A lot of traders like to add to positions as markets move higher. I’m usually in that camp too, but the S&P 500 has had a hard time getting up to the 1,600 level on prior attempts and after bouncing around it this week. I figured I should remove some risk and either be ready to buy in again on a dip or add in higher strike options if/when higher highs are reached and maintained.
While SSO was trading at $75.87, I bought to close two SSO May $66 naked puts for $0.11 each and paid $23.54 including $1.54 in commission. This didn’t take a lot of debate. If I left these puts in place, I only had $22 to gain over the next two weeks and a day. That left me with little reason to keep the position alive. After markets closed yesterday, I planned to roll these contracts into June. July isn’t available yet. However, the premiums aren’t too good right now for the risks accepted on a leveraged ETF. That leaves me on the hunt for something different to work with.
My other cheap option remaining was on Disney (DIS). While DIS was trading at $63.59, I bought to close two DIS May $57.50 naked puts for $0.14 each and paid $28.90 including $0.90 in commission. I had a strong bullish opinion on DIS when I first traded on it a few months ago and then again when I raised the strike for my second round of naked puts. I still like it, but so does everyone else. I don’t think I had much risk of something breaking on the stock and being assigned, but for such a small premium, it made sense to get out now and redeploy my cash elsewhere.
I planned to add another QCOM naked put when I closed my SSO position, but the premiums aren’t as good now that QCOM has bounced some. Also, the stock is hitting resistance just below its 200-day moving average. I want to see it over this line before I get in. If it doesn’t overtake this resistance, the stock will retest the recent lows and if that support looks good, I’ll be able to sell puts at a better premium. Either route seems to have less risk than selling new puts today.
I’m still debating it, but will probably start sprinkling in some limit orders on various ETFs and stocks. QCOM and SSO will probably be two and then I might leave some orders in on MDY and IWM too. I was even thinking about selling new far out-of-the-money puts on UCO since I don’t see WTI crude going below $80-82. I missed my opportunity for now. UCO is up $1.80 so far today and I’m happy to see it climb along with my 1,200 shares. I’d rather sell puts on a day of weakness when fear has pushed premiums to more profitable levels, but I might not be able to wait for a day like that if stocks move higher again tomorrow. I’m not in a rush yet, but could be chasing again soon.