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Options Expired Today and Two Busy Weeks

Well, the past two weeks have been incredibly busy and it feels like I am doing all I can to keep my head above water, but it feels like it isn’t working.  Last week, I put in 75 hours and work.  This week, I was out of town yesterday and today and was very busy during the day with minimal internet access.  Now, it is 11 pm in the hotel so I will be making this short so that I can get some sleep.

Options Expired Today

Today was options expiration which will end up being a good thing for me since I have some puts that will be exercised.  The most important one for me is the ONXX $46 strike puts which I purchased a few weeks back when ONXX was making a spike in price (back when the DOW was over 13,000).  I did this because I could lock in a profit compared to my basis.

Well, ONXX closed today at $41.82 so I will be selling those shares for $46!  Yippee!  Now I plan on picking up some Nucor shares next week since that is part of my dividend plan.  I will still have a few ONXX shares left so I purchased some additional June $38 puts today.  I will have to let you know what the new basis becomes, but it will likely be close to $42 per share.  Then I could sell the June $42 calls and end up with a profit if called.

I will also sell some DRYS and SLW shares as well when their puts get exercised.  I will be replacing those shares at a cheaper price so will be able to profit by the price differential.  This is what the summer will likely be about.  Hopefully, it won’t be a repeat of 2008, but you just never know so it helps to have a plan.


Here are some carnivals that have featured my three blogs:

Totally Money Carnival #64 – CFM
Financial Carnival for Young Adults #9 – PT
Carnival of Money Pros – CFM, GPM, PT

Carnival of Financial Camaraderie #30 – PT

Plus a few more:

Carnival of Retirement #19 – CFM, PT
Yakezie Carnival – My Momma Told Me Edition – CFM
Carnival of Money Pros – GPM
Festival of Frugality #337   – PT
I hope everyone has a good weekend.  It will be an interesting summer watching what happens with Europe and the stock market.  I hope to take advantage of some volatility.
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Be the first to comment - What do you think?  Posted by Cash Flow Mantra - May 18, 2012 at 11:22 pm

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GMCR–The Case for Protective Puts

You may have heard that Green Mountain Coffee Roasters stock took a big hit earlier this week when they missed earnings and put out a disappointing forcast for the remainder of the year.  In fact, the stock lost almost 48% of its value in one single trading day.  Ouch!  Now if you have been long the stock, that is a major hit to that portion of the portfolio.  Granted GMCR has been a momentum stock for some time now, so it isn’t unexpected that the gains would slow at some point.  However, it can still make for some sleepness nights knowing that one day could wipe out so much value.

Sleep Better At Night–Buy Some Protective Puts

If you are investing in the stock market (and especially in individual stocks), you need to have some plan for these events when they occur.  There are many ways to do this from not buying individual stocks and going only with indexes, to diversifying across several stocks and sectors, to using stop losses, to buying put options.  I would like to address the concept of risk management from the perspective of put options and share what I do with my retirement account.

If you have been reading this blog for a while, you know that I invest my retirement account in some individual stocks many of which might be considered risking (ironically, GMCR only shows a beta of 0.8).  Take for example, my investment in Onyx Pharmaceuticals (ONXX).  This is a stock that I bought after selling Imclone which was bought out several years back.  I purchased ONXX as a potential buyout candidate for which there is still potential.  The most recent run up is due to buyout rumors again.

Over the past year, ONXX (with a beta of 1.2) has traded from $27.17 to $47.80 per share.  With this most recent pop, I decided to buy some protective puts at a strike of $46 expiring in the month of May in two weeks.  So far, that looks like a good decision since ONXX is now back down under $43 per share.  Since my overall cost in the stock is $43.57 even after the purchase of the puts, I have guaranteed myself a profit.

Then, I will be able to purchase back the same stock for less and either sit on the cash or purchase even more shares of ONXX in preparation for the next pop.  I will usually pay for the put options by selling some covered calls creating a collar.

I have found the technique of buying puts, selling calls or selling stock when it pops and buying back calls, exercising puts, and buying more stock to be fairly effective in mitigating losses and decreasing volatility in my retirement portfolio.

Hopefully, I won’t one day discover that the stock that I am holding has dropped by almost 50% in one day.  But if it does happen, I know that I will sleep well because I would have owned some protective puts.

Oh, and by the way, a stop loss order would not have helped with GMCR this week.  If you don’t know why, be sure to ask.

Readers:  I am guessing that most of you use indexes for your risk management, but for those who do pick individual stocks, what do you do?

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4 comments - What do you think?  Posted by Cash Flow Mantra - May 4, 2012 at 8:50 am

Categories: Investing   Tags: , , , , , , ,

My Options Trades this Week

In my last post, I updated many of the changes that had occurred in my positions due to options expiration last Friday.  Well because of those changes, it has been a busy week and I have had a lot of additional adjustments happening so I thought I would make a few comments.

SLW Trades

As you know, my position in Silver Wheaton (SLW) was sold due to the exercise of the April $30 put options.  I bought back one-third of that position at $28.50 plus a few more shares at $28 snagging a significant discount.  Now I went ahead and sold some May $29 calls for $1.25 per share meaning that I will have made the $1.50 discount on the repurchase, $1.25 on the premium, but lost $1 for selling at a lower strike.  However, the net will be $1.75 per share profit provided that the stock gets called away.

Yesterday, I was able to buy back the next third for $29.90.  I still have the stock uncommitted so I could sell some additional calls.  Gold and silver are up a little this morning.  I suspect the weak GDP number means that traders are thinking the Fed might have to get more active in trying to stimulate the economy and inflation expectations down the road have been heightened.  Who really knows?  I will keep trading my system month to month.  Right now, I am working on decreasing the basis in SLW so any shares that I add will do just that.

Do to the discount that I got in the repurchase and cash from selling calls, I think I might be able to add some shares to be ready for the next upswing.  As I work out my position in AKS over the next few months, I want to use those funds as well to add additional shares of SDRL and SLW.

ONXX Trades

This has been a big week in Onyx Pharmaceuticals (ONXX).  Buyout rumors caused the stock to pop over 8% on Wednesday.  I ended up buying back some May $40 calls that I had sold as well as some May $42 calls.  I then sold some May $45 calls and plan on selling some $47 calls when I can.  Unfortunately, yesterday was sideways and today is looking somewhat weak to start out.  I may just buy some put options to protect some of the gains and see what happens.  I would hate to not be able to take advantage of a nice little spike, but if the rumors dissipate then the stock will languish for sure.

Other Calls That Were Sold on Strength

I also managed to sell some SDRL May $38 calls, STX May $30 calls, and INTC May $28 calls on strength yesterday.  I had simply placed some good-til-cancelled (GTC) limit orders earlier in the week and they happened to all hit yesterday.  It was definitely a good thing with STX since it looks to drop about 8% today.  Let me tell you, volatility can be crazy sometimes which is why I have many protective puts since it is impossible to know how the market will react.

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2 comments - What do you think?  Posted by Cash Flow Mantra - April 27, 2012 at 9:26 am

Categories: Investing   Tags: , , , , , , ,

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