Today I made a move with my U.S. Steel (X) positions that is the biggest move since the inception of “Main Street beats Wall Street.” This move gets a bit involved and will be confusing for Grasshoppers. The first thing I want to talk about is the definition of LEAP. Long-term Equity AnticiPation Securities (LEAPS), have the same characteristics as standard options, but with expiration dates up to three years in the future. Basically it’s a long-term option. Please Google the term and read up on LEAPS.
This market is moving more than any “professional” anticipated. For sure more that I anticipated. I’m in pretty good shape with my position but I do have two short positions I was worried about. I had 50 Naked contracts of X $18 Calls and 50 Naked contracts of X $18.50 Calls. With the market moving so well these positions are losing money. With my account going up in the last few months I decided to change my two Naked Calls into one LEAPS. This was done with a combination of Roll Outs with my existing Call positions, which are two 50 contract positions. Combining them into one 100 contract LEAP. I wanted to lock up half my account with a long-term option and manage the other half of my account with my normal short-term options. After buying my way out of my two 50 contract options, which were losing money, I sold one 100 contract option which will expire on January 20, 2017.
If you want to see all the trades involved, you can see them in my Active Trades. This gets very confusing because these two 50 contract Call have been Rolled Out on there own a few times. The bottom line is after all the previous Roll Outs and the buybacks, before my final Roll Out, I am down -$18,650. My final Roll Out was the selling of the LEAP. The LEAP was selling 100 contracts of the U.S. Steel Jan 20, 2017 Calls which brought in a premium of $3.10. Thats a total of $31,000. Here’s the order:
Sell to Open 100 X 1/20/17 $21 C @ $3.10 (+$31,000)
I know this is all very confusing, especially for Grasshoppers. I’ve been meaning to do a LEAP for a while to invest some money in a long-term situation and I figured this was a perfect opportunity. I will still have to watch this position closely because U.S. Steel is At-the-Money for this Call. But I do have six months before expiration so it won’t be as stressful. For you who are just catching on to what I’m doing, I’m sorry to throw this curve ball at you. You must learn all the tools of trading. And this is a good one!
If you go to my Active Trades to follow this trade and you don’t understand, please send me an email. I will explain it so you understand on a one to one basis. That’s right, personal care.
It’s hard to put a Risk Factor on this trade because it’s so far from expiration. But since it’s a Naked position, for now, I’ll give it a Risk Factor of 3 or 4.
If this trade plays out the way I want and expires, It will be a return of 6%. This will be a great six month position. At the moment this Call is Naked, I did not buy the stock. So, in reality I did not make an investment yet. I would love if I never had to cover my position by buying the stock. I will not speculate on where I might have to buy the stock. I’m hoping the stock has a big pullback. But news is always flying on U.S. Steel so you never know. Also earnings get announced on July 26th. Who know what will happen with that news.
Steve
The Options Coach
2 comments on Huge Trade with U.S. Steel