I noticed last week that MVV was trading November options now, but was too busy playing catch up with work after taking time off for my grandmother’s funeral to make a trade on it.  I also wanted to see how far this rally was going to bounce before adding more exposure.  I thought about it over the weekend and decided a slightly out of the money (OTM) put option probably isn’t too risky based on my belief that the market stands a good chance of being higher by then than it is right now.

I entered an order for one November contract and lowered the ask price for my order a few hours later.  By 3:00 I didn’t think it was going to hit, but decided to let it sit for the rest of the day and open a new order tomorrow at a lower ask price, good for the week.  Instead, a little over 40 minutes later while MVV was trading at $71.92 I sold one MVV November $70 naked put for $9.10 and received $909.29 after commissions.

I didn’t realize it until I was writing this post that this contract is my first exposure to MVV in my taxable account.  I have a few of contracts in my IRA and my wife’s IRA too, but none in this taxable account until now.  My mid-cap exposure is up to 20.4% of my Interactive Brokers portion of my account, most of that is from MDY.  MDY tracks the mid-cap index too, but is not a “double” ETF like MVV.  My MDY contract is at the money right now, but it won’t change value as quickly as MVV will.

This trade gives me 16.21% downside protection in MVV before I take a loss on it.  That’s probably 7%+- for what the index would have to lose (factoring in the inefficiencies of the double ETF) and I think it’ll finish the year positive still.  I stand to make 14.9% on this contract based on the cash I would have to spend to buy the underlying shares if assigned.  That’s 22.9% annualized and doesn’t factor in the fact that I’m working off potential margin now.  MVV can even lose 3.7% and I’ll still take a full profit.  I’d rather not cut it that close, but it’s not quite up to me is it?

I still have room to add more exposure before I feel like I’m taking on too much risk.  After bringing in more than $900 already this week from this single trade I might lay low for most of the week as I let this one digest some.  I have a few April contracts coming up for expiration in a few weeks and for now some of those look like they might be assigned.  I should be able to work them back to a profit using covered calls and have them off my books before my longer dated contracts put me on margin.  That just makes it more fun while I work to get there.