March 3rd CSP and CC Weekend Update

.
If you are on the blog page in a web browser from a computer, please subscribe to this using the "Follow by Email" link to the left.  If you're on a mobile device you should see something in the frame that allows you to subscribe.  Having your email helps me to notify you when Google mucks up email distribution.

~~~~~~~

Summary

The following trades were placed this week:

Click on the image to enlarge.

There are two images because I am trading two accounts and TradeStation will not permit a combined orders retrieval across all managed accounts.

Details

Here is the accounting:

All of the GTC orders that are shown were automatically closed out once the underlying had moved far enough away from the associated option strike that the option was virtually worthless.  If you are not doing this with your CSP or CC trades, you should.  Guidance from many is that this should be done around 50%-80% of the overall premium collected; I just set it at $0.05 and leave it at that.  The benefit of doing this is that it releases the money obligated under the CSP earlier than options expiration (OE), and this allows you to place another trade earlier.  The pennies add up.

• ETFC 180302P50 was sold on 2/22 and I collected $32 at $1 commission.  I bought the position back on 3/2 for $0.05, netting $32 - $5 - $2 (commissions) = $25.  The duration was 9 days, inclusive of start/ending dates.  ROO was $25 / $5000 = 0.50% and AROO was 0.50% * 365 / 9 = 20%, including all commissions.
• INTC 180302P45 was sold on 2/21 and I collected $28 at $1 commission.  I bought the position back on 3/2 for $0.05, netting $28 - $5 - $2 (commissions) = $21.  The duration was 10 days, inclusive of start/ending dates.  ROO was $21 / $4500 = 0.47% and AROO was 0.47% * 365 / 10 = 17%, including all commissions.
• SQM 180316C60 was sold on 2/20 and I collected $85 at $1 commission.  I bought the position back on 3/1 for $0.05, netting $85 - $5 - $2 (commissions) = $78.  The duration was 10 days, inclusive of start/ending dates.  ROO was $78 / $5406 = 1.44% and AROO was 1.44% * 365 / 10 = 53%, including all commissions.

Note that for this SQM call I'm using a $5,406 basis (not the strike) which was described in last week's blog here.  This lower basis, which results due to the stock being purchased through selling the SQM 180216P55 put, is the true cost of the position from the call perspective.

Because the SQM March 60 Call was closed and my net was $78, the new basis for any further work based on this position is $54.07 - $0.78 = $53.29, not the $55 as shown in my TradeStation registry.

• MRO 180302P15 was sold on 2/26 and I collected $16 per contract at $1 commission per contract, for a total of ($16-$1) * 3 = $45.  MRO closed at $14.86 on 3/2, below my strike, so 300 shares were put to me.  The duration was 5 days, inclusive of start/ending dates.  ROO was $45/4500 = 1% and AROO was 1% * 365 / 5 = 73%.  My new basis for the stock is $15.00 - $0.15 = $14.85, inclusive of commissions.
• ROKU 180302P40 was sold on 2/23 and I collected $75 at $1 commission.  ROKU closed at $37.60 on 3/2, below my strike, so 100 shares were put to me.  The duration was 8 days, inclusive of start/ending dates.  ROO was $74/4000 = 1.85% and AROO was 1.85% * 365 / 8 = 84%.  My new basis for the stock is $40.00 - $0.74 = $39.26, inclusive of commissions.

I am presently holding the following positions:

"Red" means that the position is moving against me (paper losses) and "Green" indicates that I have paper profit.  I do not put too much consideration into the colors given the amount of calendar days between now and contract expiration for each of the options.  I also do not worry so much about the stock positions being underwater, as this is by design for MRO and ROKU, since these were just put to me and by definition, will be underwater.

