I closed my XOM puts for a loss.
music selection: “Say You Will” — Foreigner
I’ve noted several somewhat ethically shaky options investing blogs that trumpet their winners while sweeping their losers away from sight. They are usually selling an overpriced course or e-book using improbable promises of quick riches. I like to have my losers in full public view. The investing public, especially newbies need to understand investing involves risk and they will take some losses. It takes discipline and a long term plan to make your winners outpace your losers.
Today I closed my long puts in Exxon Mobil (XOM). I purchased the 45 strike 15JAN2021 expiry put for 6.30 a share on 12MAY2020. At the time, Coronavirus was seriously upending the global economy and there was talk of a “permanent” reduction in demand for hydrocarbon fuels. XOM was defending a dividend that exceeded free cash by taking on debt. It looked like a good way to hedge against Covid getting worse. Initially, I was up in the trade. I never was in it to make a killing, just to hedge my overall portfolio tail risk (I buy up to a $1,000 in long dated puts every month as insurance).
With a week left to expiry my put moved out of the money on good news (good for XOM) that the Saudi’s are unilaterally cutting 1MM barrels per day from production as a good will gesture measure intended to persuade the rest of OPEC to cut as well at their next meeting. It didn’t make sense to hold out for the remaining week but rather to recover whatever time value I could. I got 75 cents a share for my put, booking a $555 loss on 630 in capital at risk. That is an 88% loss over 241 days.
I have three more hedges that aren’t working out expiring next Friday. Those are Darden Restaurants (DRI), Dave and Busters (PLAY), and Uber (UBER). DRI and PLAY currently have no bids and are worthless. I could technically sell my UBER for a penny a share and recover 2 dollars (before commissions) but I’m not going to bother. A black swan event could theoretically make the puts worth 5 or 6 dollars! /sarcasm I will thus close 3,829 in hedging losses in January. I’m on track to collect 10,558 on my in the money spreads next Friday. I also expect to close and roll VXX for another 1,530 or so in profit during the month. All in all, it appears I will book 8,259 in net profit for the month of January. I’m thus happy to take a haircut on hedges since my overall performance remains so good. Those hedges will pay off big in the next 50% correction.
Devour your prey raptors!