Rolled Covered Call in C to Refresh the XLF Hedge

Earlier in the week C reported earnings and disappointed the market.  Further, the market and financial stocks (Specifically both XLF and C which are held in this paired option position) fell today.  This drop in price exhausted most of the hedge the short call was providing to this position.  Hence CCI harvested the option premium and rolled the position as described below.

• Bought back the Feb 22, $55 call in C at $.11 (capturing a $.93/contract profit)
• Sold the Feb 28 (out an additional week), $52.50 call in C for a $.42/contract credit.

This position was initiated on  Jan 8, 2013. The performance of various potential holdings as of the time of this trade 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 25 %.  Down about 4% since the last post. 
• The leverage obtained by instead simply holding the Jan 15 $10 call would have generated an  unrealized, leveraged, capital gain of 56.6%.  This is down over 10% since the last post
• The leveraged, long/short strategy defined in this thread is up 52.4%.  An outstanding gain with somewhat less risk/leverage than holding a naked  LEAP. Only down 3.9% since the last post.

Lucky with Leverage in Apple

CCI set out to re-establish a long/short option position in Apple as done with this and other stocks in the past.  CCI planned to buy a deep ITM call leap position in Apple  (APPL) before next weeks earnings, and to somewhat hedge that position by selling short term calls against that long position.

This morning CCI

• Bought  Jan 15 $400 Call for $150
• Sold Jan 31, 14 $580 call for $4

The intent was to hold this position through next weeks earnings, and some of the noise created by Carl Ichan's activism in Apple.  As it turns out,  CCI "brilliantly" (aka: luckily)  caught the bottom of today's Apple trading range.  By late in the afternoon, Apple had reversed and traded up by 1.5% from the time of purchase.   CCI just took quick profits by the following transaction

• Sold Jan 15 $400 call for $156.50
• Bought Jan 31, 14 call for $5

That is a gain of $5.50 per contract or a nice 3+% gain in a few hours.

CCI may look to re-establish the original  position in the near future, especially if Apple sells off going into their earnings announcement. .

Deja Vu - 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).

Just after rolling the C covered call last week, financial stocks (Both XLF and C) fell.  As discussed in the last post, CCI had aggressively rolled the covered call in C "hoping for" a short term reversal to the mean.  That essentially happened just a few days later.  Better lucky than good!  So it was time to recapture some option premium lost in the last roll and re-establish a somewhat less aggressive position as described below:

• bought back the Jan 24 $54 call in C at $0.97 (sold at $1.63 last week)
• sold the Feb 22, $55 call in  C at $1.08 (for an $.11 credit)

C still reports earnings this week, so this option position will still require monitoring and perhaps some adjustment.  However, baring an earnings blow out, this option position it is now at a place where there is a reasonable  probability of getting all the way back to a conservative covered call position.

 This position was initiated on  Jan 8, 2013, almost exactly a year ago. The performance of various potential holdings as of the time of this trade 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 29.1 %.  That is comprised of 27.2% unrealized  cap gain, and 1.9% in dividends. This is down 1.3% since the last post.
• The leverage obtained by instead simply holding the Jan 15 $10 call would have generated an eye popping unrealized, leveraged, capital gain of 67.2%.  This is down 2.8% since the last post
• The leveraged, long/short strategy defined in this thread is up 56.3%.  An outstanding gain with somewhat less risk/leverage than holding a naked  LEAP. Only down .5% since the last post

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 this....lol)
• 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

Rolled C Covered Call

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).

With only a few days until expiration, CCI rolled the short call in Citigroup as a hedge against the long. leveraged position in XLF held in the portfolio. Specifically,  CCI

• bought back the Dec  21 $52.50 call at $.08, harvesting $.36 in option premium per contract
• sold the Jan 10, $53 call at $.44/contract.  

Note: C is scheduled to report earnings on Jan 13.  This strike date was selected to avoid the volatility of that event.  This position will likely be rolled out to a strike well beyond the earnings date (feb?) if an opportunity to harvest option premium presents itself in the next few weeks


Since inception on Jan 8, 2013 the performance of various potential holdings as of the time of this trade are shown below:

• The XLF etf  has been relatively flat lately but continues to hold onto its excellent performance since January - up 24.7%! That is comprised of 23.4% unrealized  cap gain, and 1.3% in dividends.
• The leverage obtained by instead simply holding the Jan 15 $10 call has generated and unrealized, leveraged, capital gain of 58.0%.  (leverage is great when it works!!!)
• The leveraged, long/short strategy defined in this thread is up 53.8%. That is comprised of 39.5% in unrealized leveraged capital gains, 14.3% in realized option premium.  

Re-establish Short 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).

