February Expiration Week Recap

February options expiration.

February options expiration.

All right, February equity options are done. I managed to pull in and retain about $600 for the month. Not to toot my own horn too much, but that’s not bad considering the size of my trading account (deposits totaling $3500), and that I originally received about $890 in cash through the sale of put options on PHM and AFAM. Here’s a review for the last 4-ish weeks on those stocks and the plays I made on them.

Almost Family, Inc. – AFAM

Let’s go alphabetically and start with Almost Family, Inc. The home health care provider saw its top just over 50 back at the beginning of November ‘08. The start of 2009 saw a big break to the south. In hindsight this may have not been the best short put play out there. However, there was plenty of premium to be captured in the Feb. 30 puts, so I sold 5 contracts at .85, collecting $408.25 after fees. I entered the trade on Jan. 16, when AFAM traded between $37.80-39.17.

Almost Family recap

Almost Family recap. Click to enlarge.

As I’ve already posted in previous position updates, the shares continued to fall, breaking below the 200-day moving average on Jan. 26. As usually happens when breaking such a significant MA (and right at 35 level), the shares did not respond well. They headed down to 30 in short time, hugging that for a few days before the shorts started to take some profits.

All of this happened without any additional news going on specific to AFAM, so I stuck to my guns on this, however foolishly. 30 proved to be the support that AFAM needed, and it headed back up to 35 before bouncing back down. At closing on Friday, AFAM was at 32.85. That was well above the 30 strike on the puts I sold, so 100% profit on the premium collected to open the position.

Again, definitely some lessons learned here on identifying the breakdown before entering the trade. In the end, though, leaving several levels of support in front of the strike turned out to be the proper defense to make this successful short put trade.

Total made on AFAM trade: $408.25

Pulte Homes, Inc. – PHM

The other play I made this expiration month was on Pulte Homes, one of the leading homebuilders in the country. Of course, “leading” is certainly a relatively term in this brutal time for the home and real estate market. Reaching a peak back in 2005, Pulte has experienced the decline the rest of the market has seen, especially in the past several months.

Pulte Homes recap

Pulte Homes recap. Click to enlarge.

The equity originally got on my watch list due to an article on Schaeffer’s Research, indicating a large PHM short put position taken at the end of last year. That must have planted a seed in my head to use a similar strategy with the equity. On Jan. 16, I sold 5 contracts of Feb. 10 puts for $1 premium, netting me $483.25 after fees. On that day, PHM was trading between 10.41-11.43.

The story for the play on PHM is not nearly as dramatic as it was for AFAM. I essentially figured the stock would maintain its range of 10-12 for the duration of the position, and it did… nearly.

Things started to get turbulent again, during this expiration week with all of the Stimulus 2.0 stuff going on, and PHM broke below 10. I decided to buy back the short puts to close the position at .50/contract, costing me a total of $266.74.

PHM was still a profitable trade, just certainly not the full potential had the breakdown waited until next week. Oh, well, that was a lesson in being aware of what’s going on during expiration week when there’s limited time for corrections to help out the position.

Total profit on PHM: $483.25 – $266.74 = $216.51

March trading research

I haven’t yet done a ton to research for next month’s expiration. However, I did tune into the the StockTwits Saturday brunch conversation and have some interesting possibilities from those. I’ll be checking into those a bit more this weekend, with a plan of attack for entries depending on how the market swings this next week. More details to come.

At this point, my account is now at $4726.32. I did also calculate that I’ve pulled out $345.45 for various purchases and withdrawals along the way. (Hey! What’s the point of pulling money out of the market if a person can’t spend it!?! :) ) That makes for a total of $1571.77 gain on the $3500 that I’ve deposited into the account.

Today also marks 4 months since I first funded the account on October 21. That means I’ve experienced almost 45% gain in that time. Wow! That’s actually pretty impressive for a small-time trader like me. If I could work hard to repeat the success of just this past month, that number might even get better.

Now, I just need to not let it go to my head and continue improving my trading strategy. Hopefully, I can also help be an inspiration for some of the rest of you out there trying to make a buck in this crazy market.

Happy trading!

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