Sold New DIA Naked Puts

I’m long two DIA December 84 puts (DAVXF) and have been selling naked puts at lower strikes for the past couple of months with the long puts as my hedge. This morning (wish I did it on Friday) while DIA was trading at $82.18, I sold to open two DIA December 78 naked puts (DIJXZ) at $3.50 each and received $688.50 after commissions. If DIA closes December expiration above 84.00 I still end the series of trades with a profit. I sold these latest naked puts $6.00 under the first leg of the series to give me a small hedge still on DIA. If DIA closes at December expiration below 84 I make even more money since the puts I own won’t be worthless. Ideally (only for this position) DIA closes around $78.00 and I get to make a full profit on DIJXZ and finish with a lot of the value of DAVXF still available for me to get out. Thursday and Friday of last week I had a paper profit on my DIA 84 put, but didn’t get out when I could. I should’ve just sold the new put then since I was planning to hold the 84 put until expiration.

At market’s open today I had $33,700 on margin with an account balance around $36,100. That’s a bad position to be in during a recession, but I can’t make myself pull the trigger yet on dumping anything. I was up more than $5,000 (almost +14%) before Obama spoke today at noon and have seen my account pull back $5-600 in the past hour since he started talking. I hit refresh before publishing this post and see I’m now up more again. I’m up $5,502 so far today. I don’t know if that’s all going to evaporate today or double, but I do know my patience is more from paralysis than wisdom right now.

If anything, I think I’ll sell some covered calls to lock in some gains. My math shows that selling covered calls on even one of my long stock positions will cover the cost of all of my margin interest. The risk is that the underlying shares fall instead of flattening or going up. With volatility so high, selling options seems the best move to make. At what strike and expiration is what starts making it tricky.

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Comments (4)

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4 Comments

Comment by Mark

I had never sold a naked put before november. I sold three, with two of them expiring worthless. However, the one thats ITM still shows up on my TD Institutional account. Do you normally see that? I’m thinking it takes three days to settle and show up in my account.
Comment by Alex Fotopoulos

Mark, that’s not normal. I’m with TD Ameritrade also and all of my options expire and are removed from my account the Monday after expiry. Double check your account to make sure you sold November options and not December or another remaining month. Congrats on selling two that expired out of the money. You are doing better than I am already. You can send me an email directly if you want to take it off line.
Comment by Mark

Thanks Alex.
I called TD and they told me the institutional site doesnt update until midnight. (the institutional site is terrible and I’ll probably be changing to Schwab soon). So i couldnt see my Nov assignments until midnight last night. Just terrible.
Comment by Alex Fotopoulos

Thanks for the update – That’s just weird, but I’m not familiar with the institutional side at all. Check out izone too.