I’ve been reading a new options book and listening to the comments here about hedging.  I put the two together and am trying something new.  I sold an iron condor (defined as both put and call vertical spreads on the same underlying ETF or stock at four different strikes) on EEM this morning with the expectation that the emerging markets ETF will stay range bound for the next six weeks.  While EEM was trading at $41.65 I sold a call vertical spread by selling 20 June $43.50 calls for $0.51 each and buying 20 June $44 calls for $0.37 each for a net premium intake of $0.14.  I received $247.03 after $32.97 in commissions.  The other side of my trade, the puts, didn’t hit for a few minutes and I lowered my asking price once.  After another 15 minutes or so I canceled the order and raised the strikes by 50 cents.  While EEM was trading at $41.63 I sold a put vertical spread by selling 20 June $39.50 puts for $0.67 each and buying 20 $39 puts for $.057 for a net premium intake of $0.10.  I received $166.99 after $33.01 in commissions.  Together I took in $414.02 for the entire iron condor and I’m risking …

March was a pretty good month for me.  I increased my exposure close to the right time and was able to ride the rally off the lows to a profitable month while the major indexes lost value.  The smartest move I made was not closing any positions when the market started to look shaky.  My prediction of a 5% correction was close as the dip went a little over 4% before snapping higher again.  I’m not expecting this to be a big sell in May and go away month like four of the past five years have been.  Fear seems to be built up enough that a lot of the bears have already exited stocks or have even moved to shorting the market.  Either way, it helps those of us who are still invested.

I’m trying to stick with my mantra of avoiding stupidity in trading this year and at the same time want to grab opportunities when they present themselves.  The opportunity came up a couple of weeks ago and I sold enough to bring in a lot of premiums.  I’ve eased up some since then to make sure my current puts finish with a profit.  Before long I’ll be …

I charted the past three months of daily prices for the Dow Jones Industrial Average ($DJIA, $INDU, $DJI) after the index closed at 13,228.39 on Friday, April 27, 2012.

The DJIA hit its 2012 closing high intraday on Friday after nearly three weeks of being in rally mode.  The rally cooled at that point, as is typical when an index or stock reaches its previous high.  This was only a handful of points below the intraday high for 2012 too.  Now it gets tricky.  The large cap index is at the top of its horizontal trading range for the past couple of months after a strong rally, but technical indicators are still saying there’s more upside in this rally.  The 10, 20 and 50 day moving averages (dma) all converged at the end of this past week and the momentum is clearly leaning towards the bulls.  As shorter moving averages overtake longer ones it shows momentum favors higher days still ahead.  This is particularly true with the 10 and 20 dma which cross each other more …

Yesterday I mentioned that I’d probably add more exposure today with an index or sector ETF.  After much debate and waiting far too long, I went with a naked put on the Russell 200 index ETF, IWM.  I was really planning to add more SPY or DIA to go with the momentum of the big cap stocks that have less volatility than small caps.  However, the sell off in small caps was bigger than that of the larger stocks and yet the bounce hasn’t been as big yet in terms of how much ground has been made up.  In other words, SPY and DIA are much closer to the recent intraday highs on a percentage basis compared to IWM.  That means small caps probably have more upside potential than the big boys.  Since small caps generally swing bigger, the premiums are bigger too.

While IWM was trading at $81.77 I sold one IWM June $80 naked put for $1.99 and received $198.27 after commissions.  Since this trade pulls me over the 100% invested mark (only by $3,200) I wanted to keep the strike out of the money to pad my risk level some.  I’m targeting a 2.54% gain (18.1% annualized) and …

My original QCOM May $67.50 naked put fell deep in the money as the stock’s price dipped down to $61.27 yesterday intraday.  Along the way in its recent decline I haven’t thought about closing out my option early.  I’m still bullish on QCOM and fully expect it to recover before long.  The only internal debate I’ve had with QCOM was when to add to my position.  I figured I’d sell a covered call along with a new naked put in May if my May naked put was assigned.  That was my original plan, but then QCOM fell quickly last week so I decided to keep a closer eye on it daily basis.  I thought I might do well by adding to my position sooner than later if I saw a turn starting.

