Once again the S&P 500 ($SPX) closed in on 1,220 and then hit resistance, although I did see a print at 1,221 before it dropped again. The range has been tight today, which is nice after such volatility recently and also nice because it’s dropping the price of VXX and my VXX naked call. Once I saw resistance come back into play I thought I should try for a quick option trade on an inverse ETF.
Instead of SDS which trades double the inverse of the SPX I went with TWM which attempt to move double the inverse of the Russell 2000 (small cap index). I have a lot more exposure to UWM (double bull Russell 2000 ETF) so this made more sense as a tiny balancer for my eight UWM options. TWM has found support recently in the $46.40+- area recently, so I based my trade on this. While TWM was trading at $47.43 I sold one TWM October $48 naked put for $2.25 and received $224.57 after commissions. I sold this option in the money to gain more in premiums and since implied volatility is so high it still gives me a cushion down to $45.75.
I’m still biased by a long shot to the bullish side. This just gives me a chance to make money over the next five and a half days to make a quick profit if small caps don’t snap higher. I didn’t go out any further than next week’s option expiration because I didn’t need to for a good premium. Also, more than a few days is hard to plan for recently. This week has been great for bulls, but next week could be the opposite or even more of the same. If TWM falls below $45.75 before next Friday I’ll probably close out the little position as I let the rest of my UWM positions gain value for me. More than likely, we’ll see a flattening next week or maybe a move lower. Either way this should be a good trade.
As I mentioned yesterday, I planned to close my long JPM puts this morning and that’s what I did for a quick realized gain on the options while I lost on the underlying shares. This is exactly what buying puts can be good for, just basic insurance. While JPM was trading at $31.59 I sold to close my two JPM October 14 $34 puts for $2.40 and received $479.31 after commissions. After paying $210.68 two days ago I ended with a realized gain of $268.63. If I hadn’t made this trade, then I’d just be down by that much more on paper. I’m still counting on JPM to come back eventually. This just wasn’t its time.
I’ve been sitting on my VNQ position after being assigned 100 shares from a naked put that expired in September at $61.00. I updated that today. While VNQ was trading at $52.67 I sold one VNQ November $55 covered call for $1.15 and received $114.28 after commissions. A few minutes later, after seeing VNQ bounce around some, I sold one VNQ November $50 naked put for $1.35 and received $134.27 after commissions. VNQ is off its lows nicely, like most of the market, but appears to be nearing resistance at $55, if not at $53.00. With a dividend yield of 4.03% I don’t mind taking an assignment of another 100 shares at $50 while I cut my average cost per share substantially.
Total premiums received today = $952.43. Next week is October options expiration and should be an interesting week with more earnings announcements throughout the week. I’d like to have another active week like this week where I bring in more premiums and try to dig myself out of the hole I’m in. Direction might not matter if I can be better about reacting to the trend. I’m still holding 150 SH (short SPX) shares and won’t be selling until I see SPX above 1,230. Breaking above 1,220 is hard enough.
(As I hit publish, SPX is back up to 1,220.09. This will be a fun final hour to watch.)