On Monday I said things would be looking better for our open positions if we waited to take action until today, and I was right. We were down $300 on our BA credit call spread as Big Deal #11’s publication, but we’re up $150 as of this writing at 10:15am ET. Our UUP September calls have jumped 46% from a bid of $0.28 to $0.41 in that time, even though we’re still down on the play. Our GILD credit call spread had gotten away from us as the underlying stock continued its monstrous outperformance, but our unrealized losses have been trimmed, slightly. Our bullish positions in DOW and GLD are down from Monday, but our IWM July puts, which we entered at $1.12, traded at $1.42 earlier this morning, up more than 26% from our Monday entry price.
So far in the six weeks that we’ve been publishing these options newsletters, we’ve closed out a total of five positions – four winners, one loser – for net gains of $1,923 on an average position size of less than $1,922. But among our six open positions, four are currently losing and the losses are bigger than our open winners’ gains. On Monday I said we’d be looking at taking some risk off the board in today’s newsletter, rather than entering a new position. This issue of the Big DeaL will be focused on recalibration and regrouping, and we’ll reenter the markets with a lighter load on our shoulders Monday.
With six open positions, we currently have nearly $12,000 at risk. Rather than adding another two grand to the mix, I think we need to take some of that risk off the board. We could capture the gains on our two winners and let our losers ride in the hope that they recover, but that’s a rookie mistake. All things equal, it’s much better to take your losses and let your winners run – and that’s what we’re going to do.
Rather than looking at our open plays at the end of the newsletter, which is our usual format, we’ll examine each of them, one-by-one, in the main body of today’s report. First, let’s take a look at our winning positions, beginning with Boeing (BA):
BA $150/145 July credit call spread
Entry price and date: $1.45 credit on 5/26/15
Position Size: 5 contracts per leg
Total Risked: $1,775 ($725 credit received)
Current bid/ask: $1.12/$1.28 (11:35am ET)
Target: $0.71 ask (for 20% gains)
We originally entered this play on weak technicals and fundamentals, largely related to BA‘s euro exposure. We’ll make money so long as BA closes below $146.45 on July 17, which seems like a fairly safe bet, especially after shares of BA failed to hold on to their recent breakout. The company had a disappointing showing at the Paris Airshow, and its CEO stepped down earlier this week.
Let’s continue to hold this position, but we’ll still plan on closing it out should the ask fall to $0.71. That would allow us to cover the spread at $355 and net $370, or around 20% of our total $1,775 risked.
IWM $126-strike July puts
Entry price and date: $1.12 on 6/22/15
Position Size: 17 contracts
Total Risked: $1,904
Current bid/ask: $1.22/$1.23 (11:37am ET)
Target: $1.45 bid (for 30% gains)
We entered this play on Monday, and although the Russell 2000 index of small-cap stocks on which this ETF is based hit a new all-time high the next day, our puts traded as high as $1.42 earlier today, as IWM lost 0.84% on Wednesday and fell even lower in early trading.
We’ll keep this winner on the board, but we’ll take our profits when the bid hits $1.45 or higher. This will be more prudent once we shed some of our losers and thereby don’t need to keep our IWM play on as a hedge.
Now, for some of our losers: We’ll start out by looking at our longer-term, September-expiration plays on UUP and GLD. These plays were specifically designed to deal with the Greek situation, which has unfolded pretty much exactly as I had anticipated – but the market’s reaction to the news has not been what I expected. I thought the ongoing crisis would lead to weakness in the euro and strength in the dollar, but the opposite has happened. I also thought investors would flee to the safety of gold, but instead, they’ve periodically run to U.S. Treasurys. Nevertheless, with so much time value left in our UUP play and with GLD still long overdue for a spike to the upside, I recommend keeping these positions open.
UUP $25-strike September calls
Entry price and date: $0.58 on 6/8/15
Position Size: 32 contracts
Total Risked: $1,856
Current bid/ask: $0.42/$0.43 (11:43am ET)
Target: $0.70 bid (for 20% gains)
GLD $110/115 September credit put spread
Entry price and date: $1.94 credit on 6/15/15
Position Size: 6 contracts per leg
Total Risked: $1,836 ($1,164 credit received)
Current bid/ask: $2.33/$2.55 (11:43am ET)
Target: Hold until expiration for 64% gains.
