Options Trading Income Report – May 2014

Wow…how is it of all the stocks I screened that CLF decides to take a jump off a “cliff” (yes, I realize the irony). No worries though, with options there’s always an…option. Okay, seriously I’m done with the horrible puns!

I’ve learned a great lesson this month, one which you shouldn’t have to go through the same pain to learn. In the future, when I am “put” a stock I MUST buy a put at or above the strike price which I was assigned the stock. Why you ask? Great question!

This type of put is called a “protective put”. It allows you to sell the stock at the price you choose when you buy the put and is generally use to protect against a fall in price of a stock. This is exactly what happened to my dear friend Cliff.

The month of May was a bad one for Cliff. Below is a chart of CLF, provided by TradingView and the general trend is quite obvious…down. Unfortunately, my brain didn’t turn on to the “protective put” idea until last week. I’ve since bought a protective put with a strike price of $18 which expires in October. This means any time before October I will be able to sell my 200 shares of stock in CLF at $18/share. This is below the $20/share I was “put” the stock, but I’ll be able to make this up selling options. My goal between now and then is to just break even at my starting point of $4,861. My account is currently sitting at $3,966.64, so I’ve got some room to makeup.

On a positive note, I’ve owned CLF long enough I’ll be paid a dividend in June! It won’t be much, just $.15/share which will come out to a grand total of $30. This, however, will help lower the adjusted share price which will help in the long run. Stick around until next month to see how the story continues to unfold!

CLF Apr to Jun stock price

CLF Apr to Jun stock price

As a quick aside, TradingView.com is a GREAT resource for beginning options traders or investors who don’t have or want to spend money on other chart viewing sites. Go to my resource page to learn more.

Account

Net Income:  $64.77 (includes money market dividend of $.02)

Adjusted Share Price:  $ 19.08

Trades

Transaction Option Quantity Fill Price Commission Fees Net Amount
Money Market Dividend .02
STO CLF 23 May 14 (W) 19.50 Call 2 .15 5.00 .09 24.91
BTC CLF 23 May 14 (W) 19.50 Call 2 .04 5.00 .07 (13.07)
STO CLF 6 Jun 14 (W) 17.00 Call 2 .29 5.00 .09 52.91

 

What’s Next

Keep my head above water! Just keep selling premium and not worry about the decline of CLF’s share price. With the protective put in place, I don’t have any worries about the continued decline in the stock’s price and the affect it has on my account.

Join the discussion 2 Comments

  • Martin says:

    Hey Patrick
    I just found your blog and started reading some of your posts. This one is the first one.

    I trade CLF too. I first started selling naked calls against CLF when the stock broke down from 16.5 level on July 3rd. It worked well.
    When it recovered back to $16 from 14.5 level I sold naked puts creating a short straddle. But then the stock continued pushing my call leg and I had to roll higher. Now I hold 14 puts – 19 calls straddle. It was quite interesting trading. Hope none of the strikes will be breached until expiration.

    Nice blog. And good luck in trading.

    • Patrick says:

      Martin,

      Thanks for the nice comments and it’s great to find another CLF enthusiast!

      It’s been quite the roller coaster ride learning to trade options with CLF and the education continues. I think you’ve got a great straddle position on. I think the only threat to your position may be your 19 calls whenever the new CEO announces his plan to sell off some of CLF’s assets and actually starts to act on that plan. CLF seems to take off on any positive news. Just take a look a the bump it got today with the announcement of the $200M share buy back program!

      Thanks again and please let me know how your CLF trade concludes!

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