Opened New Naked Puts on SSO & EEM

After finally seeing the S&P 500 fall more than 5% from its intraday highs on September 23rd I decided I shouldn’t stay on the sideline too much longer.  I’m not necessarily saying this is a bottom, but do believe that after we’ve come down 5+% off the top, hopefully there’s only about 5% more room to the downside before we find more firm footing. 

I could see this low of today hold and move higher from here as easily as I could see us move lower, so I took a partial position in SSO and a full position in an emerging markets ETF (EEM).  While SSO was trading at $32.24 this morning, off its lows, I sold two October 32 naked puts (SOJVF) for $1.20 each and received $228.50 after commissions.  A couple of hours later while EEM was trading at $37.86 I sold three EEM October 38 naked puts (EEMVL) for $1.04 each and received $299.75 after commissions.  Yes, these EEM puts were in the money.

I decided to sell October expiration options today because the premiums were a little better with the VIX moving higher in the morning.  With only two weeks to go until options expiration the time value of these puts will fall pretty fast and I’ll be able to write new options again in two weeks without having given up a lot of the time value of the November puts.  Lower volatility doesn’t allow this, but this morning’s dip after yesterday’s steeper decline helped me out. 

I only sold half a position on SSO to leave myself room to “double down” if we do sink further.  Also, SSO is a double ETF which means it’s basically a full position. (1/2 the shares at twice the daily price movement.)  I needed more exposure and this was an easy way to get it.

EEM is not a double ETF, so I went with a full position to start with.  I had no emerging markets exposure and think this is a good vehicle for it.  I have been following EEM’s chart for the past month or so and a couple of weeks ago (9/21) I entered an email alert in TD Ameritrade’s system to let me know when EEM traded below $37.50.  It opened down there this morning, but I was slow to get my order in.  Had I reacted quicker I would’ve sold the $37 strike puts instead for about a dime less than the strikes a dollar higher.  EEM’s chart shows it’s near the bottom of its trading channel.  I think that trading channel will hold and I sold in the money for the higher premium, albeit slightly higher risk.  I don’t mind the risk of being assigned EEM shares as I now plan to keep it (or another emerging markets ETF) as a standard part of my portfolio.