I mentioned on Friday that I needed to add some more exposure and took advantage of this morning’s extended slide to sell more naked puts. I started with Itron (ITRI). After I rolled my covered calls lower a week ago I started wondering if ITRI might be in a sweet spot where its downside was limited and upside was too for the near term. I already put my money where my mind was based on the upside limitations and this morning I did the same for the downside risk. While ITRI was trading at $57.85 (before its slide was over) I sold one ITRI January $55 naked put at $1.70 and received $169.49 after commissions. If assigned my average price per share will drop substantially and I’ll continue to sell covered calls on both lots. I don’t think I’d risk selling any new naked puts with 200 shares in hand, but might if I see some fundamental and/or chart changes that warranted the extra risk.
I’ve been planning to add in more international exposure ever since my iShares MSCI Emerging Index Fund (EEM) shares were called away in September, but wanted to see a dip in the price first. With EEM down almost 8% from its intraday high earlier this month I decided I should take one step back into the international waters. While EEM was trading at $44.77 I sold one EEM January $43 naked put for $1.46 and received $145.29 after commissions. If this afternoon’s turn around looks like it’s going to hold I might add another EEM option contract later this week. I think the downside is starting to be fairly limited now that much of the excess has already been sold off, but still didn’t want to sell the closest strike to the money. With implied volatility for the option over 30.0 at the time I sold the contract I didn’t need to push my luck to get a good annualized return. Keeping the strike lower gives me more room to run on potential margin with a better cushion as I add more exposure over the next few weeks before December options expire and I know exactly what I’m working with.
After today’s trades I’m a little more than fully invested again and every new trade will move me farther into potential margin. That means each trade I make is leveraged a little more and should use lower probabilities of an option assignment to be safe. As I’ve mentioned in the past, IB has such low margin rates that I don’t mind being using margin in reference to its fee cost. It’s only the risk of a larger correction that makes me want to watch myself and keep from getting over extended at the wrong time. If we go back into the rally, stay flat or sink slowly I’m fine with running on margin some. I’m not using my cash for anything else right now anyway.