I was ready to back off some market exposure after the markets were teetering last week on various technical indicators. The jobs report was enough for me to want to take some profits early. I’m not saying that the single data point was enough to make me want to abandon ship, but the break below the 10 and 20 day moving averages and breaks in the William %R indicator and a couple of trend lines did add up enough for me to draw back some.
While MDY was trading at $176.65 I bought to close one MDY April $174 put for $1.60 and paid $160.27 with commissions. I sold this MDY put in February when MDY was trading at $179.29 for net $368.97. As MDY lost money ($2.64), I made money ($208.70). That’s why I use options. Even when you don’t time your entry or exit exactly right you can still prosper.
While SPY was trading at $138.28 I bought to close one SPY $137 put for $1.05 and paid $105.58 with commissions. I sold this SPY put in February also. SPY was trading at $136.12 at the time and I took in net $448.23. SPY gained $2.12 and I made $342.65. This one played out differently than the MDY put above, but I still made more by using an option than by buying the shares outright. I thought about rolling this one lower right away, but figured another day or two of watching might be a better plan for now.
It’s quite possible that both of these positions would have finished out of the money by the time options expiration rolls around at the end of next week, but for so little money I had no issues taking a profit and waiting for a better opportunity with cash available. Since I made these trades before 11:00 this morning the market sank some and then rebounded relatively nicely so far. I’m still not convinced the rally is back on. We’ve seen about 3% to the downside from the recent intraday high. With all of the technical indicators I mentioned at the top of this post I think we should see more movement to the downside before we have a reason to believe the little correction is over. We might only get another 2% and I might sell new options sooner than later, but it’ll be at a lower strike probably and definitely farther out in the calendar.