With financial stocks rising, CCI decided to re-establish a short call in Citigroup as a hedge against the long. leveraged position in XLF held in the portfolio. Specifically,  with C pushing through $50, CCI sold the Dec  21 $52.50 call at $.44

Since inception on Jan 8, the performance of various potential holdings as of the time of this trade are shown below:

• The XLF etf  continues its excellent performance up 23.2%! That is comprised of 21.9% unrealized  cap gain, and 1.3% in dividends.
• The leverage obtained by instead simply holding the Jan 15 $10 call has generated and unrealized, leveraged, capital gain of 53.7%.  (leverage is great when it works!!!)
• The leveraged, long/short strategy defined in this thread is up 49.7%. That is comprised of 36.6% in unrealized leveraged capital gains, 13.1% in realized option premium.  The short call position described in this post provides about a 4.7% hedge/option premium opportunity. 

Note: C reported earnings and they did not seem to push the stock higher. This reduces the volatility/risk of the short call. As the price of the option decays look for CCI to close or roll this position relatively soon.

Re-established Short 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).

With D.C. dominating the news, CCI decided to re-establish a short call in Citigroup as a hedge against the long position in XLF held in the portfolio. Specifically, on Monday CCI sold the Nov 1 $52 call at $.32.

Since inception on Jan 8, the performance of various potential holdings  as of the close of trading today are shown below

• The XLF etf  is still up 19.4%! (including dividends)
• The leverage obtained by instead simply holding the Jan 15 $10 call would have returned 45.2%.
• The leveraged, long/short strategy defined in this thread is up 43.6%. (i.e the short call has not been very much of a drag on the leveraged gain while providing a modest hedge for down moves)

Note: C reported earnings and they did not seem to push the stock higher. This reduces the volatility/risk of the short call. As the price of the option decays look for CCI to close or roll this position relatively soon.

Closed 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).

C's stock price dropped today (allegedly on rumors of potential poor trading profits).  The price drop made the short call essentially useless as a hedge so CCI closed the covered call position at $.07/contract after commissions. CCI will be looking to re-establish this type of position factoring in the potential volatility in the stock around Oct 15 earnings. 

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

• The XLF etf has slumped  a little over the past weeks but is still up 18.8%! (including dividends)
• The leverage obtained by instead simply holding the Jan 15 $10 call would have returned 43.4%.
• The leveraged, long/short strategy defined in this thread is up 41.9%.

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).

Since the last post about this position here,  both the XLF etf and C have generally moved sideways. That means CCI was able to harvest option premium on C's  Aug 9 $52.50 covered call and then again on the Aug 23 $53 call.  With the market up this morning CCI re-established the hedge for this position by selling the Oct 4 $53 call for a $.32/contract credit.

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 47.4%.
• The leveraged long/short strategy defined in this thread is up 43.8%.

Obviously, being long a market that goes up 20% 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 offsetting the related risk with the short call position, has worked well.   Stay tuned.

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.

. 

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

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.

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. 

Closed C Covered Call

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 rolled up and out a covered call in C as a hedge against a long call in the financial ETF XLF.
Since then the C and the market have pulled back. Today, CCI closed the covered call in C for a $.07 debit. CCI will be looking for an opportunity to re-establish this hedge.

As of the close of business the returns related to various related positions are

• Holding the XLF ETF would have returned 10.2%
• The leverage obtained via holding the Jan 15 $10 XLF call would have returned 23.3%.
• The long/short strategy discussed in this thread is up 24.6%.  

This approach continues to achieving its objective of providing leveraged returns with some hedging of downside risks, but still a long way to go. 

Rolled 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).


As last discussed here,  CCI was short the June $50 call.  With C trading just under the $50 level  on Wednesday AM prior to this weeks Fed meeting, CCI rolled the call up and out to give more time/price room for potential volatility emanating from the fed actions.  Specifically the June $50 call was rolled to the July 12 $52 call  at $0.0. The A $.25/contract profits was achieved on the June $50 call. Since the time of this trade the market and C and dropped steadily, so this call will likely need to be rolled again fairly soon.

As of the time of this transaction the returns related to various related positions are

• Holding the XLF ETF would have returned 15.3%
• The leverage obtained via holding the Jan 15 $10 XLF call would have returned 36.7%.
• The long/short strategy discussed in this thread is up 32.7%.  

At present, this approach is achieving its objective of providing leveraged returns with some hedging of downside risks, but still a long way to go. 

Apple Call - "Roll on the News"

As discussed here, CCI is long the Apple (AAPL) Jan $300 call as a stock replacement and intends to  write shorter term calls against the position.  CCI's primary thesis is that Apple's low valuation will provide a floor under the stock, but margin pressures from lots of worthy competitors will keep a lid on the stock. Hence, there is a good probability Apple will trade sideways for awhile, and this options strategy would capitalize on that situation.


As discussed  here  CCI's last activity in this position was to sell the June $660 call against the Jan $300 call held in the portfolio. Since that time the stock has drifted mostly sideways (slightly up).  This week Apple is holding its developer conference. CCI has no particular insight into what this conference might mean to the company or its products.  However, these type of events often seem to lend themselves to the old adage "buy on the rumor, sell on the news".  In this case, "roll on the news". The intent of rolling this option position was to

• harvest a little of the option premium gained to date 
• re-establish a covered call that provides a little more risk protection and reward if the stock were to jump up or down based on the perceived outcome of the conference.

