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SSO the Proshares Ultra S&P500 - UPDATE for 08-05-2009

Thu, 08/06/2009 - 20:10 — Bret Beaupain
stock optionsLet’s update how we use online options trading with the ProShares Ultra S&P500 (ETF) (NYSE:SSO) to created a covered call strategy.  As you may recall from previous articles, the cost basis on our 500 shares of SSO is $22.64.  Thanks to timing and strategy since end end of June I am at 7.8% profit that yields a CAGR of 40.1%.
This is detailed below:

Date Description Quantity Symbol Price Total
--- Already Owned 200 Shares of SSO 200 SSO  $        (25.32)  $           (5,064)
6/29/2009 Bought 300 SSO @ 26.26 300 SSO  $        (26.26)  $           (7,878)
6/29/2009 Sold 2 SOJHB @ 0.9 (Aug $28 Call) 200 SOJHB  $            0.90  $                  180
6/29/2009 Sold 3 SOJHX @ 3.2 (Aug $24 Call) 300 SOJHX  $             3.20  $                  960
7/7/2009 Bought 3 SOJHX @ 1.8 (Aug $24 Call) 300 SOJHX  $           (1.80)  $               (540)
7/7/2009 Sold 3 SOJIV @ 3.4 (Sept $22 Call) 300 SOJIV  $             3.40  $              1,020
 $         (11,322)

We have performed online options trading to sell 5 option contracts that are all currently “in the money” with strike prices of $22 for 300 shares and $28 for 200 shares.  I think this is fabulous since we have maximized our covered call profit and still maintain downside protection.   The following are the results of as we currently sit today.

Cost Basis  $       22.64
Start Date 6/29/2009
End Date* 9/18/2009
* conservative since calls expire on different dates
Item  Shares  Sale $/share  Total 
SOJHB August $28 Call  200  $              28.00  $    5,600
SOJIV Sept. $22 Call 300  $              22.00  $    6,600
Total Value  $  12,200
Total Cost  $   11,320
Profit $  $         880
Profit % 7.77%
CAGR % 40.1%

We are sitting with 7.8% profit that yields a CAGR of 40.1%, destroying the average market CAGR of 10%.  This is big money!  If you have not learned about online options tradings and how covered calls can help protect you, you should.  There are places to learn about online options trading on this page. 
In reviewing the profit, you might be saying that I am missing out on profit that I would gain if I had just flat out owned the stock outright.   This is true since the stock is currently trading at $30.95/share.  However, if you look back at the historical pricing of the market, you would notice that I would have had to stomach a drop down to $23.81 and hope that my emotions did not overcome me into selling at the low price out of fear. 
I used the stock options to protect me the entire time that the market was declining and kept a profitable position even after the stock lost close to 10%!  Let me tell you, it isn't easy to sit tight with a stock when you hit the wrong timing.  That is one of the nice things about using covered calls is that you can protect yourself from declines.
Have you ever felt like the unluckiest investor in the world?  Buying at what you thought was the right time, only to have the stock drop below your stop loss point and have to sell it.  Then, the day after you sell it, the stock immediately bounces back and your stomach just drops.  That is why I am using covered calls and online options trading. 
I am not looking to make a fortune overnight through speculation, rather I am looking to generate a consistent return with a decent margin of safety.  Safety is key for me in this turbulent market.  Mistakes can and will decimate your portfolio.  In my next article, I will provide you with some specific  reasons why I like using covered calls to generate cash from the market.