No home runs today but a lot of things slowly trending in the right direction. Positions burning some theta, another day getting us closer to being on the other side of earnings. Most positions are in the green, the only two that aren’t are DraftKings (DKNG) and WD40 (WDFC). DraftKings has, at least for the moment, caught that support at $58 so it’s only slightly down due to some near-term Vega and inexact timing on our entry.
On the other hand, we seemed to have caught a bit of a falling knife with WD40. I still like the $240 strike, but should have waited another day to enter the position. Between the stock price coming against our position a bit and the slippage in the chain (they’re not very liquid options, which is incredibly ironic for WD40), we are in a place where we have to sit through some heartburn but can’t adjust yet. My two first adjustments when the price falls quickly against an option we put on are:
- If there is still decent buffer on price and I’m still confident in the strike I will sell a second contract at the same strike to average up the total premium received.
- If the original strike is looking dicey I will explore what I call a “staggered” second contract, where I sell a second a few strikes below the first for the same or more premium.
In the last week I’ve actually done one of each of these adjustments. I performed adjustment #1 on DraftKings yesterday, which at the moment seems to have been the correct move. On Friday I performed adjustment #2 on Alibaba (BABA), which in hindsight was definitely a decent move.’
The issue with WD40 at the moment is, due to the price of the underlying (around $256 per share at the time of writing), we can only really allocate one second contract to the position. Since the timing of the first one was off, we don’t want to spend our only “double down” move too early as well. Though it’s approaching oversold territory, there’s nothing to suggest it can’t keep falling for the time being, so doubling down the $240 strike is not advisable. Yet it hasn’t fallen enough in price to justify staggering to a second lower strike. So patience is the key for the next few trading days. We can be more aggressive in sizing into cheaper tickers, but the next move here has to be a prudent one.
Today we closed a contract at US Steel (X) that was expiring Friday as it had dwindled down to $2. I try to buy back expiring winners rather than letting them expire as a best practice. There is no point in time exposure for $2, just give me my capital back. We have another position in X still on for a later expiry anyway.
I opened a “get your beak wet” contract on Micron (MU) today at the $82.50 strike. I don’t normally like to trade tickers fighting against highs, but it’s one of the few technology tickers we follow that’s past earnings. The 1.5% potential return on capital is way better than we’ve been getting on “real” companies lately, and the ticker is inexpensive enough that we could do both of the adjustments we’ve outlined above and not sweat allocation.
Speaking of allocation, it’s only up to around 18%. I can see some opportunities starting to come to the surface, but our WDFC trade shows not to scrounge too much.
Communitea Trade Update: Our first Communitea trade (Sumo Logic $17.50 4/16 expiry) took profits today. I bought it back for $11. After commissions this trade netted us $50.70 on $1750 of capital in 26 days with a 2.9% net return. This return and duration equates to just shy of an 82% annual rate of return.
We still have our second Communitea trade on, the Fisker (FSR) $12.50 strike expiring 5/21. This trade is currently is about flat at this time. The price of FSR keeps slipping, but the position isn’t in any trouble yet. If you wanted to get in on this trade you still could get the $80 premium we got for it, maybe even a buck or two more.
