A few months ago I talked about keeping a regular position in an emerging markets ETF (EEM) to have some international exposure. Once EEM had a big run up I backed off that plan, but only until today. As I reflect at the end of the year about how my trading model worked this year I’m considering tweaking it a little again. I’ll go into more detail later, but the short version is that I plan to use more ETFs and I’ll start with smaller positions and add to them as the underlying change. I’ve been leaning toward more towards this approach over the past few months and think I should be more structured with my plans than I have been.
I already started this approach with UCO and this morning I added EEM to my holdings. When EEM was trading at $40.65 I sold one January 42 naked put (EEMMP) at $1.82 and received $180.55 after commissions. This is an in-the-money naked put. I sold in the money because I think EEM will be moving higher based on its chart. I only sold one in case I’m wrong my losses are very limited. Premiums are lower than I’d like with the VIX (volatility) so low right now. I’d like to see the VIX a bit higher before selling too many puts or calls, but at the same time I don’t feel strong enough in either direction to buy options at this point in time. Aside from staying in cash, the only other move I could have made would to outright buy EEM. If I bought it at $40.65 I’d probably have to consider selling it if it got above $42.00, so selling the option made more sense since I also was able to take advantage of $0.47 in time value. If nothing else, that will reduce my cost per share if I take the option assignment. I “win” either way. I either take the full gain on the in-the-money option or end up buying EEM at a discount to the current price.
I’m still far too underinvested, but with the markets so close to the high end of their trading channels I’m nervous about over committing when I could get in cheaper by waiting just a few days or weeks. I’ll probably start entering some limit orders over the next week to catch any upcoming dip. Then again, I might just spend time with my family and not do much more until the New Year.