There is a popular analogy for strangle sellers, that it is like picking up nickels in front of a slow moving steamroller. Most of the of the time, the option seller gets the nickel. Once in a great while, there might be a slip and fall, a muscle cramp, or just inattention or too much boldness, and the steam roller flattens the person.
Well, this week I got flattened as the monster stock market rally continued to roll forward, crushing some of my short call sides of strangles. Most notable was AMGN. I also did some fear based covering on Friday, near the top of the move on NKE and again on AMGN. All told, my account was down just a bit for the week. However, with yet another huge up week in the stock market, down just a tad, has me feeling like I've been through the ringer.
Being short calls was near the worst possible position to have during the last few weeks, and I have paid for it. On Friday I gave into some fear covering and covered near the worst levels of the move.
I can rationalize or hem and haw or take responsibility. What is done is done. All I can do is try and learn from the experience, the mistakes, and move forward. The glass half full perspective is that this is one of the worst trading periods in recent memory, and yet my account is only down a few percentage points from all time highs.
One small highlight for the week is a new long position in WHR and some other recent longs going my way. Some low lights include covering calls on HON, YHOO, the already mentioned AMGN and NKE, and watching my once proud profits in GLD disappear and turn red. Thankfully GLD is a tiny position. Here are the ugly looking trades for the week:
Fri Another big up day for the stock market, another slightly down day for my trading account. While most others got some Halloween candy. I got some more lumps of coal :(
Cover short NKE Nov 95 calls @93.4. I cover Nike calls near the worst levels. Fear based covering.
Cover short AMGN Nov 165 calls @163.4. Same for Amgen, covering calls near the highs of the entire move. Fear based covering.
Thu Sell AMGN Nov 152.5 puts @160.0. Yet, another damage control move on Amgen as the bull steamroller rolls forward. I try to sell some more November calls on GLD, but it keeps slipping lower so my limit order doesn't get filled. (Next day gold craters lower, yikes.)
Wed Buy AMGN stock sell Nov 165 calls @158.6. I place another limit order to close the short Nov 155 puts, still no fill. So I cancel that and do a buy/write to hedge my position. I add a lot more capital, and more risk in doing this.
Tue A truly painful day, as I chase AMGN higher all day with a buy to close limit order on my short calls. The spread is wide and I don't get filled as Amgen closes near the highs of the day. Another big loss is covering some short HON calls for a huge loss. Some traders use the analogy of picking up nickels in front of a steam roller for those that sell naked options. Well, today, I got flattened on some short calls. Overall, my account is only down a smidge, so I am over dramatizing, but the loss on the AMGN calls is approaching 2000% basis the premium collected. In other words, the call buyer has about a twenty times winner. Wow.
Cover short HON Nov 95 calls @45.2 1.69
Sell AMGN Nov 145 puts @155.0. I mitigate the disaster of the short calls by having layers of short puts.
Sell WHR Nov 155 puts @168.0. New long position in Whirlpool. WHR up on earnings.
Mon Cover short YHOO Nov 44 calls @44.4. Yahoo! keeps rising, and I cover for a big loss, about 800% basis the premium collected. I am still short Nov 48 calls, Nov 36 and Nov 39 puts.