Now we’re left with a pair of polar opposite positions, whose only commonality is that they’re both down from when we entered them. On one hand, we have the credit call spread on GILD, a bearish play that is short time value; and on the other hand, we have our debit call spread on DOW, a bullish position that’s long on time value. Let’s look at DOW first:
DOW $52.50/55 July debit call spread
Entry price and date: $1.17 on 6/19/15
Position Size: 17 contracts per leg
Total Risked: $1,989
Current bid/ask: $0.85/$0.92 (11:45am ET)
New Target: $1.40 bid (for 20% gains)
We originally put this position on to get some bullish and long time-value exposure to offset corresponding positions that we still believed in but were going against us. In the week that we’ve held the position, shares of DOW had been holding up nicely, until they fell along with the rest of the market yesterday. The materials sector, of which DOW is the third largest component, was hammered on poor results from Monsanto and the ongoing post-Triad haplessness of DuPont, and DOW was unfairly tied up in the sector’s woes. Although we’re down about 30% on this play, I think it’d be a mistake to sell here, given DOW‘s near-term technical support. Let’s check back in on Monday, unless the calls surge to a $1.40 bid, at which point we’d take the 20% gains.
GILD $125/120 July credit call spread
Entry price and date: $1.51 credit on 6/11/15
Position Size: 5 contracts per leg
Total Risked: $1,745 ($755 credit received)
Current bid/ask: $2.05/$2.31 (11:48am ET)
Which leaves us with Gilead (GILD), the monster biotech stock that I thought was overbought, but just got more overbought with time. It might look like a mistake to bail from this position today, with the stock finally turning negative, but I think it’s an opportunity to get out while the getting is good, or at least as good as it’s likely to get.
As of this writing, we’d have to pay $1,155 to close out our spread, which we received $755 for entering. This will go down as a $400 loss on $1,745 risked, or about 23%. That’s manageable. By Monday, with any luck, we’ll have taken bigger profits on our IWM play, and our BA credit call spread will continue to go deeper into the black. This will give us much firmer footing to embark on new positions.
We’re going to close out our credit call spread on GILD, accepting a loss of around 20-25%. Mea culpa, readers.
We’ll buy (buy-to-close) GILD’s $120-strike July calls, which we sold short on June 11; and we’ll sell (sell-to-close) GILD’s $125-strike July calls, which we held long as the recessive leg of our spread.
We can’t win ’em all, and after an impressive streak to start this series of investment picks, our gains have been stymied by my misreading of the Greek debt crisis. I’m far from the only one who thought European turmoil would be bullish for the greenback and put extra pressure on dollar-denominated stocks, particularly ones with foreign exposure, but being among the crowd is no consolation when you’re wrong, at least not to traders who want to make money, not friends.
Could GILD continue to fall and confirm our original “overbought” thesis? Yes, but with five other positions open and the desire to keep the portfolio at a maximum of around $10,000 risked, our GILD credit call spread looks like the best bet to take off the board, so that’s what I recommend.
PM $80/$82.50 September debit put spread
Entry price and date: $0.97 on 5/18/15
Position Size: 20 contracts per leg
Total Risked: $1,940
Closed: Sold at $1.19 on 6/5/05 (10:43am ET)
Profit/ Loss: +22.7% ($440 profit)
MCD $95/$100 June debit put spread
Entry price and date: $2.15 on 5/21/15
Position Size: 9 contracts per leg.
Total Risked: $1,935
Closed: Sold at $2.60 or higher on 5/28.
Profit/ Loss: +20.9% ($405 profit)
QQQ $113/110 June credit call spread
Entry price and date: $1.36 credit on 5/28/15
Position Size: 12 contracts per leg
Total Risked: $1,968
Closed: Covered at $0.16 on 6/15/15 (12:16pm ET)
Profit/ Loss: +90.2% ($1,776 profit)
USO $21-strike July puts
Entry price and date: $1.48 on 6/1/15
Position Size: 12 contracts
Total Risked: $1,776
Closed: Sold at $1.96 on 6/5/15 (9:33am ET)
Profit/ Loss: +32.4% ($576 profit)
AAPL $131-strike June calls
Entry price and date: $1.53 on 6/4/15
Position Size: 13 contracts
Total Risked: $1,989
Closed: Sold at $0.55 on 6/11/15 (2:23pm ET)
Profit/Loss: -64% ($1,274 loss)
Jason Seagraves is a 37-year old writer, options trader, entrepreneur, homeschool dad, and evangelist for free-market economics. He launched a successful dot-com business while still in college in the late 90’s, and then went back to school to graduate with a degree in Business, concentration in Finance, from Siena Heights University in 2006. That year, he also earned a Series 7 stockbroker’s license, but opted to pursue a career in freelance writing. From 2008 through 2013, he worked as a “ghostwriter” for a popular stock and options trading newsletter, before joining up with Dividend Lab for a stint in 2014. Now he’s back providing market commentary and actionable options trades for the Big Deal Newsletter, and he’s happy to be here!