Long Call Options Struggle With Market Woes!

Another tough week with options, as market woes continue to pressure our long term call options. We need the market to rebound sharply by September to put us back in the money on many of the call options with expirations in Sep and beyond. The summer months are traditionally slow months, but hopefully the market will begin to gain traction by late August, otherwise we risk running out of time on some of these positions. We had a call spread position in Base Metals (DBB) expire in July with a net loss. Unfortunately, commodity prices have taken hits following the correction in May which put us out of the money by expiration. We had also taken a put spread position against the market index for insurance against further losses. We show a slight loss on the spread position, but remember this was purchased as protection against a sharp decline, so the expected loss is not really a bad thing. We will occasionally buy or sell protection as market sentiment becomes extreme in either direction. Unfortunately, we have been on the wrong side of the market over the short term and that has wreaked havoc with a near term option returns. We are moving to reduce our long positions and to move toward more short positions and income producing strategies. That transition will allow us to take advantage of the range bound trading that we have been experiencing. The challenge with trading options is that investors have to get both the direction and timing of price moves correct. We believe we understand the direction, but our timing was off as we did not anticipate the market correction that began in May. However, this is still our best performing portfolio long term, and we know that option returns can recover just as sharply as they fall.

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http://www.marketbeatingstocks.com