Sold Naked Puts on DSX & UCO

I entered a few orders over the weekend with the idea that they might trickle in during the week while I stay focused on my new job. Instead, two of them hit in the first half hour of the trading day which caused me to get email alerts to my phone. That meant I “had to” go and check on what I sold and where the underlying stocks were trading so early to have my limit orders hit.  After all, I thought I had placed the orders fairly far off the current trading prices.

The first trade came when UCO (ProShares Ultra DJ-UBS Crude Oil) was trading at $11.75 right at the open.  I sold to open two UCO September 12 naked puts (UCOUE) at $0.90 each and I received $168.50 after commissions. My limit order was set to sell at $0.80, so at least I got in better than I was trying for even if I’m now in the money on these.  I’m trying this play on oil instead of USO.  It’s a 2x ETF and tracks differently, but the theory is the same overall. 

My next order hit 21 minutes later when DSX was trading at $13.06. I sold to open three DSX October 12.50 naked puts (DSXVV) at $0.75 and I received $212.75 after commissions.  The shipping company has enough volatility to make the options a little richer, but hasn’t fallen off a cliff in a while, so I think the downside is limited, especially with only $3500 at risk.

I only opened a small exposure with both of these positions. My theory is that I want to have some skin in the game if the markets keep climbing, but not enough to actually get hurt bad if the downturn I’m expecting comes to fruition. With these two options I’ll be able to manage the position without too much total risk. If both drop more and I’m assigned the shares at expiration then I’ll be in a situation where I can sell new naked puts coupled with covered calls so I’m guaranteed one leg (i.e. one side of the option position) to finish out of the money. If I sell at different strikes then both legs could finish out of the money and I can repeat the process the following month/expiration. I’m actually expecting these first shares to get assigned so I can get this plan moving.