Building a position in Boeing

Earlier this week, we sold new BA puts at the 143 and 144 strikes, taking in $516 on six contracts. Today, we rolled those positions out to next week, taking in another $350. Our total cash income on this new position is now about $850 after subtracting the transaction costs. Our time decay (Theta) is about $47 a day. Now, the plan is to leave this alone until next Wednesday and then see what choices present themselves. The market is closed next Friday, so we will adjust this position a little earlier in the week than normal. If BA would drop 1% on any day, we will look at increasing the position.

The Walmart position – Total P&L year-to-date is a loss of $3400 including the income from 2 dividend payments. We closed our outstanding 73 calls yesterday when we bought them back at 5 cents each. Today, we started selling July 72.5 calls expiring in 3 weeks. We decided to go ahead and take in some cash then let this position work for a month. The stock has been in a very strong bear market for a long time, with no end in sight. Our only good choice is to sell the at-the-money or in-the-money calls and take in cash as we wait for the stock to bottom. We are also very aware of the upcoming 49 cent dividend which will go X-Dividend on August 5th. We are using our existing position –┬álong WMT shares – to generate income. We are long 900 shares of WMT and short 4 July 72.5 calls. We have orders in place to sell more calls should WMT move higher today. Our daily time decay is only $8 for now. The shares were originally purchased earlier this year at an average price of $86.11. As a stockholder, we have lost $12,500 on the shares. As an option seller, we have made back about $9000 of that by selling options. This is a good illustration of how to use options to reduce risk and protect your portfolio. Eventually, our income will overtake the decline in the shares and we will have an “income property”. We don’t need good timing, we just need good risk management and plenty of discipline.

The Apple position is also not very productive right now, so we wait patiently. Sometimes, doing nothing is best. We own some shares of Apple, and would like to sell calls against them but the stock has not had much of an UP day recently. In fact, Apple is in a bear market at the present time. We could sell ITM or ATM calls now and the new bear market would give us justification for doing that. We have learned that strong stocks don’t usually stay in bear markets for long, and to avoid being whipsawed on the position, we will be patient. In a short time we will find out if this was the correct choice or not.

How does an option trade get “whipsawed”? Here is an example using our Apple position – : We sold some puts on AAPL and they expired ITM, so we ended up owning the shares. We took in some income by selling calls against those shares, and then the price fell a little more so they expired (or were closed). Now, the stock price has fallen a few dollars since we got in. We can sell lower priced calls at this level, but if the stock price moves back up, we will miss the move and be “whipsawed” as we got in too early on the upside and got out too early on the downside. We’ll wait a short time and see if a better call-selling opportunity presents itself. If that doesn’t happen next week, we will move on and sell calls at a lower level. It very often pays to trade a little slower………but maybe not! We have a plan to deal with either outcome.

Stay optioned, my friend!


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