When options expired in February I said I planned to sell April puts on Boeing (BA) once they were posted because the downside looked limited. If I had followed through on that plan I might have caught BA close to the same price as today or near its recent low, below $69 a couple of days later. Instead I waited for it to recover some, not just because I didn’t want to catch a falling knife, but also because my attention was diverted to other options first.
Yesterday BA rallied to an intraday high $2.50 above its intraday low the prior day. Based on the BA chart I drew at the time and again just after 11:00 am today (see below) I thought it looked like BA might be somewhat stuck in a sideways trading channel and I figured it would slide back to the lower side of its range within a week or two and give me a good entry point for a new naked put. I entered a limit order to set myself up for it. That slide back took all of 90 minutes of trading hours before my order hit. While at $71.57 I sold one BA May $70 naked put for $2.90 and received $289.29 after commissions. BA kept sliding for just a few more minutes before rebounding.
I underestimated the spike in BA premiums on the quick dip and could’ve done a little better, but was pretty close to the high of the day for my sale and it quickly moved to a paper profit on the bounce. $70 looks like it has been a good floor for most of the past two months and $69 has held most of the time when $70 broke. The 10 day moving average is still holding support for today, but I don’t put a lot of faith in it longer term. The 100 day moving average held on the last big dip last week and the 200 day moving average is almost up to $67 and is moving higher still. With my cost per share if assigned at $67.11 I like my chances for ending with a profit on this trade. If it works out for a full profit, I’ll have an annualized gain of 21.1% and can survive a loss in BA of 6.24% before I take a loss. To get that low BA would have to fall 9.35% from the intraday high it hit on February 25th. I went with the May contract over the April one because the annualized return was about the same and the bigger premium gave me a better cushion for the downside risk. I also already have a few April naked puts in play and wanted to start building up my May exposure.
Now that I’m moving into potential margin territory with my overextending of naked puts’ underlying value versus the amount of cash I have on hand I feel I can be a more patient with each trade. With the bouncing around lately that the market seems to be doing without much change in the end it seems the best market for using limit orders set out of the money that can capitalize on the random ebbs and flows of equities. I wish I had done the same on CVS the other day when I was talking about it. The stock is up nicely in the past few days. I’m entering a new limit order for a May naked put to see if it hits on another dip. I’d like to do the same thing with UCO, but I have enough exposure for now on it.
