When I sold EEM covered calls yesterday I mentioned that I was nervous about its prospects, but would consider adding new naked puts if/when it dipped to the $35.50 area where I thought it would find support. I entered a limit order about 35-40 cents above the bid/ask and let it sit. With the fall this morning my order was triggered. While EEM was trading at $35.48 I sold two EEM July 34 naked puts at $2.02 and received $402.57 after commissions. My limit order was actually for $1.75, but with such a drastic fall to start the day I lucked out and got the market price at open which was much better than I was planning for.
This gives me 200 shares long of EEM along with a strangle in July with 34 strike puts and 39 strike calls. Ideally EEM will end expiration in July in the upper $38 range and I can re-write the same approach. If it breaks above $39 I’ll end the series of trades with a profit. If it falls below $34 and I’m forced to buy another 200 shares my cost will be much lower than what I started with and will be able to maintain the position fairly easily at that point with covered calls every other month until they are assigned.
EEM dropped below my $35.50 target for a total of about 15 minutes this morning before recovering. It traded as low as $35.21, but quickly bounced back from that bottom. I don’t have any grand illusions that EEM will be back above $39 any time soon, but I still think these puts have a good chance of finishing with a profit for me. It’s funny though, once you set a price target and the stock gets there it’s a mixed feeling of “wow, I got that right” and “Oh no, what happens from here.” I’m still in the camp that says the world isn’t ending (yet) and that we are very close to some great buying opportunities. Using naked puts to find even lower entry points still appears to be a better strategy than just outright buying the shares at current market prices.