Sold CMI Naked Puts + Sanity Check on Current Holdings

Back on February 22nd I entered a limit on Cummins, Inc (CMI) when it was above 53.00.  That order hit just after market open this morning while CMI was trading around $47.75.  I sold two April 45 naked puts (CDMPI) and received $388.50 after commissions. 

Since it has been a few weeks, I’m not sure, but think I found this one in Barron’s.  I charted it back then and saw that 53 was too high for me.  Charting it again today I see that I must have expected the low from the beginning of February to act as support around 45. CMI is pretty close to that now, so this will be a good test.  It hit this 45 range five times in mid-Jan to early Feb and used it as a floor or ceiling each time.  Again, I’m banking on the chart. 40 could be the next speed bump if this current level breaks.  This is another stock from the Diversified Goods sector to add to my CAT position which I expect to exit in two weeks.

Speaking of exiting positions in two weeks, I just ran a sanity check on my current holdings.  I thought I might have been losing on some puts since the market has been dropping so quickly, but see that I’m only sitting on paper losses on two, VIP and DIS, but VIP isn’t quite a paper loss since I’ve sold the naked calls too.  What’s bringing my account balance down more than anything is the long positions I have, specifically NYX, ADBE, NVDA and DWA.  My CAT call is deep ITM still, so I’m safe for another $5+ still there. 

With this getting to be a recurring theme of losing on my long positions, I’m considering a change to my trading model I’ve been tinkering with.  I might stop holding onto stocks after option assignments, but when an option finishes in the money, sell the stock if assigned and move on.  If the stock is assigned I have clearly misjudged its price direction and maybe it’s better to cut my losses there instead of trying to fight back with covered calls.  I’m just thinking about the switch now, but you could see me lighten my load considerably after March expiration.

To end on a positive note, as part of my sanity check of where am I now, I check how much time value remains on the options I’m short.  I have $5,194 in time value set to erode over the next six weeks.  That alone gives my near term future a brighter outlook.