I’ve made further adjustments to some of my stock and options positions over the last couple of days:
- I sold part of my long stock position in Ameren [[AEE]] after the company cut its dividend by almost 40%, and then I sold some September 25-strike puts against it (the farthest out I could go) to offset the realized loss (about $15 per share) on the shares I sold.
If AEE is trading above $25 at expiration, I’ll have reduced my size in this position at a minimal loss and may look to repeat the process. If AEE is below $25 and I end up being put the additional shares, I’ll have averaged down in the position (for a new net cost basis of about $28 per share) while only increasing the original overall position size by about 30%. In that case, the new cost basis should allow greater flexibility for using additional options trades to make further adjustments to the position as desired.
- I sold my long position in Jabil Circuit [[JBL]] and then sold long-term 5-strike put options (LEAPS) against it to offset the realized loss (about $7-$8 per share). If JBL is trading above $5 at expiration, I’ll have fully recovered the loss in the position.
If JBL is trading below $5 and I’m put the stock, I’ll have initiated a new position in the stock at much more favorable levels. Of course, I wouldn’t have put this position on if I didn’t have a positive long-term outlook on the stock at these levels.
- I rolled over my short April 50-strike puts on Eaton Corp. [[ETN]] to some much later January 2011 35-strike put options (LEAPS) for a small net credit, while at the same time reducing the ultimate position size (if the stock’s put to me). The stock (currently at $36-$37) is acting like it could be headed to the $25-$30 level and I didn’t want to be assigned the 50-strike puts I’d sold, which were deep in the money at this point.
I’m much more comfortable potentially owning the stock in the upper $20s (which would be my net cost basis if it’s ultimately put to me) where it would seem to be clearly undervalued, than at the previous cost basis of about $45.
- Finally, I bought back the June 17.5-strike covered calls I had sold against my long position in Anglo-American plc [[AAUK]] as the stock had dropped significantly and they had become virtually worthless, and then sold some September 10-strike calls against the position. The company had recently eliminated its dividend, so I will not mind exiting the position (for a small net loss) if it’s ultimately called away.