Note:  SQM's average price is incorrect.  As I disclosed in last week's blog (here), SQM was put to me at $55 on 2/16.  I sold SQM 180216P55 on 1/18 for $0.94 and sold the 60 call on this for $0.78 (see above), both inclusive of commissions, so the basis should be lowered by $0.94 + $0.78 = $1.72, resulting in a real average price of $53.28, not $55.00.  TradeStation does not chain transactions, nor does it give me the ability to chain transactions, so it has no knowledge in the reports of what the true cost basis should be.

ROKU and MRO also show an incorrect average price.  The correct values were calculated above ($39.26 and $14.85, respectively).

4 new positions were opened during the past week (MRO 180302P15, NAV 180309P35, BOOT 180420P15, and MZOR 180316P60), resulting in the collection of (3 x $0.15) +  (2 * $0.34) + (5 * $0.39) and (1 * $1.34) = $4.52 being collected, adjusted for commissions, respectively.  Starting account value for the beginning of the week was $75,283, so this represents a capture of $452 / $75283 = 0.6%, inclusive of commissions.  Annualized, this translates into 0.6% * 365 / 5 = 44%.  Note that I close these for $0.05 each and with 10 contracts (11, but MRO was already put to me), the buy-back of the positions could reduce the premium collected by $5 * 10 open contracts = $50, so the worse-case annualized value would be ($452 - $50) / $75283 * 365 / 5 = 39%. 

I didn't put the previous week's premium collection into last week's blog, so here it is:

Total premium collected was $3.87 - $0.08 (commissions) = $3.79 in the top account and $1.55 - $0.06 (commissions) = $1.49 = $5.28.  The annualized value is in alignment with what I showed above.

Strategy for the Upcoming Week

NAV

NAV is scheduled to report earnings on 3/8, before the open, which is this Thursday.  Earnings are expected to take a significant hit, so I expect volatility to increase a significant amount.  I presently hold the NAV 180309P35 contract in both accounts so am slightly overweight from where I normally like to be.

The closest at-the-money call bid is the March 9th 36.50 Call which is at $1.40.  The same put strike is $1.70.  These two ATM bids suggest that the market is expecting a $1.40 + $1.70 = $3.10 swing in price, either way, with a 68% chance of occurring.  From Friday's close we could see a 68% chance of prices moving from $36.06 +/- $3, which fully incapsulates my put strike.

I find it illustrative to understand where option maximum pain exists for a given contract.  Here's the view as of 3/4:

This suggests that option pain is well above my put strike at $40.50 but there is no guarantee that underlying will close at maximum pain.  This is only a guide and it suggests that we will move up from here.

Another useful chart is this:

Click on the image to enlarge.

I take away the following from this chart (online version here):

1. The 50d EMA is above the 100d EMA (which is good), but both are in a downtrend (which is worrisome if it continues.
2. We are walking down the lower Keltner channel line, which is a possible buying opportunity.  Note that we need prices to move upwards from here to actually enter.  Nevertheless, this indicates that we are oversold.
3. The RSI is REALLY oversold.
4. The Know Sure Thing line is starting to converge from below.  When this occurs, we have a buy signal.

It appears that selling the March 9th 35 Put may have been premature, but it is what it is.  If I am put the stock, there are several indications that it will move up from here.  We'll see.

Based on the above, I'm not taking any action in NAV prior to earnings release.  I think it will move upward, but your crystal ball is as good as mine...

