The Lizard King made a dumbo T. Rex move.  Last year, I wrote puts on Clean Energy Fuels Corp (CLNE) at the 12 strike.  I’ve been assigned shares and the price is teetering around under 9 dollars a share.  Things are never as bad as first blush when you are assigned because you get to keep the premium income from the contract.  In my case that was 2.14.  So I’m only down 10.25%.  I’d like to get out with any loss whatsoever though.  As a result, I am attempting a “stock repair” strategy.

ACTION TO TAKE: Buy CLNE150918C00009000, Sell CLNE150918C00010000, and Sell CLNE150918C00011000.  This yields a long call at 9 and two short calls at 10 and 11.  The 11 is covered by the underlying shares and the 10 is covered by the long call.  I managed to get a net credit of 10 cents on the spread so my net proceeds to date are 1.53.  The stock has recently traded a few cents over 10 and that is what we are hoping for in September.  A price above ten would exercise the 9 and 10 strike calls adding an extra dollar in profit, we would then be able to exit the trade with a profit on a trade that was financed with covered calls!  A close above 11 calls our shares away.  A close between 10 and 11 lets us keep the shares for either disposal or more covered calls.

If shares rise above 10, I will sell the 9 strike and buy to close the 10 strike to lock in the profit in case shares retreat again before expiry.  The 11 call will be left open as I’d be glad to “lose” my shares at 11 at that point as I’d have a profit on a broken stock.  I have used this method to recover from errors in judgement often and done well.  The danger is if you have a falling knife, you are not protected against further downside.  So be sure to evaluate whether it is better to just take your medicine and sell immediately.

Devour your prey raptors!

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Oops! Clean Energy Fuels Corp. (CLNE)

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2 thoughts on “Oops! Clean Energy Fuels Corp. (CLNE)

  • May 14, 2015 at 1:21 am
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    FV,

    Wow. There are certainly a lot of moving parts in that series of option trades. It’s definitely beyond my scope currently, but I hope it works out for you. BTW I picked up some shares of NEA today.

    MDP

    Reply
    • May 14, 2015 at 1:30 am
      Permalink

      MDP,

      It takes some time to get your head around. The goal is to leverage upside and pay for the leverage with more options. It might help to think of it as a Bull Call Spread, financed by a covered call…

      Grats on the NEA. I’m up to a 17% debt instrument AA and want to add more. I don’t think I’ll be fully comfortable with my volatility until at least 30% debt instruments.

      Reply

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