Rinse and Repeat

At my last writing on Monday, May 9th, my position was ten short SVXY puts for the March 13th expiration at the 54 strike, sold at $1.40 per contract, or $1,385.20 received.  My choices in disposing of the position (or allowing it to be disposed for me) was to either buy these puts back before Friday or allow the contracts to expire and accept assignment of shares at $54, should conditions dictate.

On Tuesday, May 10th at 9:40 AM, I noticed that SVXY opened above $56 and, not knowing what would happen later in the day, I took that early-morning opportunity to be the proverbial early bird, and I bought to close all ten puts for $0.55 per contract (please excuse any rounding of decimals), paying $564.77.  I considered this completed venture to represent a profit of $820 and I was happy with it, but not so happy that I didn’t immediately sell more puts.

One minute later I sold ten puts at $1.11 each, also for the May 13th expiration but this time at the 56 strike.  For these I brought in $1,095.23. The scenario was identical:  Either buy back the puts at any time or allow them to expire and accept assignment of shares if contract buyers so desired, depending on share price anytime before, or more likely right at, the contract’s end date.  This action on my part was simply a roll to a higher put strike.  (See illustration below for all of these transactions.)

The remainder of Tuesday was uneventful, but the next three weekdays saw my strike price crossed going up or down at least once per day in either direction.  In other words, it was run over and then run over in reverse and then run over again just for good measure.  On Friday, May 13th, SVXY touched a low point of 53.46.  I knew 56-strike put holders must have been whooping it up at the opportunity to sell their shares to me for $56 (their immediate gain / my immediate loss.)  I must have stopped watching it and resigned myself to getting expensive self-bought presents under the tree over the weekend or not; I’d wait and see.

Sure enough, on Saturday, some hardworking people [somewhere, not sure where] made sure that 1,000 shares of SVXY, having just been through the car wash and with the tires shined up to look new, got parked in my driveway while I was sleeping to greet me in the morning.  It turns out that I set about slapping a “for sale” sign on that mess of SVXY without wasting a moment.

My actions on Monday (May 16th) morning are regrettable to me now, but I’ll explain them, anyway.  Interestingly, they closely resemble my actions of the previous Monday in which I immediately sold freshly-assigned shares and then wished I had not.  One difference is that this time, I had no associated covered call already in place to go with the shares.  I planned to put one in place first thing Monday morning, though, and I went against my own plan.  It would have been better to do that, so I’m making a mental note to myself to not throw my own strategy out the window so hastily.

What happened (see illustration above)  is that upon seeing a gap up and immediate rise in SVXY right after market open, I decided I’d do anything prudent to get rid of the shares.  I sold them for a price that, when netted against the put sale associated with the assignment, came out to $13 in my pocket.  It wasn’t what I had set out to do, and sand was deposited in my swimsuit by the shovelful all day on Monday as SVXY rose, without stopping, to a late-afternoon peak of 57.16 ($2+ over the price at which I had bailed.).  I could have sold my stock for a nice profit of over $1,000 rather than taking a $1,000 loss as I did.  I also could have sold covered calls at the 56 strike (as was my plan, so that my shares would possibly be called away at the same price for which they had been put to me, and I’d bring in the premium, irrespective of the fate of my shares.)

The illustration above shows that the broker tactfully merged the short put and the sale of the resulting shares together instead of showing a gain and a loss. We could pretend nothing happened, but I knew I took my own work apart as soon as I had constructed it.  Moving on…

To get right back in the saddle instead of moping over my mistakes, I set about selling either a strangle or just a fresh set of puts for the May 20th expiration.  All day Monday I played “sub and snub.”  That is, I submitted sell orders, and buyers snubbed them.  The standoff ended in a natural manner called End-of-Trading-Day, and I happily sold “better” (lower strike) puts on Tuesday (today, as I write) morning as such:  SVXY 55.50 puts for the May 20th expiration for $1.45 per contract.  Market conditions and sticking to my plan (which can change as market conditions change, but hopefully won’t be discarded as quickly this time) will dictate the fate of these puts, and my next post will tell the adventurous or mundane tale.