How to build a new position – Boeing (BA)
First an update on two other positions:
WalMart – We have been working through some losses on this one due to it’s extreme bear market (see other blog posts). Two weeks ago we were down $5000 for the year, we’re now down $4000 since Jan 1. Our daily time decay is $45, so we are earning about $1300 a month. Also, WMT will pay a 49 cent dividend on August 8, so we want to keep that in mind and try to collect it. This is a covered call position and we are short the weekly 73 calls. As this week’s calls expire we will move them to next week. As of now they would expire worthless so we will wait to see what happens later in the week.
Apple – We own some shares, we are up $2900 on AAPL since Jan 1. We are not short any calls, but we will sell calls on a day when Apple is up. So far, that is not today. Patience is required here.
Now, on to Boeing. We are up $5395 on our trades in BA since Jan 1. Last year we made $4900 trading BA, so this year’s income from BA is on a pace to more than double last year’s. As of today, we are out of BA. At the end of last week we had a collection of different puts and calls, they all expired in the money, & they were all exercised. The positions were offsetting and the account ended up with an equal number of shares being put and called away. We collected all of the time decay on every contract as our position went to flat. One of our rules is this: Sell calls on Up days, sell puts on Down days. Today, BA is down so it’s time to build a new position.
We are placing orders to sell some naked puts. Subscribers get the exact trades before they are sent to the market. As always, in smaller accounts (or with smaller risk tolerance) you can do this trade as a vertical. You would sell a put and also buy a put with the same expiration but at a lower price. For example: If you sold the 144 put (next week’s expiry) and bought the 143, you would take in $34 which would be your max profit on the trade. You could lose a maximum of $66. At expiration, verticals require rolling trades that will be different from a naked put position. Pay attention to that.
We will continue working on BA as a permanent position. It’s difficult to start trading a new symbol, as evidenced by our struggles with WMT. Once you have worked through a position long enough to mold it into an ongoing income position, stick with it. Your time is better spent looking for ways to make more money with symbols that are creating income. Every time you add a new symbol to your portfolio, the odds are against you. Most likely you will be spending some months trading around your new position in order to make it a profitable one. A new position has a 66% chance of initially moving to where you don’t want it to go, so avoid that as much as possible. (66%? — A new trade will have 3 possible outcomes – It will be a winner, a loser, or flat. You will get one of those, but you don’t get to pick which one!)
Stay optioned, my friend