This morning, thanks to AAPL’s earnings, QCOM jumped higher at the open.  In my eyes, QCOM will grow earnings along with continued growth from iPhones, iPads and other handheld devices.  While QCOM was trading at $63.36 I sold one June $62.50 for $1.75 and received $174.71 after commissions.  As luck would have it, I made my trade within 3 minutes of the high of the day and could’ve done …

This S&P 500 ($SPX) chart shows the past six months of daily prices after the index finished the week at 1,378.53  on Friday April 20, 2012.

A couple of weeks ago I questioned if the “Sell in May” crowd had started their annual exodus early.  Since then the market fell a few percentage points, but then recovered quickly.  As of Friday the SPX is only down 20 points from when I questioned the bulls’ strength.  Friday’s chart isn’t as clear as it was two weeks ago.

Williams %R came out of the oversold area and stocks rose, but the 20 day moving average (dma) acted as resistance and pushed equities lower again.  The 50 dma hasn’t been much help as it has been crossed intraday eight of the last nine days without causing much more than a very brief pause.  The 10 dma held support on Friday, but it also just crossed below the 50 dma.  This is often (not always) a bearish signal.  These basic technical analysis tools are more neutral right now than anything else …

I only have two options set to expire today, one covered call and one naked put.  Both of them are for small cap ETFs and both are finishing in the money.

One UWM April $35 covered call - I sold this covered call back in December while UWM was trading just a little under the strike and I’m letting it call away my 100 shares of UWM rather than buying rolling out the calls to a higher, further out strike.  Even though I could’ve made about $200 more by holding onto the shares, I’m content with this trade as it played out.  I made a great return on the little position with a realized gain of 14.75% from when I made the trade.  However, I bought this lot at $42 from a naked put last year and will take a loss on the shares themselves.  Overall the position turned a profit, but since I had so many UWM naked puts last year, I’m not even sure how much I made after taking in all the premiums.  I’ve already sold new UWM naked puts to keep some exposure on it.  This time I went far out of the …

Last year I had a plan to use LEAPS and other not-quite-so-long dated options to build the foundation of my investing year.  It was great in theory, but I got anxious when I started lagging returns in the first few months of the year.  That made me raise my strikes and increase my risk.  I did so not long before the big 20% correction hit.  The fast and steep correction led to a different anxiety.  I panicked near the bottom and bought back some options when I should have let them play out.  This year I abandoned that plan to stick with shorter dated options that were much more liquid and had tighter spreads between the bid and ask prices.

I still think there is value to be found by selling some of these extremely far out of the money puts.  The path to success with them is limiting their use as a smaller part of my overall portfolio and possibly closing them early too.  With that in mind, I’ve started leaving limit orders in place for a few contracts here and there in the hopes that if I have the lowest ask, but still at a high price, I might …

Close to the end of yesterday’s trading session I started to think it was time for me to leg back in on a few trades.  After all, I was only looking for a 5% dip and the SPX made it 4.6% lower.  That should’ve been close enough for me to act at the time, but I was too patient and missed the big open today.  That didn’t deter me much.  I just ended up selling higher strikes that I would have.

I started with oil.  While UCO was trading at $43.83 I sold three July $37 naked puts for $1.85 each and received $555.06 after commissions.  A few minutes later, while UCO was trading at $43.90 I bought to close my two April $42 puts for $0.25 each and paid $49.95 with commissions.  That’s how IB has it listed on my trade summary, but I’m sure the commissions will be corrected.  As it is right now, they are paying me to trade.  Obviously the commissions were flipped.  I’ll see how it looks tomorrow or in a few days when the trades settle.  Even if it’s flipped, a nickel is less than the commission should be.  It’s in my favor for now, …