Position Updates – SPY and EEM

As I mentioned a few days ago in my May options expiration post that I planned to sell covered calls on a couple of stocks that were assigned to me.  I started with SPY and targeted an options strangle (sell a put and sell a call at different strikes on the same underlying stock) and my limit order didn’t hit.  I wanted to sell a July 104 put and July 112 call for a net credit of $7.10.  I actually could’ve gotten $7.10 when I first started watching it, but waited with the expectation that it was going to drift higher.  When it started going the other way I entered my limit at $7.10 only to see it melt away from me as volatility drained from the markets.  By lunch time the same order was trading around $6.50-6.60.  I decided to give in and lower my limit order, but then decided I wanted to remove a little more risk.

Risk in this situation included downside and upside risk.  In the event of another steep selloff I thought I should lower my strike to delay an assignment too high.  In the event of a rally I wanted to be a part of it for longer and raised my strike for my calls.  While SPY was trading at $108.93 I sold one SPY July 101/113 strangle for a net credit of $5.22 and I received $519.97 after commissions.  I sold the July 101 naked put for $2.79 and the July 113 covered call for $2.43.  I picked the 101 strike because I don’t see this correction going lower than 20% from SPY’s recent highs.  (That would be just under $98 for SPY.)  I chose the 113 call strike because I wanted more room for the 100 shares I own to grow from here and if called away I wanted to have a decent profit.  So far I’ve taken in $8.19 in premiums on SPY and if called away at $113 I’ll lose $4.00 on the stock shares.  That will leave me with a profit of $4.19.  I thought about aiming higher on the strike, but decided that I can be happy making back money on my other positions that are in the money now if we get a big rally.  If SPY gets above $113 by July I might be worried about its staying power unless we hear some better than expected news soon.

While waiting on SPY I placed an order on EEM too.  I was planning to sell a strangle on it, but then started second guessing myself, mainly because I’ve moved past the point of having enough cash to back all of my puts and have some other stocks I’m eyeing for more naked puts.  I do expect to add at least one more naked put on EEM and maybe two, but just not today.  While EEM was trading at $37.46 I sold two EEM July 39 naked puts at $1.32 each and received $262.57 after commissions.  With my trepidation on EEM I knew I wanted to reduce my cost and basically took the highest strike for July that paid at least a 20% annualized gain if the stock stays flat.  The 39 strike was the winner.  The $35.50 range might be an area of support for EEM and if/when it gets down there and proves that I’ll probably sell the extra puts I’ve been considering.