Preparing for Options Expiration

This is a somewhat unusual post for me at this blog, but there is a reason for it.  Some of you may know that I have been trading options since 1999 and have a site called Options Dude.  Well, I decided that I will be letting that site expire in February.  There are several reasons for this:

  1. I originally meant it to be a static site, and I am finding that I prefer a blogging type format for interaction and communication.  I like to share information and teach.  It is difficult to know if that information is being understood or to answer questions in a static format.
  2. It was my first attempt at my own site so I went with Weebly.  It was a reaction to the initial Google algorithm change which I needed to do, but I was afraid of self-hosting and WordPress.  I now know that to be foolish, but at the time, it seemed reasonable.
  3. Related to number two, I think the site is somewhat ugly and my options (no pun intended) are limited.  Not that Cash Flow Mantra is great looking, but there are many more design options with this blog and many opportunities for improvement.
  4. It is losing money.  It costs $40 for the name and hosting.  With my current hosting at HostGator, I would only need to buy the domain name and can have many blogs over which to amortize that cost.  It seems like a no-brainer to bring all sites under one umbrella.

So, instead of maintaining a totally separate site, I will be posting more about options and my trading techniques here.  Now, on to the meat of the post.

Options Expiration

Options expire on the third Saturday of the month, but trading ends at 4 pm on the third Friday, so I need to modify my positions by that time.  Most of you are probably unaware that I own put options on all of the stocks in my retirement accounts.  I also will sell covered calls on many of those positions to pay for the puts.  I know that it may be a little confusing now so feel free to ask questions in the comment section.  I may address more of this in future posts.

I am trying to make a transition to holding more dividend paying stocks and will be making this transition.  On those positions that look profitable, I will let those go.  Otherwise, I will be holding and making the necessary adjustments to purchase puts, buy back and sell calls and set myself up for the December expiration cycle.  Right now, it looks like I will be able to add some dividend stocks, but we will have to see what the day holds.

Silver Wheaton Trade

As one specific example, I will share what I have been doing with Silver Wheaton stock.  This is a stock that I first purchased in December of 2009.  I ended up selling out completely in February of this year and bought back shares.  My initial purchase on February 22, 2011 was at $39.72 per share basis.  Since that time by buying puts and selling calls, my basis has changed to be $38.99 as I write this.  I try to leave some shares available to participate in any rally and although I am not exactly pleased with the results over the last 9 months, I must say that it is better than buy and hold.

I had thought about replacing Silver Wheaton (SLW) but with the recent change in dividend policy which will triple the dividends paid, I think I will continue to hold.  The yield will only be about 1%, but the company plans to devote 20% of cash flow to paying dividends.  I would expect that with continued strength in the silver market and weakness in paper currencies, dividends will be fairly safe so I will hold for now.  This increase will help meet my goal of increased dividends.  More on that later.

Downward Pressure

As I write this early Friday morning, the market took a big tumble yesterday.  The gold and silver market was hit as well.  I am not sure that any of my calls will be exercised although futures are up at the moment.  It is hard to say what will happen since volatility is high.  Be that as it may, I will simply see what sells and what doesn’t.  Whatever is left, will have calls sold against them for December and thus begins another cycle.  The key is being patient.

Readers:  How are you investing in this volatile market?  What are you buying and selling?


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