Short and simple – I had to cut my losses on the emerging market ETF (EEM). EEM has been dropping steadily for a few weeks. I should’ve closed my position earlier, but didn’t. Finally, I bit the bullet and dumped my puts today. While EEM was trading at $39.38, I bought to close three EEM June $43.50 naked puts for $4.15 each and paid $1,246.34 including $1.34 in commission.
This trade only had three cents in time value left in it. Still, it’s a shame I didn’t get out when I mentioned my plans to get away from EEM last week. Dumping the puts just two days ago would’ve saved me a few hundred dollars. Instead, I took a loss of $791.51 after deducting my premium intake of $454.83.
I don’t know if EEM is going to rebound, but since I should’ve cut my losses earlier when I saw it fail at earlier technical breaks, I didn’t feel I should wait any longer in the hopes of a better exit point. I’m trying to cut losses on most positions between 6% and 10%. Depending on the market conditions and my outlook, I might let some run farther than that. This loss came to around 6.26% on the money I should’ve had in reserves, based on this math ((buy price $4.15 – sell price $1.52)/cost of shares if assigned $42).
Emerging markets are going to continue to be hurt by rising interest rates, which I see as a foregone conclusion. That’s enough of a reason to exit my position. Any random civil unrest around the world just adds to my bearish outlook on the sector. In addition, since I’m overextended on my naked puts, I thought it wise to cut my exposure where I’m losing money.
I’m still debating my T naked puts. I’m down $202 on the position now. That doesn’t hit my 6% threshold. Then again, I don’t have to wait to buy back the short puts if I think the stock has further weakness ahead of it. That’s the thing, I could see it finding support near current levels. I have $0.56 in time value for each contract, so if it stays flat or bumps higher at all, I’ll do well to wait.
QCOM is still unstable, but I’m trying to stick to my guns and remain patient with my position. I expect it to rally, at least to $65.00 within the next few months. The debate with QCOM is when to sell new covered calls. My June $65 covered calls are nearly worthless already at $0.07/0.08 bid/ask. I’ll probably enter a limit order to sell new QCOM calls on any sign of strength.