Saturday, January 11, 2014

Rolled C Short Call Position 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).

Financial stocks have had a nice run recently.  This week, CCI rolled the short call in Citigroup as a hedge against the long, leveraged position in XLF held in the portfolio.  Specifically,  this week CCI

  • bought back the Jan 10 $53 call in C at $2.08
  • sold the Jan 24, $54 call in  C at $1.63
Unfortunately for this trade, during the most recent period C has materially outperformed the XLF index. That occurrence means the short call in C acted to mute the positive performance over this period.  CCI believes/hopes that there is a good probability for C to revert to the mean over the coming period.   Hence CCI decide to sell  an ITM call this time.  This essentially buys more time for this mean reversion to happen. C reports earnings next week so it is highly likely this option position may need to be adjusted fairly quickly. Stay tuned.

This position was initiated on  Jan 8, 2013, almost exactly a year ago. The performance of various potential holdings as of the close of trading on Friday Jan 10, 2014  are shown below:
  • The XLF etf has been up with the rest of the market. Just buying and holding the XLF over this period would have returned a very nice 30.4 %.  That is comprised of 28.5% unrealized  cap gain, and 1.9% in dividends. (May all my holdings perform like
  • The leverage obtained by instead simply holding the Jan 15 $10 call would have generated an eye popping unrealized, leveraged, capital gain of 70.0%.  (leverage is great when it works!!!)
  • The leveraged, long/short strategy defined in this thread is up 56.8%.  An outstanding gain with somewhat less risk/leverage than holding a naked  LEAP

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