~~~~~~~

LVS

Las Vegas Sands doesn't report until April 25 so nothing to worry about there.

The max-pain chart suggests that price will continue to move up this week from the close of $71.51 to (ideally) $75:

Again, note that the underlying does not "need" to move up -- this simply is the ideal point where people lose the most money.

Stockcharts for LVS is relatively bullish from here:

I take away the following from this chart (online version here):

1. The 50d EMA is above the 100d EMA (which is good) and both have a positive slope.  This is fully bullish.
2. We just touched the lower Keltner channel line, which is a possible buying opportunity if the price starts closing above the previous day's high.
3. The RSI is oversold and has typically rallied from this level.
4. The Know Sure Thing line is bearish on the long side and does not indicate that a long position should be held.  Given this, being put the stock on Friday, if this is the case, could be premature.

Like NAV, nothing to do here before OE this Friday.  I'm just presenting this as food for thought.

~~~~~~~~~~~

SQM

SQM is the only stock that I own that is seriously underwater.  Because I was not paying attention, I did not reserve enough capital in my account to adjust the position with unlimited degrees of freedom, so my flexibility is limited.

Here's the option pain for the March 16 OE:

As you can see, Friday's close of $46.73 is well below the option pain of $55 for March.  Here's the April chart:

Same presentation, although the bias is lower at $53.44.  Note that options for SQM trade in $5 increments.

This all being said, there is little chance of the price closing above $55 by 3/16:

Click on the image to enlarge.

The chart above tells me that at the current volatility (HistVol = 47%), there is only a 6% chance that the price will claw it's way back to $55 by 3/16.  Your guess is as good as mine as to how far it will recover by then, if at all.

Here's the chart:

Same analysis as the prior two stocks -- but note that the KST is whipsawing around itself AND is at a good, historically low value.  This and the Keltner channel tracking suggest that we will move up from here.

The link for this chart is here.

Given that my only real degree of freedom here is to sell a call, and that the $60 calls are presently worthless, and that my break-even is $53.28, my only option is to sell the March 55 or April 55 call.  The chances of the March 55 call being hit is only 9% on 3/16 (shown previously); here are the probability chart for the April 55 call:

Click on the image to enlarge.

Going out a month to the April 55 call suggests that I improve the odds of being ITM by about 13%, from 6% to 19%.  Neither is very likely but obviously, April 55 is more likely than March 55.

Let's do the numbers.

Let's consider the SQM 031618C55 March 55 call, noting that it only has a 9% chance of happening.

Using the bid, the premium I could collect is $5.  My basis on the call is $53.28, so the ROO is ($5 - $1)/5328 = 0.08%, inclusive of commissions.  The number of days between Monday morning, 3/5 and OE on 3/16 is 12 days, so the annualized return on option (AROO) is 0.08% * 365 / 12 = 2.3%, inclusive of commissions.  My new basis will be $53.28 - $0.04 = $53.24.  If the stock closes above $55 on 3/16 I'll make ($55 - 53.24) * 100 = $176 and the leg will close out with 176/5324 = 3.31% ROO.  Since this entire chain started with the sell of SQM 180216P55 on 1/18 and this would be the end of the chain, the total days between 1/18 and 3/16 would be 58 days and the AROO on the entire chain would be 3.31% * 365 / 58 = 20.8%, inclusive of commissions.  Remember, the chances of capturing the 20.8% are less than 6% -- more probable is only capturing an additional 2.3% (annualized) from selling the call, and the leg would continue after 3/16.

Now, let's look at the April 55 call.  Longer timeframe and correspondingly higher premium.

Using the bid, the premium I collect on the SQM 042018C55 April 55 call most likely would be $70.  My basis on the call is $53.28, so the ROO is ($70 - $1)/5328 = 1.30%.  The number of days between Monday morning, 3/5 and 4/20 is 47 days, so the annualized return on option (AROO) is 1.30% * 365 / 47 = 10.1%, inclusive of commissions.  My new basis will be $53.28 - 0.69 = $52.59.  If the stock closes above $55 on 4/20 I'll make ($55 - 52.59) * 100 = $241 and the leg will close out with 241/5259 = 4.58% ROO.  Since this entire chain started with the sell of SQM 180216P55 on 1/18 and this would be the end of the chain, the total days between 1/18 and 4/20 would be 93 days and the AROO on the entire chain would be 4.58% * 365 / 93 = 18.0%, inclusive of commissions.  Remember, the chances of capturing this 18% are about 19%, with a very high likelihood of capturing an additional 10.1% on selling the call.

This is a no-brainer.  The better path is to sell the April 55 call for at least $70, capture an additional 10% on ROO, lower the basis at least $0.69, and improve my chances of having the stock called away at $55 due to the longer time frame.

The order is STO 1 SQM 042018C55 limit 0.70 GTC.

As always, this is NOT a recommendation for you.  It's what *I* am going to do.  Your individual situation may be very different from mine and this could be a rabbit hole in your universe.

Here's the combined Profit and Loss for the 100 shares that I presently own and selling the call, with the cost basis of 52.28 reflected in the green vertical line.

Click on the image to enlarge.

I note that TradeStation's method suggests that this has a good chance of being ITM on 4/20 -- I'll have to take a note on what volatility they are using to calculate this, as I'm using historical volatility in my charts and for this to be ITM by 4/20, TradeStation must be using something much higher than 47%.

~~~~~~~~~~

So, that's all for today.

I'll update the ROKU call after I get time to analyze it later this week.  I'm a single parent for the next two days while my wife travels, and I'm traveling W-F, so need to work the ROKU analysis in.

Update 3/4 later:  MRO is updated and can be found here:  https://greekgodtrading.blogspot.com/2018/03/just-was-assigned-mro-now-what.html 

 ~~~~~~~~~~~~

If you see anything wrong in my calculations, please let me know.  I think I have all of the bugs out of the spreadsheet that I used, but ya never know until others look at it.

As with all my ramblings, you are responsible for your own investment decisions and I am not.  Please do your own diligence, and please take ownership for your actions.  Nothing I've written here is to be considered investment/trading advice -- it is only provided for educational purposes.

Regards,

pgd