CHK is hitting a possible trend line.  What was the trend line of higher highs before it broke out at the beginning of this year, could offer a support range.  The 50 week moving average happens to coincide with that same price point giving extra support.  If the 18 month trend line of higher lows ends up being the support line, CHK could go as low as 40 or so.  That’s just above the 100 week moving average as another coincidence.  With my two naked puts at the 60 strike I could lose another $2000 in the fall to $40, but I’ve decided not to sell naked calls since CHK could rally back to the $60+ range just as easily, especially if a hurricane hits the Gulf and natural gas prices soar.

Trading around $49 as I write this, CHK could move $10 in the blink of an eye in either direction.  With a slightly longer time horizon, I see the upside as a greater possibility.  This is not for the weak of heart by any measure.  CHK is about as volatile as they come.  I’m up for the risk and just placed a limit order to sell new naked puts at the September 40 strike if CHK heads much closer to it.  Hopefully that order won’t hit and CHK will head north instead.  My naked puts are so deep in the money that I’ll make $2 for every $1 CHK goes up.  Williams %R is dipping into the oversold range and once it comes out of that CHK could be off to the races again.

I had planned to stay less invested by now, but have jumped in deeper and now plan to make a lot of that back.  I didn’t plan to lose $7k on paper to start with, so we’ll see if my plan du jour works out any better.

I thought that I should reduce my risk by selling a lower strike and the premiums met my trading model for projected returns.  I’m glad I lowered my strike because FCX is down another $3.50 from when I traded on it two and half hours ago.  Recharting it now, I can see why I lowered my strike, but can clearly see that I should’ve placed my limit higher.

My Cummings Inc (CMI) naked put expired worthless last week and I have been waiting for a new entry point to show.  I waited too long and only saw CMI climb higher for the past few days.  I priced my new limit order to hit somewhere close to when CMI dropped back to its 10 day moving average.  While CMI was trading at 68.09 I sold two CMI September 60 naked puts (CDMUL) and received $488.50 after commissions. 

CMI continued its decline this morning and even fell below 66 briefly before inching back up by lunch time.  Firmer longer term support for CMI is around $60 with the 100 day moving average climbing higher, so I think I’ll be safe on this one and might have to consider selling more puts if/when CMI actually proves $60 is a low.  Then again, the 20 day moving average held support today, so far.  Maybe I timed it better than I’m starting to second guess myself.

My DryShips (DRYS) naked puts expired worthless last week.  I’ve been watching the trend lines to try to find my new entry point.  While DRYS was trading at $75.21 I sold two DRYS September 65 naked puts (DQRUM) and received $788.50 after commissions.  DRYS has been bouncing around its 10, 20, 50 and 100 day moving averages for the past month ever since it fell below the 200 day moving average.  The 200 day moving average seems to be a ceiling that DRYS cannot close above more than one day in a row, if it even does get across it.  What I see that I like is the rising trend line of higher lows that started in January and then held support again in March and again earlier in July.  Take out the extreme (only one deeply down day without repeated confirmation) and you’ll see DRYS is dead on that line.  I’m expecting that line to hold and if it doesn’t, not drop more than a few dollars past it and thereby keeping my September 65 puts out of the money through expiration.

I’ve taken in just over $2900 in premiums this week.  Now I have to wait to see if the melting away of time value (Theta) will work for me as I’ve planned.  I have some good cushions to the downside, but positions like CHK and NVDA are eating up my paper profits before I can have another few solid fully profitable months in a row, like in the good old days of last year.

As I expected, Freeport McMoran (FCX) would move back above my buying price of $105.00, so I sold while it was up above where I bought it, but not at the high of the day as luck would have it.  My goal was to get out without losing on the stock itself so I could and just be happy with the premium received.  I can rewrite naked puts without worrying about the wash rule not allowing me to take losses on the stock since I don’t have any.  I accomplished the first half and made and extra $3 or so with the stock trade.  I’m waiting for FCX to come down some before selling a new naked put.  I entered a limit to sell a new naked put at the September 95 strike and expect it won’t hit for another week when FCX falters again.  If FCX breaks its trading channel to the north, I’ll raise my strike and take a higher dollar risk.  I bought the 100 shares for $10,519.99 and sold all 100 FCX shares for $10,522.95 with commissions.

