I decided to switch to using VWO instead of EEM for my international exposure. They both attempt to track the MSCI Emerging Markets index, but VWO has an expense ratio of 0.27% while EEM is nearly triple that at 0.72%. EEM’s yield is slightly higher at 1.33% compared to VWO’s 1.2%. EEM’s volume is more than twice that of VWO, but VWO is still very liquid. All of that together gave VWO a slight edge in my opinion. I could end up working with EEM again down the road when I’m in a situation where I have the wash rule going against me on VWO, but for the most part VWO looks like it’ll be my new go to ETF for international exposure. I owned it years ago (pre trader’s journal), but if memory serves me correctly it didn’t used to be optionable so I forgot about it.
Now that I know I can sell options using VWO I’m back with it. While VWO was trading at $47.15 I sold one VWO January $46 naked put for $1.30 and received $129.29 after commissions. I still have a January EEM naked put too, but it’s farther out of the money and I don’t expect it to be assigned. If it is I’ll be getting it more than 10% off from its high and will expect a turn around soon after.
If both my EEM and VWO naked puts are assigned they will still make up less than 10% of my account which I think is a fair international allocation. If they both move farther out of the money I’ll consider adding yet another VWO put to increase my profit potential, even with the increased downside risk. I’m expecting another positive year for the market next year and will continue to try to push the edges somewhat with more exposure in all major asset classes, except maybe bonds which look more and more tenuous each day.
Hey,
What’s your plans with your BA position assumming it’s assigned next week? I’ve also got some Naked Puts for December expiry. January options expire pre-earnings which makes a January 62.50 Strangle at around $5 quite interesting.
That’d reduce your basis significantly to about $61.50 if the Put is assigned. If the Call is assigned, you’ll have your original $67.50 ($62.50 for shares and $5 for January premiums) and will keep most of the original December Premiums as profit.
Another option I’d consider is moving the Call option to February for an additional $1.04 premium and the potential of a dividend.
I think there’s a window pre-earnings where a company can’t make any news releases for a certain period prior to earnings – but I’m open to correction on this. If this were the case, I’m wondering whether the premiums build into the January options are justified?
I’ll make my decision next week based on where BA is by the end of the week. (I am assuming it’ll be assigned.) I doubt I’ll go as low as $62.50 for a covered call, but that’s an interesting idea. I’d like to go as high as $67.50 to exit where I got in, but that’s been resistance lately, so I don’t know if I need to aim that high with a covered call. I don’t think I’d go any lower than $65 for my covered call. I’m pretty sure I’ll target February to try to be in place for the dividend. I like $62.00 – 62.50 for support, so I can see selling a strangle with a $62.50 put and $65 or $67.50 call. The $65 only gets you $1 more, so I might lean for the $67.50 to leave more upside potential for the stock.
I think the implied vol for January options looks in line with the December and February, so I assume the premiums are reasonable.
I’d roll BA Dec67.5 to Jan65 ASAP for a net debit of about $1.00. Still profitable if unassigned, lower cost basis, no stock purchase and less margin requirement.