Wrote DVY Naked Put

As I mentioned a couple of times recently, my goal is to have is to have a less volatile account for the next few months. After the dust settles in my personal life, I plan to ramp up my risk again. Until then, I’m planning to use lower volatility ETFs for my at the money naked puts and farther out of the money naked puts or at the money covered calls on the more volatile ETFs and stocks.

Since I’m already long IWM and MDY shares with covered calls, I figured I should have some large cap exposure. While DVY was trading at $87.33, I sold one DVY January $87 naked put for $1.65 and received $164.75 after paying $0.25 in commission. I opted to sell it almost at the money since DVY isn’t as volatile (beta of 0.66) as SPY or DIA. I’m also only 66% invested after this trade, so if we see a big “swoosh” lower”, I have plenty of cash available to buy in cheaper and/or ride it out.

If DVY loses ground, I expect it to find support close to $85.55, around its 61.8% Fibonacci line. DVY also found resistance and then support around this level on November 14 and November 15 respectively. My cost if assigned would be $85.36, so I’m trying to work this to avoid assignment really. If assigned the shares, I could handle the 3.2% dividend until I can unload the shares with a covered call.

Even with my use of a lower volatility ETF, I’m still targeting a 14.09% annualized gain (or a 1.93% gain over 7.1 weeks). DVY can drop 2.26% before I lose a penny. That’s not a lot of cushion, but I don’t expect much more of a drop, if it even falls that much. It’s only slightly off its recent high from November 29, at $87.89 and has been hovering back and forth over its 10-day moving average. The 20-day moving average is trying to catch up and will be above $86.00 on Monday.

Next on my radar? Maybe a FB naked put 6-10% out of the money. Maybe QQQ on any more weakness. I might simply go back to another IWM naked put farther out of the money than I usually would.

« « End of the Month Summary – November 2016 - | - Sold QQQ Naked Put » »

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