This has to be one of the most boring quarterly options expiration days that I can remember. The market didn’t know what to do with itself after such a long rally and didn’t do much. The morning trade looked like it might finally turn into the start of a decent profit-taking day, but by the close, most indexes were not too far below break even. I only had two positions expire today. Both were the former hedges to put spreads that went my way and I closed already. I had closing orders on both for a couple of cents, but there was no way that was going to work for me with both so far out of the money.
- DIA – Two DIA March $138 long puts expired worthless.
- IWM – Two IWM March $91 long puts expired worthless.
I added a small new position late this afternoon, maybe out of boredom. I kept the trade to only one contract since I recognized that I was getting antsy and wanted to get some more on the table. While SSO was trading at $72.25, I sold one SSO June $67 naked put for $2.12 and received $211.31 after paying $0.69 in commission. I came back to the leveraged S&P 500 ETF because I was looking for something that could earn a little better premium while not risking much money. I have the cash available to put to work, but don’t feel the small potential profit is worth the risk of selling time while the volatility is at historically low levels.
I’m only risking $6,488.69 on this SSO trade. I wanted to get at least a 10% cushion for a non-leveraged stock or ETF, so I aimed for a 10% buffer on this double leveraged ETF. SSO can drop 10.19% before I take a loss. If it stays above the strike (7.27% lower than it was when my order hit), I’ll make a 3.15% return on my cash set aside in reserves. That’s only 11.7% annualized since I went 14 weeks out to June. I still think the S&P 500 will finish at the current levels or better this year, so I don’t think it’s a big risk to be assigned the aggressive ETF at a reduced price. My plan was to jump into SSO and other leveraged ETFs on the next dip. This trade is the beginning of my allocation that will force my hand to do so instead of rethinking it once the news headlines turn scary again.
I’m walking slowly into this type of trade and will probably add more like this one on further weakness. However, the VIX didn’t break above 12 today, even when the S&P 500 was down 10 points. This growing complacency isn’t the time to get fully invested. I might have to get creative if I want to bring in more cash flow for May. I have plenty of contracts due to expire in April. Those include options on UCO, SPY (although these won’t make it past this month probably), AAPL (losing money so far), DIS, QCOM and QQQ. Originally, that was by design. I wanted to be in a more cash heavy position going into the spring, but now that we’re close I miss having the upside possibility in place. If I don’t continue to hold back some cash, I’m going to try to ramp up my margin exposure when we get the next turn. It’s not a complicated strategy. I just have to find my nerve again.