Closing out CSCO and TLVTF

I've got my first realized loss with TLVT. Remember when I said this:

"I don't know if I'm missing something on this deal, but everything I can find seems to indicate it's a done deal. I might end up regretting this one, but the returns are high enough I'm going to take a chance on this."

Well I was missing something apparently. The option contracts were cash-settled yesterday and just like that I was missing $646 from my account. After talking to my broker and looking the memo released by the Option Clearing Corp(http://www.theocc.com/) it appears the deductions are for Spanish taxes, withholdings, and conversion ratios. You can check out the memo by searching for TLVTF(the ticker changed when it was delisted as part of the acquisition process) on the OCC website. So I'll take a loss of $326 on this trade. I don't like losses, but all in all, I guess that's a fairly cheap lesson in foreign arbitrage trading.

On a brighter note, I went ahead and closed out my CSCO short options from last May and my rolling monthly puts that I extended in November. They were trading down to $0.08/option so almost all of the upside had been realized. I realized gains of $98/option on the original trade and $201/option on the rolling trade. I will almost certainly do more naked puts on CSCO, but unless it gets knocked down hard, it won't be until next year.

The Numbers

• Cash: -$678
• Short Option: +$678
• Available Margin: +$4,800

More Microsoft

Well I timed my exit from those SSO puts about perfectly. The market ended up drifting lower Friday afternoon and those puts would have finished in the money if I hadn't closed out that morning. Yesterday we finally got the bounce that I was looking for last week, but Microsoft is still hurting from the last few weeks. I'm down slightly on our original covered call position, and I'm going to take advantage to add some more exposure here.

• Sell to Open: 2 MSFT Jan 21 2011 24.0 Put @ $0.62

I doubt these will end up in the money, but I'm not afraid of owning MSFT at $24 with a 3.3% yield. With about $475 in margin requirements per option, this trade will give me a return of about 13% in less than two months.

The Numbers

• Cash: +$124
• Short Option: -$128
• Margin: +$950

Out of SSO

That trade had me a little worried. As is the problem with trading purely on extreme technical conditions, things can always get more extreme. After making a small bet on a bounce because of the S&P 500s divergence from it's 10 day EMA on Tuesday, Wednesday came along with more bad news out of Europe and after a hard drop in the last half hour, my SSO puts were in the money with only one day left of trading(Thursday was a holiday). So while I knew a bounce was likely coming soon, it could have easily waited until next week leaving me with a decision about whether to roll forward or take a loss. Luckily the futures reversed their early morning losses and we're getting a small bounce today. With this being the day after a holiday, volume is going to be weak, so instead of waiting around to see what happens today, I'm closing out now and shutting down for the week.

• Buy to Close: 1 SSO Nov 25 2011 40.0 Put @ $0.08

This wasn't a huge gain, especially considering the margin requirements on the options of leveraged ETFs(I closed it out with a 1.5% gain in 4 days), but despite the hiccup on Wednesday, these are typically fairly safe trades. When the technical conditions and available margin are there, I like these a lot.


The Numbers

• Cash: -$8
• Short Option: +$10
• Margin: -$2,380

Betting on a Bounce

When the S&P500 opened lower this morning I noticed that it was about 40 points below it's 10 day EMA. Extreme divergence(more than 30 points) from the 10 day EMA is usually a good indicator of heavily oversold(or overbought) conditions and usually leads to a short term reversal. The S&P reversed and went positive before I got into the trade. The reversal didn't hold though and the S&P dropped down near 1180(which was actually a critical support level according to one analyst I subscribe too). At 1180, it was around 50 points from it's MA and I managed to get into a trade within a few points of that.

• Sell to Open: 1 SSO Nov 25 2011 40.0 Put @ $0.44

When trading around the 10 day MA, buying options can be very profitable, but often times the bounce isn't enough to make up for combination of loss of time value and the loss of volatility as the market stops dropping. I'll usually just buy leveraged ETFs instead, even though the cash and margin requirements for holding ETF shares is quite large. It's a much safer trade than trying to time long options correctly(which I've never been very good at anyway). I don't always like to short options on the ETFs either because of huge margin requirements and timing/risk issues. Since they've started offering weekly options on most of the leveraged index ETFs though, the timing is less of an issue for me on short options.

The Numbers

• Cash: +$44
• Short Option: -$44
• Margin: +$2,380

Out of Gold

I would have like to stay in my gold trade longer, but after yesterday's drop DGP fell below my 10% stop so I sold it this morning. It's up slightly this morning and I was tempted to hang on since it never breached it's 120 day MA. It's likely that whatever ends up happening in Europe(and the US for that matter) will be inflationary and bullish for gold in the long term. This wasn't a long term trade though and in the short term, I'm less certain of gold's upside due to the potential of central banks selling their bullion and possible panic selling if European or US markets start getting hammered.

• Sell 50 shares of DGP @ $56.83

I exit this trade with a gain of 5.5% in one month.

The Numbers

• Cash: +$2,841.50
• Long Stock: -$2,841.50
• Margin: +$1,600

Closing out PPDI

I closed out my arbitrage trade on PPDI today. Same deal as the rest of the closed arbitrage trades; there just wasn't enough premium left to make it worthwhile to leave it open for another 2 months.

• Buy to Close: 1 PPDI Jan 21 2012 32.5 Put @ $0.10

I exited this trade with a return of 12% on margin in just 6 weeks.

The Numbers

• Cash: -$10
• Short Option: +$15
• Margin: +$650

Extending CSCO

As I mentioned this morning, I was looking at extending the naked CSCO puts that should expire worthless tomorrow. I ended up selling two January 16 puts this afternoon. As you might remember, I sold these exact same puts 6 months ago so the model portfolio now has 4 open contracts on CSCO for January. That's probably more than I should have in one position, but it's a safe enough trade that I'll go ahead and do it. If these options end up expiring in January(as I expect them to) I will drop back to just 2 contracts.

I did not close the November puts. They are far enough out of the money that I'm not worried about them being assigned and it's one less commission I have to pay.

• Sell to Open: 2 CSCO Jan 21 2012 16.0 Puts @ $0.32

This brings the total premium I've received on this trade to $2.09. If/when I get assigned the stock, my effective entry price will be $13.91. That's almost 25% below the current price and would have a dividend yield of 1.7%. Owning Cisco at those prices would be a fantastic outcome in almost any scenario.

The Numbers

• Cash: +$64
• Short Option: -$64
• Margin: -$380