I’d be a happy man if this year could continue acting the way it has started the year so far. My account is up and the market is essentially flat. If we don’t see a good correction, we need an extended sideways consolidation period at least. Some 5-7% mini-corrections sprinkled in will help keep volatility off its lows and will give us a better return on the options we sell.
Today’s trades were simple profit taking. I’m up and want to stay that way. Both of these positions had less than 0.5% upside left in them and I was over-invested before today. I started by cutting out my DIS puts. While DIS was trading at $81.11, I bought to close two DIS April $72.50 naked puts for $0.36 each and paid $72.94 with $0.94 in commission.
I still believe in DIS. I expect it to continue running higher, but not before it takes a step back first. The stock has run back up to its trend line of higher highs and I think it’ll sell off again before reaching into the mid-$80s and probably into the $90s next year. I figured I should exit while I could for a nice profit and be ready to get back in when it presents a better buying opportunity. I received $548.75 when I sold these puts, not much longer than a month ago. Closing the position today gave me a realized gain of $475.81.
I almost let my SSO naked puts run until expiration. We are within four weeks of the contract’s expiration and I had a 12.29% cushion before I would have to pay more than the current ask price (assuming no time value was left on the final day). Such a cushion amounts to roughly 6% on the S&P 500 index. Although I don’t think we’re going much deeper in a correction in the near-term, the S&P 500 could fall that far easily in a few weeks. While SSO was trading at $103.71, I bought to close two SSO March $91 naked puts for $0.39 each and paid $78.80 including $0.80 in commission.
I could be back in on SSO as early as tomorrow on weakness. The index has had a great run from its February lows and broke through resistance today to reach new all-time highs. The 10-day moving average had a bullish crossover above the 20-day moving average at the beginning of last week. This technical indicator tends to foreshadow weeks of bullish price action, but the move today is more than 1% higher as I write this and I could see a quick retest of the 10-day moving average before we rip higher again. I’d like to sell new puts on a down day to get a better premium.
If I’m wrong on timing these trades, my missed opportunity was small and I can focus on other trades if these don’t come back to me soon.