OK, so some of us stayed away from the MLP run this Q and lost out, especially the rout with KMP. Anybody Long on this run?? So, I'm thinking how do we take advantage of the stratospheric heights of KMP and the debt ceiling fear, just a week or two ahead of KMP's EX date??
I have looked back through 2009 at the historic patterns post EX date on KMP and I like the repetitive pattern(70%) of the decline to the following month's OPEX in KMP. Granted, 70% is not 90+% and we can get burned on the following play I plan to employ...so remember last Q on the non-Run on the MLP's to temper any enthusiasm for the following trade. I am just telling you what I will be doing.
On the open of EX date on KMP I plan on selling the first ITM Call of the next month(post EX) and simultaneously buying the first ITM Put for the same month. I plan on the Call being a spread to protect any crazy enthusiasm in KMP post EX, which did happen once in my look back on the Jan 2012 EX when KMP surged 4.00 to the OPEX one month forward. The employment of the spread would have tempered the blow to a 2.50 loss....it happens, so be aware.
This is an excellent time to say that anyone who actively trades and states that they have never had any losses, or just a handful of losses over years of trading, is either a liar or delusional. I will not name any names as they are no longer here to defend themselves. All of you who trade, know how ludicrous such a statement is(bad sentence structure, but you get my drift).
Example on the KMP trade:
Last Q on the EX date(Oct 31st), PPS on the open(84.98) , buy the Nov85Put for 1.81, and Short the Nov82.50/85 Call spread for 1.30 credit costing you a net .51.
Close on OPEX in Nov, PPS @ close of 78.77 for a profit of 6.23 on the Puts and the Calls expired worthless for a net profit, after the .51 debit of 5.72/combo.
Check it out. Over the past two years this kills. No guarantee for the future, but you know DocReits's counter adage cultural saying, "History is a darn good indicator of what's going to happen in the future" and B$ with this "history is no indicator of future events". All I have to say to that is UH, HUH!!...;-)