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Covered Call Archer Daniels Midland (ADM)

ADM expired out of the money over the weekend.

music selection:  “Nightmare” — Avenged Sevenfold

weigh-in:  209.6 +2.8 – way too much turkey dinner!

ADM has been badly underperforming for me.  I feel like I have stranded capital so I’m looking to exit the position gracefully.  I am selling a near the money covered call that will result in a short term capital loss if exercised.  I still believe in the long term prospects for this company as roughly a billion people will enter the global middle class in India and China over the next decade and they will surely use more grains.  But I have to look after today too.

I sold ADM180105C00040000 for 48 cents a share.  The expected return is 10.95% over 40 days.  I will take a short term loss of 5 dollars a share if exercised.  That will bring the cumulative loss on the trade including all premiums and distributions collected to 4.62%.  It is unfortunate but I hope to get this capital back to performing shortly.  I can also use the capital loss for tax purposes next year as I expect to have a much higher budgetary burden to provide for income tax provision.

There are no other trades today and I am following UVXY closely as I have until the 30th to exit the trade in my tIRA account.  I should be able to eek out a small profit.

Devour your prey raptors!

{ 5 comments… add one }
  • JC November 27, 2017, 7:01 pm

    That last I think earnings move from ADM messed up my position as well. I’m still sitting on a small profit thanks to selling premium on both sides, but it’s not where I’d like it to be considering I’ve been trading around the shares since July.

  • Chris B November 27, 2017, 11:09 pm

    Seems like tech stocks and bitcoin are the only things consistently going up.

    I take that as a warning. Also, I lack confidence in the current US government in a way I didn’t back in 2009, so I need to hedge myself from selling at a bottom.

    I’m thinking long and hard about buying 2 years of collar protection on my SPY holdings. With ATM long puts and short calls allowing for up to 21% appreciation in that timeframe, the cost would be about 3.5% per year. The odds of not profiting in 2 years are historically slim, and my future FIRE would not be set back a couple years if a correction hits in that time.

    I’m also considering the replacement of my long UVXY puts with limited-risk spreads.

    Maybe it’s the tax bill or maybe it’s the holiday orgy of waste-spending, but I’m looking at the downsides today.

    • The Lizard King November 28, 2017, 12:56 am

      I feel you. The current rally, I think, still has legs through 2019 and maybe 2020. The tipping point will be when the Fed pushes the yield on 2 yr T over the 10 yr T (inverted yield curve). There is no more sure indicator of a top and coming recession. But while we can probably expect a long lived rally, it will come with lots of volatility along the way. It is important to either be hedged or watching your stops!

  • financialfreedomsloth November 28, 2017, 5:03 pm

    It is looking good for a small pofit on your UVXY puts.
    I got Lucky with ADM, only selling puts at strike 40 and never being exercised. Thought about writing soem new ones when i noticed it trading at 39 but i am trying to reduce my leverage so thought better of it. Good move until now ..

    • The Lizard King November 28, 2017, 9:28 pm

      I thought I was going to get out today at 5.75 but it never cleared. I am also looking to trim net exposure.

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