Alcoa (AA) was a fairly easy decision.  For 3 seconds I debated if I should sell the 32.50, 35.00 or 37.50 strikes.  While AA was trading at $33.45 I sold two AA September 35 covered calls (AAIG) and received $418.50 after commissions.  I went with the 35 strike because I didn’t want to go too far out of the money.  Selling the 37.50 calls would have reduced my premium intake too much.  I opted not to sell in the money covered calls at 32.50 because I think AA has limited downside from here and has a larger and more likely profit potential at the 35 strike.  I typically try to sell covered calls not based on where I was assigned the stock, but based on where I think I have a higher probability of profit.  $32.50 strikes were close to winning that argument in my head, but I sold the 35 strike more on gut instinct than anything else.

Burlington Northern (BNI) was a very easy decision.  While BNI was trading at $94.42 I sold one BNI 95 covered call (BNIIS) and received $559.25 after commissions.  I’ll take a small loss on this position if it’s called away in September, but I have a much higher probability of having more money in two months than if I had sold the 100 strike.  I’m still selling out of the money, but not by much.  If I have a hard time deciding at which strike to sell the options I always come back to which has a lower risk of losing money while still offering a good return.  The 95 strike won that debate easily.

Joy Global (JOYG) was an easy decision too.  While trading at $70.70 I sold one September 70 covered call (JQYIN) and received $649.25 after commissions.  Briefly I thought about the September 75 calls, but with such a big premium at the 70 strike, I had to reduce my downside risk as much as possible.  Annualized, this trade will be a nice return if it works out.  If JOYG continues to slump, I’ll have a better cushion to continue pulling a profit out of it.

Alcoa (AA) closed at 33.81.  My July 35 and 47.50 calls expired worthless and my two July 40 naked puts were assigned.  I’ll write covered calls on it this week.

Burlington Northern (BNI) closed at 94.57 and my one July 105 naked put was assigned.  I’ll write covered calls on it this week.

Cummings (CMI) closed out of the money at 66.32 and my July 60 naked put expired worthless.  I have a limit order to get back in with two more naked puts.

DryShips (DRYS) closed out of the money at $76.86 and my July 70 naked put expired worthless.  I don’t know what I’m doing with it again, but expect to look a new naked puts.

Eaton (ETN) closed at 72.92.  I took a loss on this one overall.  My July 90 put was in the money and was assigned, but my July 70 call was also in the money and removed an equal number of shares.  My July 70 put was the only good trade I made as it expired worthless.

Freeport McMoran Copper and Gold (FCX) closed at 103.24 putting my July 105 naked put in the money.  100 shares were assigned to me.  I’ll write covered calls on it after I chart it to see where I think it will go.  It’s up in pre-market, so this could be one of the best option assignments I’ve had in a while.  I might let it get above 105, sell my shares and then write another naked put so I can keep my cash free.

Joy Global (JOYG) closed at $70.78 and my July 75 naked put was assigned.  I’ll write covered calls on JOYG this week.

Mohawk Industries (MHK) closed at $64.85.  My July 60 naked calls were assigned Friday morning and I was short 200 shares all day and my July 65 naked calls were in the money for a little while.  By the end of the day MHK closed below the 65 strike and my July 65 calls finished worthless, out of the money.  My July 65 naked puts closed in the money which automatically forced the buy back of my 200 short shares.  $0.16 higher and I’d be short 400 shares this morning and would have had a chance to  turn this series of trades into a profit.  That didn’t work out for me and I took a loss overall.  Had I gone short 400 shares I think I would’ve sold covered puts at the 65 stike unless it dipped early and I was able to buy the shares back under $64.00.

Qualcomm (QCOM) closed at 45.19, barely out of the money for my July 45 puts.  I’ll write new naked puts on QCOM this week probably.

Tidewater (TDW) closed at $58.89.  That left my July 65 put in the money and I was assigned 100 shares at $65 per share.  I sold August 65 calls (now covered calls) on it a couple of weeks ago and will now have to decide if I want to ride this out as it is or try to sell extra calls on it.

I have a lot to catch up on around work now and will try to get my trades in whenever I can during the day today.  I have almost $42,000 on margin right now, so I’ll have to sell some of my long positions and/or some of my cash I’ve kept in reserve in my NPLXX money market. 

I’m going to a family event for my wife’s side of our family in New York.  If it was my decision it wouldn’t have been planned for options expiration Friday, but I guess not everyone tries to revolve their plans around the markets.

