My left arm is in a sling and I’m using a mix of typing with one hand and dictating to Siri on my phone and emailing myself, so I’ll keep this post short.
On Friday, I entered in order to sell new UWM naked puts for January. I expected the market to pull off its highs at some point this week and tried to price these new contracts at a price that would hit on a dip. I probably should have aimed for a higher premium, but I did not want to miss out on the trade. While UWM was trading at $73.25, I sold two January UWM naked puts for $2.75 each and received $548.46 after paying $1.54 in commission.
I think this was 10–15 cents above what I could’ve gotten on Friday when I placed the order. I actually thought the trade was worth the risk on Friday, but opted to play it patiently and see if I could do a little bit better. The current bid/ask looks like I could have gotten $2.95 if I had tried. When I priced the order on Friday, my notes show that UWM was trading at $73.80. It closed Friday even higher than that.
The underlying reason I made this trade using this strike was that it gives me a pretty good return while it also gives me a nice cushion before I take a loss. There’s no telling how the market will react in the near-term with Washington still unclear on their future discussions. If we do get a selloff, I don’t think it’s going to be too deep and then the recovery will be big. We saw a sample of that recovery chase last week just on the expectation that the two sides were finally talking and should reach a compromise before the bottom falls out. I’m banking on sanity to prevail, but that might not be too wise.
UWM Naked Put Risk/Reward Breakdown
- Potential profit: $548.46
- Potential return: 4.41%, 16.4% annualized
- Breakeven price: $62.26
- Downside protection: 15.01%
- Recent high: $74.47 on 10/1/13
- Cushion from recent high: 16.40%
- Expected support: $68.00, around where it bottomed last week. If this first level doesn’t hold, I think $64 should fare better, near where late August and early September found support. The 200-day moving average is ascending and is almost up to $60.50 now. If it comes into play, I’ll have losses, but not a big chunk.