Sold November UWM Naked Puts

For the past few months I’ve written about my lack of buyer’s remorse, not because I wasn’t remorseful of what I bought, but because I was remorseful of what I didn’t buy.  (Still with me?)  For months I’ve stayed underinvested, waiting on a pull back that hasn’t come.  Although I still expect it to come I’ve also realized that my current asset allocation looks like I think some catastrophic event is coming.  It might be, but I know that I have to be more accepting of risk than I have been.  I think the losses I took last year coupled with my two job changes in 20 months changed my investing state of mind more than it should have.

I’m continuing to work my way back to a more aggressive stance and would get there sooner if we’d have a down month to show the markets understand two steps forward, one step back is a good thing.  Until then, I’ll sell hedged puts or far out of the money naked puts.  Today I went with the latter with ProShares Ultra Russell 2000 ETF (NYSE: UWM).  When UWM was trading at $27.53 this afternoon I sold three November 23 naked puts (ULXWW) for $0.90 each and received $257.75 after commissions.

It’s a small position and is $4.53 below the current price for UWM.  I chose that route due to my remaining suspicion that the Russell 2000 will go down one day.  I went out to the November expiration to make the premiums worth a little more and found implied volatility around 65 which seemed pretty fair considering the lower strike.  I actually think UWM will come down from here at least closer to $26.00 and maybe even $24.00, but probably not as far as $22.00.  $22.00 would leave me just a little worse than break even if I had the awful luck of it ending there on options expiration day.  If luck’s on my side it won’t get there at all and if it does, it’ll bounce back before I am forced to buy the shares or immediately after.

My previous approach would have been to wait for a dip to $26.00 before placing my order or leaving a limit order in place for when that dip came around, but with that approach I’ve missed a lot of trades that could have given me a nice profit.  Had I taken in the profits over the past few months I’d have a better cushion to handle the next dip, whenever it comes.