I mentioned yesterday that I freed up some more cash from my exit from ITRI. After seeing the pitiful payroll data this morning I thought today would build into a steeper decline and then after I saw some support come back in I decided not to be so timid. Instead of adding another individual stock I looked at the current ETFs I had options on and saw that my MDY puts were getting pretty far out of the money at the December 145 strike. I decided to double up on it and add some more exposure.
While MDY was trading at $160.85 I sold one MDY January $160 naked put at $4.41 and received $440.49 after commissions. That pulls me to roughly 115% invested overall if the bottom fell out of the market, which I don’t expect before December expiration. If I closed my December MDY naked put I’d be close barely over 100% invested, but I don’t think I need to close it since it would take more than a 12% decline in the mid-cap ETF to move it to a loss for me. With such a low probability of that happening I’ll take the risk for the extra few bucks. I might do the same on IWM next week if I can get some more cushion built into my December option. I might just roll it though since it’s so much closer to the money right now.
I thought about going with a lower strike on this new MDY put, but since I’m starting to think we really have a chance to finish the year strong I figured I should take more risk and aim for more profit. If the rest of my options were still closer to being assigned I would’ve put this farther out of the money than $0.85.
There’s no doubt I spent most of 2010 selling my options too far out of the money as my fear of a correction had the best of me. I’m going to try to make an adjustment and do less of that going into 2011. I still have 200 shares of VXX in the off chance it recovers in a downfall, but the advantage I have for the next six months is a limited downside with it compared to what I’ve already lost. When I took a look back on my big realized losses of 2010 I saw they were all in individual stocks, not ETFs. That pushes me farther away from individual companies as I plan my new trades. That doesn’t mean I’m going to forsake all stocks, but I’m going to make them a smaller percentage of my portfolio. At least that’s the plan for today.