This is a trade I’ve been working for the past couple of options expiration cycles in my IRA successfully and in my taxable account once (ending in a profit in October). I have seven naked puts in and out of the money on TWM’s inverse brother, UWM. I see a draw down in small caps coming, but the time value and volatility in my UWM options makes the premiums too great to make buying them back worth it right now. I also don’t see the dip as lasting too long, so I turned back to TWM for a little more “juice” into my account while I wait it out.
While TWM was trading at $42.99 I sold three TWM December $39 naked puts for $1.90 and received $568.72 after commissions. I was able to get $1.95 in my IRA and for one of my clients, but TWM rose too much before I got around to my taxable account to trade. It looks like I could’ve been more patient and pulled out a $2.00 trade if I waited another 35-40 minutes. Waiting for another nickel or dime wasn’t worth the risk of missing the trade to me. At least I didn’t sell the puts at the bid price. I’ve made this trade in my IRA at the $38 strike previously because that was very close to the TWM low, but with such rich premiums I don’t think the risk of a loss is very great here. Then again if TWM tanks that means UWM is shooting higher and my UWM puts are losing value and increasing my profit.
The sell off from the past two days has been interesting for my account to say the least. I mentioned a couple of days ago that I didn’t know if my VNQ and DSX covered calls would be assigned because they were still in the money. Now they aren’t and I have a good chance of seeing them expire worthless which means I’ll probably sell new covered calls tomorrow afternoon once I feel safe that these won’t be assigned.
As I clean up November’s expiring options tomorrow I’ll probably go ahead and buy back my far out of the money December covered calls on JPM. I’m not sure I’ll sell new ones while JPM is down here, but will probably at least enter a limit order to set myself up for another bounce. Another trade I’m considering is on TLT, the long term bond ETF. Actually I’m more focused on the inverse side of this and maybe even the ultra inverse ETF, TBT. TBT bottomed at $18.00 at the bottom of the $SPX lows in early October. I don’t think we’re headed that bad again, but can see a great opportunity in the December $18 naked puts or maybe even the $19 puts if I feel like taking a bigger chance for a longer play. Over time TBT will rise as interest rates push higher. For now I’m just thinking about it, but could make this trade as soon as tomorrow or Monday.