Well Puts

Another day, another new low for UNG. This is why you need to pay attention to moving averages. It is very tempting to try to pick a bottom, but it will only cause you grief (and money).

I closed the UNG puts I wrote yesterday for a 2 cent loss. Too risky and taking up too much mental capital. There is no reason to be in that trade.

Weekly chart.

Sold to open UNG December 9 puts. Possible double-bottom at $9. Moving averages are still in bearish orientation.

I had the following options expire in October 2009.

AMB Property Corp. (AMB) – I sold to open AMB October 20.00 puts back on September 8th that expired OTM. This is a five week return of 4.21%.*

CardioNet, Inc. (BEAT) – I sold to open BEAT Oct 7.50 calls on September 21st. This is a 4 week return of 5.23%.* I also bought some BEAT 7.50 calls on October 6th. BEAT is still range-bound between $6 and $8.

Diana Shipping Inc. (DSX) – I sold to open DSX October 15.00 calls back on September 16th that expired OTM. This is a 5 week return of 3.28%.* I might turn around and sell some November 15 calls right away.

Energy Conversion Devices, Inc. (ENER) I sold to open ENER October 13 puts in my taxable account on September 17th. I was put these shares at $13. When I opened this trade ENER had a flat 50 day SMA but it has since started declining. I’m leaning towards selling some November 13 calls on any further signs of weakness. ENER does have some nice volume on these recent rallies as seen on the hourly chart.

I also had some ENER October 14.00 calls expiring OTM in my IRA. I sold these back on September 21st and they expired OTM for a 4 week return of 3.90%.* This brings my cost basis down to $12.48.

United States Natural Gas (UNG) – I sold to open UNG October 12.00 calls back on September 18th and again on the 24th. These calls expired OTM for a 4 week net return of 4.12%.*

* The return is calculated using the premium I received from the sale of the options (less commissions) and the capital required to pay for their possible assignment.

I’m not convinced this recent UNG movement is a lasting trend. UNG is right at a declining 50 day SMA as well as some resistance from a declining trendline (see chart). Given these technical indicators and reports of record natural gas inventories I decided to sell more calls on my UNG position.

I had the following options expiring in September.

Energy Conversion Devices, Inc. (ENER) – I sold ENER September puts back on July 23rd in my taxable account. This is a 2 month net return of 7.54%.* I sold ENER October 13 puts on September 17th once I was confident the September puts would expire OTM.

I also hold ENER in my IRA and had some September 16 calls expiring which I sold on August 10th. This is a 6 week net return of 4.64%* and lowers my cost basis to $13.01.

United States Natural Gas (UNG) – I had September 14 calls expiring that I sold back on August 10th in my taxable account. This is a 6 week net return of 4.95%.* and brings my cost basis down to $11.52. I sold some UNG Oct 12 Calls in my IRA on Friday, September 17th before close.

RTI International Metals, Inc. (RTI) – I sold to open RTI Sep 17.50 puts back on August 4th. This is a 6 week net return of 6.24%.*

Smith International Inc. (SII) I sold SII September 25.00 puts back on August 13th. This is a 5 week return of 2.77%.*

Basic Energy Services, Inc. (BAS) – I sold BAS Sep 7.50 puts on July 24th. This is a 6 week net return of 15.23%*.

I closed out these September options prior to expiration:

• CardioNet, Inc. (BEAT) on 9/17
• Carpenter Technology Corp. (CRS) on 9/4
• JA Solar Holdings Co., Ltd. (JASO) on 9/16
• TBS International Limited (TBSI) on 9/9

* The return is calculated using the premium I received from the sale of the options (less commissions) and the capital required to pay for their possible assignment.

Just before close on Friday I sold October 12 calls on a portion of my UNG position. UNG has some heavy resistance at the $12 area with the declining 50 day SMA and a descending trendline. I will sell calls on the remaining portion of my position if there is further weakness next week.

A week to go before September expiration and I have a lot of puts expiring. I need to plan out what I’m holding through expiration and what I need to make adjustments on. The market has been up for every day for a week now and a pullback seems imminent. However, the market doesn’t care what I think and this could continue. I need a plan either way.

Oil & Gas Equipment & Services

BAS was a lottery pick no doubt about it. I’m short the Sep 7.50 puts and there is a good chance I could be put this stock but after the melt-up this morning I’m not so sure. I’m holding for now.

SII is also moving according to plan. I’m short the Sep 25 strike puts. I see no reason to adjust this position at this point.

Semiconductors

ENER
There is a chance I will be put ENER at 12.50 but I’m fine with that. ENER had a really big move on very high volume back on the 8th. It is currently battling the declining 50 day SMA so I need to be concerned with that. If put the stock I will likely look to immediately sell 13 or 14 strike calls on it.

JASO
The JASO and ENER charts look pretty similar. JASO was more of a gamble as I sold these puts well in the money to begin with (Sep 5 puts). Selling short ITM puts can be a very profitable strategy but you have to be very careful. I did this successfully with JASO back on June 24th and bought them back on August 11th.

There was a lot of volume on that recent push to 4 and I’m hoping this is some consolidation. If it can’t get back above 4.10 before expiration I’m getting out or rolling them to October.

Metals and Minerals

RTI I’m short the Sep 17.50 puts. This is moving nicely. Higher highs and higher lows, no adjustments necessary.

Medical Instruments and Supplies

BEAT was a ridiculous trade and I am little embarrassed to even have it on here. I’m embarrassed because the reasons I entered the trade completely go against my rules. However, it is moving in my favor and it looks to have absorbed the 50 day SMA. High volume on recent rallies might suggest accumulation.

ETF

UNG
I am short some UNG 14 strike calls that should expire well OTM. UNG continues to rip, but I’m still staying away until that 50 day SMA flattens out. I will look to sell Oct 14 calls after expiration.

It is very, very tempting to sell some UNG puts this afternoon. However, I’m not going to sell any puts until I see some of those short-term moving averages flatten out. UNG imploded far worse than I expected, but the market doesn’t care what I expect and UNG can still fall much further. If 9.00 does turn out to be the bottom then happy days.

I still don’t feel too much pain because my cost-basis is $11.52. I was put some UNG at 13 and 14 at August expiration and I still have plenty of cash to add to this when I’m ready.

I didn’t have a lot of options expiring in August. I bought-to-close my JASO puts back on Aug 11th for a nice profit and ZOLT on the 19th at breakeven. I only held DRYS and UNG puts through expiration.

UNG - I choose not to roll my UNG puts into Sep therefore I will be put some UNG at 13 and 14 (2 different accounts). This is the third month I’ve sold UNG puts (June and July expired OTM) so my cost-basis is thankfully much lower than the strike price.

UNG just can’t seem to find a bottom so I need to be very careful acquiring much more. The hourly chart looks terrible. There was a lot of volume on Thursday and that could have been the final shakeout of any weak longs but only time will tell. I will be watching this for a pop next week and possibly sell some Oct 11 or 12 puts.

DRYS - I sold some August 5 strike puts back on 7/9 that exipired OTM. This brings my cost-basis down to $8.73 from a starting point of $14.76. It’s always nice to be able to hold through expiration and collect the entire premium.

All the MA’s are flat so I need to wait and see where the next short-term trend is. If it can break through the 6.25 level it could get going to the upside nicely. If we breakdown and head back towards support at 5.00 I will look to sell more puts again.