Sold Another UWM Naked Put

Keeping with my plan to load up the majority of my account with LEAPS (or at least longer dated options) I was half playing around with UWM puts well out of the money.  I still have my wife’s IRA with TD Ameritrade and they don’t charge for changing limit orders like Interactive Brokers does, so I placed an order for a UWM January 2012 $35 put in her account to test how high it might sell.  Her order didn’t hit, but I left it in place at $6.50 in case we get another decent drop intraday again in the near term.  I was going to keep ticking it lower every 30 minutes to see if it where it would hit and then go in with my taxable account to add another one, but I got impatient quickly and decided to place a limit order in this account that I blog about good for two weeks at a lower price.

As soon as I placed the limit order at a lower price it hit and while UWM was trading at $43.03 I sold one UWM January 2012 $35 naked put (LEAPS) for $6.00 and received $598.99 after commissions.  $6.00 might not seem like much with nearly 55 weeks to go before the contract expires, but my cost will only be $29.01 per share if assigned.  That’s about $5 above the low of 2010.  I don’t think there’s much of a chance we’ll revisit the 2010 lows any time soon and if we do I’ll be happy to buy in down there for the long term.  I’m still holding onto the belief that small caps will finish 2011 higher, but with a 19.6% annualized return on this trade it’s hard to argue the case for sticking with the higher strikes on all of my trades.  I have a 32.59% cushion for UWM to fall before this turns into a loss and could even stand an 18.66% drop and still take a full profit.  Selling this far out of the money makes it easier to sell more puts than I could afford to buy and that’s the plan – sell enough to make me fully invested and once the underlying ETFs resume their climb, sell more.

I still have a handful of options expiring this month.  All of them have at least a 5% cushion for break even and most have more than a 10% cushion.  That makes me feel pretty safe that most, if not all, won’t be assigned, but I don’t feel I need to race into selling all of my longer dated options this week.  With about two and a half weeks to go before January expiration I might go ahead and close some of these early, just to play it safe.  I didn’t really think about that until right now and the markets close in a minute, so that’ll have to wait for tomorrow. 

I liked seeing the drop in oil today since all of my options are at much lower strikes and somewhat out of play for now.  If UCO can drop a bit more like today I’ll have to consider rolling my covered calls to avoid selling my shares and then being locked out for a month due to the wash rule.  I’ve also thought about selling some more calls on VXX.  I’ve already sold covered calls for June, but have thought about rolling those lower or just selling naked calls since I think my $70 strike calls don’t stand more than a 2% chance of coming into play.  Then again, since I have the long puts in place already to protect my downside risk I like having the weak hedge there just in case the market hits a wall and falls quickly.