date: July 26, 2013 
Strike: $40
Price: $.01

Action: Sell to Open  
Exp. Date: Aug 2, 2013 (one week out) 
Strike: $40
Price: $.28

Net credit/contract: $.26 after commissions

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 direction...lol)  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.



Rolled QQQ Covered Call Out One Week

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: Establish
DESCRIPTION:   QQQ traded almost exactly flat over the past few days. CCI decided to harvest some of the option premium profits generated from time decay by rolling weekly QQQ covered call out as described below

TRANSACTION DATE: Tues 7/23/13
Action: Buy to Close
Exp Date: July 26, 2013
Strike: $75
Price: $.13
Action: Sell to Open
 Exp. Date: Aug 2, 2013 (out one week) 
 Strike: $75
 Price: $0.34

Net Credit: $.19/contract after commissions

Sunday, July 21, 2013

ICC Q2 Performance Summary

CCI's accounting department (i.e. me) has been busy putting together spreadsheets of q2 results for the five index covered call positions.  After running these results past our staff auditors (me again), the technical staff (yes, me again) have posted q2 results for the ICC results and Buy & Hold below.

                                                      ICC                B&H
                                                Q2      YTD          YTD               Variance
SPY                                        2.1%     9.9%         13.7%           -3.8%
IWM                                      -0.5%    6.1%         15.1%           -9.0%
QQQ                                      3.1%     7.6%         11.8%           -4.2%
EEM                                      -8.7%   -9.1%       -12.1%           + 3.0%
TLT(10 yr Bond)                     -4.6%   -5.3%        -7.8%            + 2.5%

Some Observations

  • As expected the covered call approach has over performed in down markets and under performed in up markets (i.e less volatility). 
  • The under performance of the IWM covered call position is troubling. Perhaps the higher volatility of this index requires an adjustment in strategy to either shorter duration options being sold or quicker position exits.  Stay tuned.
  • Over the past 6 months the stock market has basically gone straight up. That is the best environment for B&H.  If the stock markets continue to climb at double digit rates, hedging via covered calls will continue to under perform.  However, "trees don't grow to the sky" so  it would seem like a pull back and/or sideways market movement might occur sometime this year.  In this case, the covered call strategy should be beneficial. 
  • FYI, YTD performance for an etf offering a covered call strategy for the S&P 500(PBP) is up 4.2%.  That is substantially less than the ICC SPY position (up 9.9%).  I'm not sure what exactly is causing that difference, but it does appear that investors should be aware that all covered call strategies are not exactly the same.

Friday, July 19, 2013

Re-establish QQQ Covered Call

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: Establish
 
DESCRIPTION:   Re-established a covered call position in QQQ as described below.

TRANSACTION DATE: Fr. 7/19/13
Action: Buy Stock
Strike: $74.52
 
Action: Sell to Open
 Exp. Date: July 26, 2013 (out one week) 
 Strike: $75
 Price: $0.32
 

Net Debit: $74.22/contract  after commissions

Thursday, July 18, 2013

Rolled EEM Covered Call Out and Up

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:  Roll Out and Up
Emerging market stocks moved sideways this week allowing an opportunity to harvest some option premium from the covered calls via the transaction described below. 

TRANSACTION DATE: Thur. Jul 18
Action: Buy to close  
Exp. Date: July 20, 2013 
Strike: $40
 Price: $.,06

Action: Sell to Open  
Exp. Date: July 26, 2013 (one week out) 
Strike: $40
Price: $.31
Net credit/contract: $.23 after commissions

Rolled S&P 500 Covered Calls 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:  SPY   
DESCRIPTION: SPDRs S&P500

TRANSACTION TYPE: Roll the July $166 call to the Aug $171 call
TRANSACTION RATIONALE:  The S&P 500 has moved up over 4% in the past few weeks causing this hedge to be a drag on performance. The covered call was rolled out to August as described below.

TRANSACTION DATE: Thur. July18, 2013

Action: Buy to Close
Exp. Date: July 20,  2013
Strike: $164
Price: $.4.78

Action: Sell to Open  
Exp. Date: Aug  17, 2013  
Strike: $171
Price: $1.28

Net debit: $3.59/contract after commissions.

Tuesday, July 16, 2013

Apple LEAP Position Closed/Suspended During Earnings Season

As last discussed here CCI has been  long the Jan $300 AAPL call, and has been selling shorter term calls against that leveraged position.  

Today CCI closed this position.   The initial rationale for this trade is that Apple has a good potential to trade sideways as the bulls/bears fight over the positive factors such as of a low valuation and negative factors such as the potential for competitors  driving downs their margins.  In general, CCI continues to believe in that thesis.  However, Apple reports earnings next week, and with that event comes the potential for short-term volatility in the stock price.  CCI (and most investors) really have no particular insight/edge as to contents of the earnings release and how the market might react to the announcement.  Hence CCI is going to move to the sidelines through the earnings period.

After earnings, CCI is still inclined to believe Apple will settle into a trading range.  CCI will be looking to re-establish this type of position (especially on a pull back in price) via a long Jan 15 LEAP and a short position in nearer term calls.

The position just closed was established on March 1.  During that 4+ month period of time
  • Apple stock essentially flat (down .5%) but paid dividends (1.3%) for a total return of just .8%
  • The CCI Index Covered Call (ICC) position collected a total of 10.8% in option premium on five different short call positions. However, the long LEAP position lost 5.2%.  Hence, overall, the ICC position returned 5.6%  
Returns of 5.6% vs. .8% is a good thing, but not as good as things could have been if Apple stock would have drifted just up a little bit.