Specifically, CCI closed the June $660 call and rolled out to the July 5 (two weeks further out) $665 call. This transaction was done for a $1.34 credit/contract after commissions.  The June $660 call position made a very modest $.61/contract, and the July 5 $665 contract has about $5.70/contract in premium remaining at this time.

If you have been keeping score at home ... Since Mar. 1 when this position was established

• Holding the stock would have resulted in the position being up 4.3% (including dividends)
• Holding the $300 Leap for leverage would have resulted in the position being up 8.0%
• Holding the $300 Leap and rolling calls against that position as described here is up 14.5%

So far...so good, but the reactions to the developers conference will likely impact these results in some manner. Hence, it is likely CCI will adjust the position again in a week or two in anticipation of  Apple's q2 earnings results in late July.

Putting A Short Call in Citigroup Back in Place

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).

* * *

Yes, it was just last week Citigroup was down 3% and as discussed here  CCI was removing a short call in Citigroup. "Surprisingly"  the "rationale market" seemed to "change its mind" over the last few days and Citgroup retraced the recent downdraft back to near its recent highs.  Hence CCI re-opened a short call position in Citigroup.  This time with Citigroup selling just over $47.50, CCI sold the June $50 call for a $.56/contract credit.

Some potential outcomes.

• Citigroup breaks out and trades up over $50.56 (up another 6+%).  In this situation this option position will start to lose money. Of course, CCI believes it is highly probably if that were to happen, the Jan 15 XLF $10 calls the portfolio is long will be showing a nice leveraged profit to more than offset this loss. (As a reminder, XLF and C are highly correlated and in fact C makes up 6% of XLF)
• Citigroup stalls/falls - Likely the long position in XLF will also stall/fall but the option premium collected via this trade will act as a hedge and soften the overall blow. 
• In an ideal situation for this position,  Citigroup and XLF will continue to rise, but Citigroup stalls at/below $50 (i.e. round number resistance). This would result in the portfolio harvesting all/most of this premium while the long position in XLF also likely grows in a leveraged manner

Closed Short Citigroup Call Position

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).
                                                                       * * *
Citigroup fell over 3% over the last few days, and CCI took advantage of this gyration to close the covered call position.  This resulted in a very modest .5% gain in about two weeks.  Of course it would take much longer to generate that return in cash or bonds.

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

• 8.9% - simply holding xlf
• 20.4% - holding the Jan $15 Leap (due to the increased risk/reward of the leverage)
• 19.1% - the combined long/short position described here

Good returns with lower risk ...hmmm.

Obviously there is plenty of time left on the position (Jan 15) ...so anything can still happen. 

 

CCI will look to re-establish a short position in Citgroup calls if/when the market gyrates upwards.  

Stay tuned.

Apple Jumps 3% Today, Re-establish Covered Call in LSO portfolio

As discussed here, CCI is long the Apple (AAPL) Jan $300 call as a stock replacement and intends to  write shorter term calls against the position.  CCI's primary thesis is that Apple's low valuation will provide a floor under the stock, but margin pressures from lots of worthy competitors will keep a lid on the stock. Hence, there is a good probability Apple will trade sideways for awhile, and this options strategy would capitalize on that situation.

  As discussed here just last week CCI closed the covered call position on Apple with the stated  intent "to add something like June $450 short call if the stock moves up a little more"

Little did I expect that Apple would cooperate and move up 3% today.  Hence today CCI re-initiated the covered call position. Specifically sold the June $460 call for a credit of about $5.00/contract.  Just as with previous covered calls likely scenarios include:

• Apple reversed and goes back down - oops. But this trade lowers the break even point and will provide the opportunity/time to continue this process to further to lower the cost basis.
• in the event that Apple surges over $460 by June expiration- CCI would be "forced" to take the leveraged 25% profits in the position.
• the stock continues trade in the same range as the last quarter - CCI will repeat this process to harvest more option premium.

Closed Apple Covered Call

As discussed here, CCI is long the Apple (AAPL) Jan $300 call as a stock replacement and intends to  write shorter term calls against the position.  CCI's primary thesis is that Apple's low valuation will provide a floor under the stock, but margin pressures from lots of worthy competitors will keep a lid on the stock. Hence, there is a good probability Apple will trade sideways for awhile, and this options strategy would capitalize on that situation.

Apple reported earnings this week. They seemed about as expected.  The stock moved back up a little. Also, as would be expected, the volatility came out of the options.  Hence the May 10 $460 call that the portfolio was short moved down rapidly.  It was closed at $.33/contract resulting in a profit of $2.57/contract. 

For those of you keeping score at home, that brings the premium collected over three cycles of covered calls to  $8.50 over about 6 weeks.  That is a modest 2% gain against the base price of the stock, but a 6% gain via the leverage of the LEAP.   The intent is to continue this process harvesting premium until hopefully some day the stock price gyrates back towards $450. 

The portfolio does not currently have a covered call position in place, but will be looking to add something like the June $450 short call if the stock moves up a little more.  Stay tuned.