Friday, June 20, 2014

Weekly: burning shorts

I did not expect the strong rally in gold, or the stock market. I took some losses on Thursday, otherwise a quiet week. This week's chart review of the S&P 100 only turns up four interesting charts: LLY LMT QCOM XOM

The trading summary is below and a monthly update will come in day or so.

Thu Three lumps of coal in my morning coffee, as I cover three short call positions for large percentage losses. As almost always, the percentages are eye popping, the dollar amounts relatively small. The margin requirements for selling naked calls and naked puts is substantial. I am reporting the loss percentages against the option premium collected, not the margin requirement. The glass full perspective is that my trading account is up for the week, and the month. Obviously I would be up more without these losses.

Rule #1 is live to trade another day. One way I do that is by taking losses before they snowball. Selling naked puts and calls is a financially dangerous game. The losses can go exponential. I tend to sell way out of the money options and close them out for losses if the strike price is crossed.

Cover short GLD Jul 128 calls @124.6. I cover short calls on gold for about a 200% loss. Gold rally getting uncomfortable, so I take my lumps and regroup.

Cover short IWM Jun 118 calls @118.1. The underlying crosses my strike price. The loss is about 400%. One could say it was a mistake to sell these calls for such a tiny premium. I take my lumps rather than rolling the dice on the next two days. I remain net short IWM, because I am short other calls.

Cover short APC Jun 110 calls @110.1. I take my third lump of coal for the morning, covering short calls on Anadarko Petroleum as it crosses my strike price of 110. It is another time to shake my head with a loss is about 200%, again, all three percentages are basis the option premium collected. The story here is unsubstantiated takeover rumors on Twitter helped drive APC higher and Iraq blew up again. Again, APC moves lower after I cover my calls. Not a good feeling, but these things happen. The cynical might say "they" drove it higher to take out the stops and then took it back down.

Tue Sell IWM Jul 108 puts @117.3. I rebalance my short strangles on the Russell 2000 etf. I add a bit of delta, but still am net short. The rally has been stronger than I thought it might be. Nearest short calls are June 118, which are too close for comfort

net long DIS
net neutral DAL GLD SPY
net short IWM

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