AKS : Trade Adjustment for early March 2012

We review the performance on the open positions with AKS initiated on Feb 27th and examine the next steps (see original article for reasoning behind the trade setups).


The first setup was AKS :

Trade entry on Feb 27th 2012 :

Long AKS 1700 * 8.08 (Feb 27th 2012 close price) = $13,736

Long 17 AKS Sept 2012 Puts strike $9 costing $1.78 = $3026

Total trade cost = $16,762

Trade rolled at 1.42pm on March 8th :

Long AKS 1700 * 6.98 (trade price) = $11,866 (stock loss = -$1870)

Sell Long 17 AKS Sept 2012 Puts strike $9 costing $2.46 for $4182 (put profit is $4182 – $3026 = $1156)

Total position loss -$714 (strategy is down 4.2%, although for comparision underlying stock (“buy and hold”) is down 13.6% )

Note that the delta on the puts have increased from 56% to approximately 80%, so the married put position delta is only 20% (not much of a long position and a *lot* of value ($4182) tied up in the long put position). Given that we are ok taking a 6 month view on this stock, we will roll down 1 strike on the 17 contract Sept 2012 puts and sell a small amount (3 contracts) of June 2012 premium. Note although this is currently a losing position, rolling down adds some significant cash to the account as follows :

Buy Long 17 AKS Sept 2012 Puts strike $8 costing $1.72 = $2924

(this is the sell/buy put roll gives us $4182 – $2924 = $1258 cash)

Sell Short 3 AKS June 2012 Puts strike $6 for $0.36 (generating $108 cash)

Total cash generated from roll down and put sale = $1258 + $108 = $1366

We only sell 3 contracts because we are being conservative (stock is in a downtrend), but we are allowing ourselves to potentially buy 300 AKS at a price of $5.64 (strike $6 minus put premium $0.36 = $5.64) which is very close to the 52 week close price low of 5.77 (3rd Oct 2011). This would cost us $1692 (assumming we are assigned). We are also long 17 put contracts, so if the price (for example) goes to 5.5 we should be able to sell out the 17 put contracts to fund the stock forced by the short 3 contracts put assignment. In that situation the *likely* put price would have an instrinic value of 2.5 ($8 strike – stock price 5.5) + some time premium (conservatively 0.25), so lets assume the put value is 2.75. Since we bought it for 1.72 and are selling it for 2.75, thats 1700 * 1.03 = approx $1751. This should approximately cover the cost of buying 300 shares at 5.5. Obviously this is a relatively idealised example and for simplicity assumes that we wait until June expiration to do this. However there is nothing stopping us doing a similar trade in between now and June (for example if the premium on the June put gets close to 0.1 it could be bought back and premiums could be sold out for later months).

We are trying to acquire some more stock with relatively limited risk and add to the position (at good prices) for any potential upswing. We may sell some more premium (in 3 contract lots) for Strike $5 in Sept 2012 or Strike $4 in Dec 2012.

Buy and hold performance is :
(AKS stock profit/loss) = -$1870
ITM married put strategy :
(AKS stock + put profit/loss) = -$714

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