Options Update – ESV, GE

I’ve been doing pretty well on the options front since that speculative loss I took at the beginning of the year.  I don’t have a chance of meeting my goal of $5k in options premiums this year but I think I can break the $2k mark.  That’s still not bad considering the small amount of cash (<$10k) that I keep in the account. The last 3 months, I’ve only kept about $5k and I hold some stock in the account for collateral.  So my returns on the cash amount are really good.

I currently own ESV and it’s a large position for me already.  If I look at my dividend weight, then my position is even more overweight.  I don’t worry about being overweight too much since I’m still aggressively building my portfolio.  I do believe this drill rig leaser will be under pressure for a while with lower gas prices and a larger supply of rigs on the market.  I am watching them closely but have been impressed with their ability to get rid of the old rigs and keep their fleet fairly new (they boast one of the youngest fleets of all their peers).  They also sport the top safety rating of their industry.  I believe in the company long-term but I think there could be an opportunity to get shares even cheaper down the road.

So I decided to “roll” my put forward.  This basically means that I’m closing out my put for a gain/loss and opening up a new trade with an expiration further into the future to avoid getting shares assigned.  I had originally sold in January 1 put with a strike price of $55 that expired in September.  Well September is right around the corner, and the price of ESV is “in the money.”  That means if the expiration was today then the options would get assigned.  I’d be forced to buy another 100 shares of ESV at $55 but I could subtract the premium of $650 from the cost basis.  Since I could still squeeze out a small profit, I decided to buy back that put option.

Here’s how the trade looks:

08/25/14 BTC 1 ESV Sept 20 ’14 $55 Put @ 5.82
01/23/14 Sold 1 ESV Sep 20 ’14 $55 Put @ 6.50
Profit: $68 (before commission)

So I made just a small profit, not bad.  Next I sold a longer dated put with a lower strike price below:

08/25/14 Sold 1 ESV Dec 20 ’14 $50.00 Put @ 3.11

My premiums aren’t as large but the strike is not in the money so I have a much better chance that the put will expire worthless.  If not, I’d have the opportunity to pick up 100 shares with a cost basis of $50-$3.11=$46.89/share.  That’s over a 6% yield on cost.  Not bad either way.

 

NEXT I decided to sell two more puts in another company, GE.  If you remember back to the Great Recession, GE cut its dividend.  Since then, the company has gotten lean and doesn’t have the financial risk it used to.  I think there is a lot of value there now.  So I wouldn’t mind getting GE back in my portfolio.  However, I’d like a cheaper price so I sold a put.

The trade:

08/25/14 Sold 2 GE Mar 20 ’15 $25 Put @ 1.00

I sold 2 GE puts that expire in March of 2015.  I will either collect $200 in premiums or get assigned 200 shares at a cost basis of $24/share if I don’t buy back the puts.  That’s not bad considering GE is hovering around $26 currently.

 

I currently have 8 open options positions and profit for 2014 of $1602.

My options page has been updated accordingly.