I had another profit taking day today. I did this a few weeks ago and saw the need to remove some risk today again since my upside on these puts was very limited. It’s not that I think we’re about to see a major sell off (probably some selling, but not beyond 4-5%), but that I think I can do better with different positions. I didn’t dive into anything new yet and I didn’t open any new positions today. I was curious about what the Fed was going to say this afternoon and how the markets will react tomorrow. I closed all of these puts before the announcement.
Even without the FOMC’s policy statement due today, the market is due for a few days lower – if not a week or two lower. The disappointing GDP report this morning didn’t scare off the buyers. Those buyers were hoping the Fed would come through with some new big version of QE or at least say they’ll keep the printing presses running. It ended up being a sell on the news event and almost everything sold off, except for treasuries and commodities.
While SPY was trading at $150.63, I bought to close one SPY February $144 put for $0.24 and paid $25.29 with commission. Originally, I brought in $355.30 for this contract, so I ended with a realized profit of $330.01. This one was an easy decision since it cost me so little.
I thought about these next three trades for a little longer than the first one. They cost more to close, but when I really looked at them, the upside was no more than 0.61% for any of them and that was spread out all of the way into mid-March. I believe I can find trades that will give me much better upside potential than that. If I don’t, cash is better than the risk of losing money in a sell off. I placed the orders without hesitation once I realized how poorly the risk/reward outlook didn’t favor me. While DIA was trading at $139.21, I bought to close one DIA March $133 put for $0.75 and paid $75.69 with commission. Originally, I brought in $482.30 for this contract, so I ended with a realized profit of $406.61.
I came back to SPY again when I saw it looking jittery. While SPY was trading at $150.53, I bought to close one SPY March $143 put for $0.85 and paid $85.95 with commission. Originally, I brought in $239.23 for this contract, so I ended with a realized profit of $153.28.
While MDY was trading at $198.62, I bought to close one MDY March $188 put for $1.15 and paid $115.27 with commission. Originally, I brought in $710.02 for this contract, so I ended with a realized profit of $594.75. I debated this one even longer because the cost to close was higher than the others and the bid/ask spread was fairly wide. I started with a limit order at $1.05 and slowly worked it higher by a nickel every 5-10 minutes when I realized it wasn’t going to hit soon enough for me. I made the right move by raising my limit order based on how the market traded in the afternoon.
I might start adding more back into my account as early as tomorrow. I have a lot of cash I want to get back to work for me. I’d love to see a good sell-off early and a pop higher in the VIX. The VIX climbed some today off of its lows, but it’s still relatively low. A move higher in volatility will help those of us who sell time value. I’m still bullish for the year and will view any move lower in the coming weeks as a buying opportunity. I want to pocket as much as possible while I can because I expect a 7-10% correction will hit the market at some point this year. I plan to hedge accordingly before then, but plans don’t always work out.