Sold New SSO LEAPS Far OTM

Although I’m starting to get the feeling that we might be at the cusp of a new downturn I decided not to wait and added a little more exposure in my TD Ameritrade (AMTD) account that’s supposed to be dedicated to bonds.  While SSO was trading at $49.20 I sold two SSO January 2012 $40 naked puts for $3.90 each and received $768.49 after commissions.  I mentioned this plan when I started to shift towards it a couple of weeks ago with my OTM UWM LEAPS and took another step with it today.  I only have a little more than $16k in this account and plan to add to it some more throughout the year.  Until I get some more cash deposited I don’t think I’ll be selling more naked puts in this account since I’m already sitting on exposure worth 190% of my account.

Although this account is supposed to be earmarked for bonds I have a hard time letting that potential margin sit unused.  Because it is supposed to be my “safer” stash (not that bonds are actually safe lately) I’m keeping the strikes far out-of-the-money (OTM).  SSO can drop 18.7% from here and I’ll still take a finish with a full profit.  That probably equates roughly to more than an 8% drop in the S&P 500.  Before I take a loss on this trade SSO would have to drop more than 26.6% or maybe 12% in the S&P 500.  First, I don’t think we’re going to get that big of a correction (and this doesn’t count the 1.5+% the SPX has already fallen from its high this week).  Second, if we do see a bigger drop than I expect I don’t think it’ll still be down that low by expiration.  If I get an early assignment then it’ll open the doors for me to sell covered calls earlier than planned and could actually increase my profit by January 2012.

Ideally it’ll just work out (of course).  I try not to make many trades in my AMTD account because of the higher trading commissions than my Interactive Brokers (IBKR) account.  I don’t plan to trade much more in 2011 in this account aside from another batch or two of BND buying and maybe one more OTM option leg.  Using 200% of my available funds is my self imposed upper limit per account which forces me a wee bit of restraint.  I actually consider this less risky than even 150% of funds used in my IBKR account since it’s all equities.  At least with this AMTD account not everything should fall at once, but then again bonds and stocks both rose in 2010, so nothing is guaranteed.