This is the month my strategy finally gets put to the test. I REALLY need to get around to out lining my strategy here on the Naked Options Trader and I’ll do that shortly. This month I was put the 200 shares of Cliff Natural Resources (CLF) which I sold a two put contracts against. What does that mean? It now means I own 200 shares of CLF at $20/share!
Unfortunately, CLF immediately decided to take a nose dive shortly after I was put the shares. April was all about trying to keep up with the rapid descent in the stock. For the month of April I made $111 in selling puts/calls against CLF. That’s a 2.28% return on the original $4,861 and for the entire time my income from selling puts/calls is 5.3%.
Now that I own 200 shares of CLF, the goal will be to continually reduce the cost basis of the shares (what I paid for them). The cost basis at the time I was put the shares was $3,950, or $19.75/share. Why did I break it down into a per share price? It’s easier for me to keep track of how close my adjusted cost basis is compared to the current market price. I reduce the adjusted cost basis every time I sell a call against the shares. The goal is to get the adjusted cost basis below the market price, which will allow me to sell a call and have the shares “called” away at a profit.
If this all seems a little confusing don’t worry! I’ll outline it all clearly when I explain what my overall strategy and how I picked CLF as my target stock to trade. Note, below for the balance this is only the cash balance because the value of my account fluctuates daily based on CLF’s current market value.
Net Income: $111.04 (includes money market dividend of $.04)
March 31, 2014 Balance: $ 1.019.04
|Transaction||Option||Quantity||Fill Price||Commission||Net Amount|
|–||Money Market Dividend||–||–||–||.04|
|STO||11 Apr 14 (W) 20.00 Put||2||.25||5.00||45.00|
|STO||CLF Apr 14 20.00 Call||2||.17||5.00||29.00|
|BTC||CLF Apr 14 20.00 Call||2||.03||5.00||(11.00)|
|STO||CLF 25 Apr 14 20.00 Call||2||.24||5.00||43.00|
|STO||CLF 2 May 14 18.50 Call||2||.05||5.00||5.00|
The goal for May is to identify and sell those calls which will pay the highest premium for the options, lower the adjusted cost basis the most and don’t allow the stock to be called away for a loss. This is probably easier than it sounds, but we’ll see!