In almost a week ago I announced on my Facebook page an intent to roll over my Safeway (SWY) January contract. I felt like this could be a great opportunity to roll the contract to a lower strike and further away in time and make money.
Safeway seems to struggle moving higher as investors see problems in sustaining the company’s growth in the following year. I do not see a problem to be that serious, however I agree that the stock is overpriced and some sort of correction would be welcome in order to open a new position in this dividend paying stock.
What did I do today?
I bought back my original contract at a minor loss; and sold a new contract with a lower strike price with expiration further away in time.
Here is the trade detail:
BTC 1 SWY Jan 18 2013 34 put @ 1.79
I opened this trade @ 1.80 originally, so with commissions, my loss is 17.58 dollars on this trade. Then I opened a new trade:
STO 1 SWY Jun 21 2014 33 put @ 3.21
This trade has been made in TD Ameritrade account using their platform Trade Architect and I opened it as one trade (a diagonal spread) to save on fees, although here it is presented as two trades, it actually is only one trade.
Putting all this together, I added additional $142 premium to the original trade. Now my original trade $180 plus this trade ($321-$179=$142) makes the overall profit be at $322.
Now I need to wait until June 2014 (or roll the trade over again) to claim this premium as definitely mine.
For those who may not be familiar with a nomenclature, STO = sell-to-open, and BTC = buy-to-close.
Happy Trading in a New year!
Great post. It takes guts to post actual trades on the net like that. I admire your frankness. I also understand what you’re trying to do by extending out your expiration date. It’s a strategy I’ve used often. Nowadays, I prefer to skim off profits by shortening the time frame and selling out of the money puts and calls. The shorter the time until expiration the closer I can sell an option near the strike point. I like to sell primarily time decay when I sell options. In fact, my strategy is to try to sell options that expire at the end of each week. I wish you luck with Safeway. I’ll be watching your progress. Good Luck and Good Trading.
Dennis, thanks for stopping by. I try to be as open as possible as this blog serves to me to establish accountability and a good track for other readers and bloggers to see that I mean my trading seriously. My dream is to provide investing / trading coaching in the future and I want investors to see my track record. I am not ready for it yet, but once I am, hopefully this blog will have enough history to show my results for other, beginners who want to follow.
As far as the options trading I understand your approach and wanted to do the same, but my account isn’t that big yet to afford it. Selling puts a few weeks or just a week prior to expiration will allow you to take around 20 – 30 dollars in premiums. In order to collect a decent premium, you would have to open 2 to 3 contracts to collect around 100 dollars in premiums. But that multiplies your money involvement as your strike is multiplied, for example a put with 34 strike is multiplied by 2 or 3, depends on how many contracts you buy. If you have a cash secured approval, you would need up to 10,400 available to secure such trade. If you have a full margin (tier 3) approval your maintenance will be only around 3,500, but you still need to have 10,400 available in case of assignment. I do not have such cash, so my strategy is a ladder. With a ladder I will be selling the farther rungs, collecting juicy premiums, while the closest rungs are expiring. And I can only hold coverage for the closest rung maintenance.
Good luck to you too and Happy New Year!