After selling two naked calls on top of two other naked calls on MHK I might take a hit.  MHK has rallied more than $7 in the past two days and is  $0.70 from being in the money forcing me to be short the stock.  I don’t even know if TD Ameritrade has shares for me to short (aka borrow to sell).  I have naked puts at the 65 strike too, so if it’s below that, they’ll wash each other out.  I’m expecting a cool down on it.  If it climbs more than $0.70 I’m taking what I get unless I make a trade over my cell phone (not likely) at the end of Friday.  I’d be short 400 shares and would beg for another drop in price (likely). 

AA closing just below 35 would be ideal so I can be assigned the shares and write covered calls and pull a profit out of this position.  JOYG needs to stay where it is so I’m not assigned the shares and can re-write naked puts next week.  Worst case, I’m assigned the shares and write covered calls.

I’ll update the rest of my positions on Monday when I know what has happened.

The trend line of lower highs was coming in just above 60, so I entered a limit order to sell more naked calls while MHK was trading at 57.60.  Today, while MHK was trading at $59.94 I sold two MHK July 60 calls (MHKGL) and received $258.50 after commissions.  This brought my total premiums received up to $755.50.  If MHK is above $60.00 at the close on Friday I’ll be assigned 200 shares and will sell covered calls to bring my position back to a profit.  If MHK is above $60.00, I’ll take a $250 loss and move on.

While Eaton (ETN) was trading at $69.28, I sold one ETN July 70 call (ETNGN) and received $159.25 after commissions.  ETN came off its low of $68.75 soon after I made my trade.  I could’ve made another $100+ if I waited 15-30 minutes. 

I originally sold a July 90 naked put (ETNSR) and received $219.25, so this gives me $378.50 to cut into the $2000 I’ll lose on the stock if ETN closes above $70 when options expire on Friday, three days from now.  Losing more than $1600 is pretty bad, but I’d rather have that loss wrapped up than have my losses get bigger.  If ETN does stay below $70 at the end of Friday, I’ll write new covered calls and reduce my loss a little more.  Just to throw a wrench in this, I’ll be on vacation Thursday and Friday and won’t have access to my account to close any of these close options rather than take the assignments.

Before I finished typing this post ETN was back up over $72 and I thought of another option (no pun intended) for me and entered a new limit order.  While ETN was trading at $71.71 my limit order hit and I sold one July 70 naked put (ETNSN) and received $134.25 after commissions.  This does two things for me.  The first one was that it gave me more of a cushion for my losses.  I now have received $512.75 in premiums from my ETN options which brings my potential losses below $1500 if ETN stays above $70.  The second one involves incurring more risk.  If ETN closes below $70 on Friday I’ll own 200 shares instead of my initial 100, but my average cost will be down to $80 per share instead of $90.  If I subtract the premiums I’ve received, my cost per share will be down to around $77.50.  I can then sell covered calls at the September 75 strike and depending where ETN is trading, could move this whole position to a profit.  If ETN continues to lag below $70, I’ll sell calls at the 70 strike and still reduce my losses since half of my shares will have been from the 70 strike naked put.  In essence, I expect to make a profit on half of my position which just reduces and possibly eliminates the losses from the 90 strike or I’ll just be out completely and will move on to something new.

I tried to wait for expiration, but it cost me with ETN’s big drop.  So far I’ve been able to wait it out on BNI.  I had a chance yesterday to sell a call on the rally, but didn’t and BNI dropped in the afternoon and again this morning.  I’d really rather wait until after the September options are available to get a better premium and the belief that the bottom won’t get too much deeper for it.  I have a limit order to sell a BNI call on the next rally knowing that I’m about to be assigned 100 shares.

The best part of the chart for oil bears is that USO (note that USO’s price does not equal the price of a barrel of light sweet crude, but moves in the same patterns) just hit a ceiling of higher highs that has offered a stopping point for the rise for the past month.  That would lead us to believe that oil should drop some next week as it digests the run up that it had on Friday. 

Oil bulls have a lot more ammo to support their argument for longer term upward price movement.  USO just moved back above its 10 day moving average and its middle trend line that disregards the one to three day price swings below that mark.  This is a harder line to track, but does show a solid trend in place for more of an average low than an absolute low.  The longer term trend of higher highs is well above USO’s current price and that’s the line I think is going to be important.  If this one month trend that I just mentioned breaks, the next ceiling to the top could be at that higher line which would put the price per barrel well above 150.

Trend lines don’t last forever, so at some point USO (and oil) will move closer to its 100 day moving average.  The 100 day moving average is about 20% below USO’s current price and the two will eventually meet again as they did in February on the far left of this chart.  The nagging question will remain, when?