I probably should have made a few of these moves early. Clearly we would have sold at higher prices, for some of the transactions, but as I write, after Monday’s close, we raised an additional 4.7% of cash bringing our total to 13%.
First, I bought Cintas (CTAS) shares in my wife’s tax-free account near the bottom of the market earlier this spring. Shares had been up more than 100% earlier this fall, but I liquidated the position today to trim our overall exposure to CTAS. At the start of trading today CTAS was 5.7% of our portfolio and after trimming the portion of CTAS held in Amy’s account, CTAS is now down to roughly 5% of our portfolio.
To raise more capital, I closed four short positions in put option contracts – rolling two down and out. On Friday I entered into three contracts as the market fell sharply and I closed two out right to take quick gains in addition to raising cash. I had written put contract on McKormick (MKC) (expiry: 18DEC2020; strike: $155) on Friday and closed it on Monday when the market changed course for the better. After holding the position over the weekend, I made a tidy $93.61 profit and a 0.6% (73.5% annualized) on the $15,500 at risk.
Another Friday move was to roll out and down a Fastly (FSLY) put option contract – out from October to January and down from $60 strike to $50 strike. Since FSLY rebounded on Monday, I decided to close of the FSLY put positions I had just initiated on Friday. Over the three days we earned $38.61 on the $5,000 required for collateral. That doesn’t make up for the loss we took on the previous option but I need to focus on wholistic profitability, not winning individual trades.
I’ve established too much exposure to FSLY and have suffered from it. Had I never written an option contract on FSLY my portfolio would be better off – by a couple thousand dollars. More importantly, had I not been so determined to earn money lost on closing FSLY from subsequent FSLY trades I would have made a couple thousand dollars on FSLY trades.
Speaking about rolling out and down and not relying on recouping funds lost by subsequent trades in the same name, I rolled short positions in Beyond Meat (BYND) and Square (SQ) out and down on Monday as well. Some lessons are hard to learn and even harder to live.
The BYND position closed at a $571.34 loss, or 4.2% of the $13,500 capital required for the trade. By rolling the option down I freed $2,500 in capital. The SQ position also liberated $2,000, but I lost $276.39 on the trade or 1.8% of the capital at risk. Though the closed SQ contract was due to expire at the end of this week, I didn’t want to take the risk of a market sell off following the election – especially with the heightened uncertainty this election cycle – only for the shares to rebound in short order. The new SQ position requires only $13,000 in collateral and expires at the end of November.