Late last week, I entered a limit order to roll my IWM naked put that was set to expire in September. It was about $5 out of the money and didn’t have a large amount of time value left in it. Just before lunch today, while IWM was trading at $171.63, I bought to close one IWM September $168 naked put for $0.79 and sold one IWM October $171 naked put for $2.89 and I received $208.57 net after paying a total of $1.43 in commission.
IWM bottomed about 45 minutes later at $171.12, but I don’t think the net difference would’ve been huge if I had timed it perfectly. I’m content with the price my combination order triggered. I would’ve liked to have paid less to close my September put that’s only a little more than 2 1/2 weeks until expiration, but with the drop in price I paid more and also received more for my October put. As long as the net is the same as I planned for last week, it doesn’t really matter the exact prices of each leg.
I had 0.47% left to gain in my September put. That’s 9.02% annualized and more than I like to leave on the table when closing an option. It was still a good trade in my eyes since my October put has a potential gain of 1.71% or 13.31% annualized. This is a great example of why I like to look at annualized gains. Obviously, 1.71% is much better than 0.47%, but it helps to look at the annualized gain to see how much better it is when you factor in the time to expiration. I went from having a cushion of 2.57% to a cushion of 2.05%. A half a percent isn’t going to make or break my year if assigned, so the decision I made to roll it looks like a good move, even if at different percentages than I originally planned.
IWM fell below its 10-day moving average this morning, but it pulled back above it in afternoon trading. My cost per share if assigned will be $168.12. It’s not a coincidence that the 50-day moving average is within 21 cents of that price. I expect the 50-day moving average to provide support if IWM falls that much before October expiration. At 167.91 and ascending, the 50-day moving average would be an excellent road block for me.
If the 50-day doesn’t hold, I’m watching the trend line of higher lows that started on May 16 and has acted as support more than a few times since then. This trend line is just below the $167 range right now. A retreat to $167 for IWM would be a 3.68% fall from its intraday high hit on Friday. 4-5% is not such an uncommon mini-correction in most years, but for 2018 it could be enough to reset the stage for the bulls to resume buying.