Of course the risk profile for this long/short approach is not the same as holding the stock. Perhaps some reader would like  to calculate and compare a Sharpe Ratio or other theoretical  risk adjusted rate of return for the two alternatives.    However, from a common sense perspective, CCI is trying to offset the increase of risk from the leverage provided by the LEAP by holding short option positions, and a belief that the fundamental low valuation of Apple stock provides some sort of floor in the stock price. Hopefully, whatever the net amount of increased risk taken by that approach is worth the potential increased reward.
Over this short period of time, improving results by seven times seems like a good reward for the increased risk....but as they say....past returns are no guarantee of future results.

Stay tuned shortly after Apple earnings next week for a potential re-establishment of this type of position

Rolled IWM Covered Call

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 Out and Up
Small cap. stocks  moved up over the past weeks, and with a few days until expiration it was time to roll the covered call position as described below.

TRANSACTION DATE: Wed. July 16
Action: Buy to close
Exp. Date: July 20, 2013

Strike: $99

Price: $4.01
Action: Sell to Open

Exp. Date: Aug 19, 2013

Strike: $105

Price: $1.04
Net Credit/Contract after commissions: $3.05

Monday, July 15, 2013

EEM Covered Call Rolled

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:  Roll Out and Up
Emerging market stocks moved up last week and CCI rolled the covered call position up and out in the two transactions described below. The $38.50 covered call lost about $.25.contract.
 
TRANSACTION DATE: Fri 7/12/13 & Mon 7/15/13
 
Action: Buy to close  
Exp. Date: July 12, 2013 
Strike: $38.50
 Price: $.48
 
Action: Sell to Open  
Exp. Date: July 20, 2013 (one week out) 
Strike: $40
Price: $.22
 
Net debit/contract: $.28 after commissions

Sunday, July 14, 2013

Closed Position in QQQ and Covered Call

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: Close

DESCRIPTION:   The Nasdaq had a nice rally the past week pushing the ETF well above the strike place of the covered call held in the portfolio. Given this situation CCI closed the position on Friday as described below.  This position was established on 5/29. Over the approximately six week holding period the position returned a modest 0.7% return while the index itself returned 2.6% over the same period. Not a great result.  However, this is consistent with expectations for this approach of under performing in an up market. At least the approach continues to grind out positive returns. CCI anticipates re-establishing this position in the upcoming week. 

TRANSACTION DATE: Fri. 7/12/13

Action: Buy to close
Strike: $72

Exp. Date:  July 12, 2013

Price: $3.00
Action: Sell QQQ

Price: $75.19



Tuesday, July 9, 2013

Apple Covered Call Expires

As previously discussed cci is long the Jan $300 aapl call, and has been selling shorter term calls against that leveraged position.  This past weekend the July $465 call expired worthless, resulting in a $5.73 realized profit.

Since inception

  • Buying and holding Apple stock would have resulted in a 1.4% loss (including dividends).
  • Buying the $300 leap would have resulted in a 9.9% loss.
  • CCI's LSO approach has resulted in a .9% gain
A nearly 1% gain vs. Over a 1% loss is not that spectacular,  but still favorable.  Apple earnings will be announce shortly which can create some risk/volatility for this position.  In the coming days cci will be evaluating reestablishing a covered call to try to harvest potentiality higher option premiums available around earnings, or simply closing the position, with the probable intent  of reestablishing it after earnings.

Wednesday, July 3, 2013

Rolled EEM Calls Out and Up

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:  Roll Out and Down
Emerging market stocks stabilized this week, and CCI used this pause to roll out and up the covered call position in EEM as described below.
 
TRANSACTION DATE: Wed 7/7/13

 
Action: Buy to close  
Exp. Date: July 5, 2013 
Strike: $38
 Price: $.23
 
Action: Sell to Open  
Exp. Date: July 12, 2013 (one week out) 
Strike: $38.50
Price: $.26
 
Net credit/contract: $.01 after commissions

Rolled QQQ Covered Calls

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:   With a short holiday week and the market not moving too much, CCI rolled the July 5 $72 call in QQQ out to July 12 to provide more time/premium potential.  The July 5 call was closed at essentially no gain. 
 
TRANSACTION DATE: Wed. 7/5/13
Action: Expired
Strike: $72
Exp. Date:  July 5, 2013
Price: $0.23
 
Action: Sell to Open
 Exp. Date: July 12, 2013 (out one week) 
 Strike: $72
 Price: $0.53

Net Credit: $.27/contract after commissions

Monday, July 1, 2013

Re-established Covered Call in C

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).

Just last week, CCI closed the hedge/covered call in C.  Over the past few days C and the rest of the financial stocks have rebounded nicely. Hence, CCI re-established a hedge against the long calls in the financial ETF XLF held in the portfolio by selling the July 26 $52 call in C for a credit of $.30 after commissions.  


The July 26 strike was selected to potentially provide enough time for any volatility generated from mid July earnings announcements from C (7/15 earnings) and other large banks to play itself out.  The $52 strike was selected because of its relatively large distance out of the money (18 delta), technical chart levels, and providing the potential to roll to many $52.50 strikes further out in the future if the stock moves sharply higher.  

To-date, the combination being leveraged long the financial stocks via XLF hedged by this type of short position has worked well.  Hopefully this strategy will continue to generate increase returns  but it already has generated enough option premium to have provided a good hedge against a downward move in the market.  Most likely this position will be held to/through C's earning announcement on July 15 and then adjustments will likely be required.