In my post from earlier today I mentioned that I had a limit order out for a new MVV naked put. Since it had been sitting out there for an hour or more before I wrote my last post I was starting to think it wouldn’t hit, but before the end of the day someone bit. While MVV was trading at $75.24 I sold one MVV November $71 naked put for $4.80 and received $479.26 after commissions. I see likely support at $70 (around the low for July) and very strong support expected by $65 (the low in March and June). If the timing works out exactly wrong and MVV hits $65 at November expiration I’ll be sitting on a dollar paper loss, but will then own an asset that has just corrected and is poised to rebound.
In the recent past I’ve been selling puts with strikes close to where I expect support. This trade is riskier in the sense that the strike is closer to my average cost per share if assigned. I have been so intent on not losing money that I’m missing potential profit by being to shy with my strikes. As long as they keep working out I plan to mix in some higher strikes and won’t be upset about accepting some assignments and working the positions from there, much like I do with UCO.
This trade gives me a possible annualized gain of 22.1% and I have a cushion of 12.01% before I take a loss on it. If we see mid-caps fall another 6-7% I’ll be ready to buy again anyway, so this sets me up nicely with limited risk. I’m up to 23.9% of my account allocated to mid-cap ETFs – MVV November $70 and MDY January $175 are the other two I had before today. Both of these are also out of the money. Since MDY is not an ultra ETF it doesn’t have nearly the same volatility as MVV and offers much less risk. It still has a solid $9.00 of time value in it which comes out to around 5% return based on the cash needed to back it if assigned. With only six months to go in the contract’s life that’s about a 10% annualized return for one of my least risky positions currently.
For every dollar higher that MVV and MDY climb I’ll be more inclined to add more exposure. After this trade I’m finally back up to 100% invested again. That includes some of my positions that could see the underlying ETF drop by 40%+ before I lose a penny. That means that while I’m technically fully invested with respect to having almost enough cash to cover all of my positions, the chance of everything being assigned is extremely remote. Because of this low probability of assignment from a portion of my positions I can continue to add more through August option expiration.