Yesterday I mentioned that I might have to close these puts early if small caps continued to rise. This morning in my month end summary I referenced the move again when I said I need to be better about closing positions early when I have a good profit. Soon after I wrote that I decided to go ahead and bite the bullet and closed my TWM position for a tiny loss just to avoid having a bigger loss. While TWM was trading at $39.42 I bought to close three TWM December $39 naked puts for $1.95 each and paid $587.17 with commissions. I took a realized loss of $18.45 on the trade.
The thing that irritates me most about this trade is that I should’ve made it last week when I could’ve paid closer to $0.40 or $0.45. I ended up spending an extra $450+- because I waited. At the time, it seemed reasonable to wait another three weeks to pocket another $120-135, but that’s not how it played out. The funny part is that I’m not sure I should’ve closed it yet today. Obviously if I had waited a few hours I would’ve done better because small caps retreated and TWM gained some again, but that’s not anything I could count on.
What I did know (but didn’t consider enough) was there were not quite 12 full days left in the contracts and the puts were still out of the money. TWM was also close to its recent lows and the fast money is probably over. If TWM was to continue falling I still had $3.37 that it could fall before I’d be $1.95 in the money. To do that IWM and the markets would have to hit new highs. The risk is in what happens with the jobs data tomorrow. It could easily kick off another rally or another sell off. If we get another sell off I might use another inverse ETF and repeat the trade for a December expiration with plans to close the position when I get a profit of half the premium or maybe 2/3.
The best news out of this is that UWM has risen sharply from its recent lows and my account is much better off for it. Seeing the market flat today after such a monster day yesterday has to make the bears nervous. A lot hinges on tomorrow’s numbers and I’m going to try to be ready to capitalize on the move in either direction.