Rolling Out a Couple of Jan. 2014 Puts

By Paul Price of Market Shadows

Market Shadows has a number of put positions approaching expiration date next month. We went ahead and tended to two of them this morning. Both underlying stocks, Caterpillar (CAT) and Agrium (AGU) have lagged the market and our initial expectations.

CAT was trading for $91.45 on our Feb. 22, 2013 trade inception date. It was $85.28 as of 11:10 AM today. We originally sold one Jan. 2014, $100 put for $14.60 per share. We closed it out today @ $15.30.

That is the beauty of being option sellers.

CAT declined $6.17 per share from the day we started this trade but our loss was limited to just 70-cents /share due to time decay. We still like the long-term prospects for CAT so we sold a new Jan. 2015, $100 strike price put at the $19.00 bid price.

We took in $370 more for the 2015 put than we needed to lay out to close out the 2014 contract. Our commitment remains the same- stand ready to buy 100 shares of CAT if exercised later.  The new break-even price is reduced to $100 (the strike price) minus $19.00 (the newly collected put premium) = $81.00 per share.

We sold $100 puts twice, for $3,360 ($1,460 + $1,900). We only bought back once, for $1,530. Our ‘if put’ price is now lower than it would have been the first time around.

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Canadian fertilizer company Agrium (AGU) was $91.74 at trade inception on April 15, 2013. The stock was $90.83 a few minutes ago. With the shares now quoted above our $90 strike price, this position could easily expire worthless on Jan. 18, 2014.

We closed early for $2.45 per share to eliminate any risk of a near-term pullback while locking in a decent gain on the original transaction.  Since we still expect a higher price over time we resold a $90 put out to Jan. 17, 2015 @ $10.45.

Agrium dropped by $0.91 per share from when we first sold the Jan. 2014 put. Despite that, we earned a profit of $5.35 per share or $535 for the contract due to time decay. Here’s the math on the entire roll-out.

We sold Agrium puts twice, for $1,825 ($780 + $1,045) and only paid $245 to buy back once. Our new break-even (if put' price) has been reset to an even lower $79.55 per share.

Both the CAT and AGU 2014 expiration transactions will now be reflected on our closed-out list. The new 2015 versions will appear on our open positions list.

See full details of all Market Shadows’ option trades here .