Clearing Out of Freeport and Square

Today is a good day to close a few positions, starting with Freeport-McMoRan (FCX) . I'll be the first to admit this stock is looking much better and if I had a longer timeframe, I would not be selling here, but my position is a trade.

Initially, I sold the September $15 puts and the stock was indeed put to me at $15. With a cost basis of $14.47, I was fine until shares dipped under $14. I employed an enhancement strategy, buying the Oct. 6 $14 call and selling two Oct. 6 $14.50 calls against the long 100 shares. The aim here was to be able to either bring down my average cost or close the position with a profit. If FCX closed above $14 but under $14.50, I'd lower my average cost 1 penny for each penny above $14 shares closed on Friday. If shares closed over $14.50, then I'd net $0.53, ironically equal to the put I originally sold. Well, we aren't to Friday yet, but with shares trading at $14.81, I am going to exit the position for a gain of $42 here. 

The trade:

Sell to close 100 shares FCX at the market

Sell to close 1 Oct. 6 $14 call

Buy to close 2 Oct. 6 $14.50 calls

Net proceeds $1,488

Net gain on total FCX position $42 

Why not wait until Friday since FCX is trading above $14.50? Well, because of its volatility. FCX shares could easily gap higher or lower by 3% just above any given day it seems of late. Three percent higher might net me another $8 to $10, but 3% lower will swipe me almost twice that number. The risk-reward no longer justifies chasing the last 10 bucks on a short-term trade. 

My second exit is on Square (SQ) . This was a trade from Sept. 14 in which I financed most of a long Oct. 20 $28 call by selling two Oct. 20 $26 puts. The puts have faded to a nickel here. Traders should either turn this into a butterfly by purchasing one Oct. 20 $27 put and $25 put or close the $26 puts outright.

I prefer to close the $26 puts for a nickel if I'm able. If I have to spend a dime on each put, then I'd prefer the $27 and $25 puts. The reason is this: It will cost $20 to close the short puts (assuming they don't get filled for a nickel). It would cost the same $20 to buy a $27 and $25 put at the ask and that position would provide for $1 upside should Square shares fade to $26 come expiration. 

On the call side, the long $28 call can be sold for $1.90. Again, I love this name long term, but this may need a small rest here. I'll look to roll the profits into a November or December long position later this week or sometime next week. 

The trade:

Sell to close 1 October $28 call at $1.90

Buy to close 2 October $26 puts at $0.05

Net Proceeds $180

Net gain $135

Original trade date Sept. 14 

At the time of publication, Collins had no positions in the stocks mentioned.