I skipped writing a monthly option expiration post last month because I had nothing expiring in September. YHOO, DIS and of course TLT prompted my update today. My easiest position to watch during the recent mini-correction was my YHOO October $33/35 short put spread. It expired today for a full profit of $245.67 with a few dollars to spare above my short put. I still have three YHOO November $37 naked puts and expect them to be profitable too.
My single DIS October $90 naked put finished in the money and I’ll be assigned 100 shares that I’ll be forced to purchase at $90.00. I don’t mind that at all since I’m very bullish on DIS still. I think it got spanked on pure fear that Ebola would take over the world and nobody would go to Disney World/Land or go see Disney movies. By the end of the week, the panic feeling was easing and DIS started bouncing back from its $78.64 low two days ago. It only traded below $80 for less than 10 minutes and I missed adding more at the bottom, but when I saw more strength this morning, I jumped on it. While DIS was trading at $83.62, I sold one DIS December $82.50 naked put for $3.40 and received $339.50 after paying $0.50 in commission.
I almost sold the $85 strike put, but decided I didn’t have to be overly aggressive on this trade since I’ll be long 100 shares without a covered call (for now). The shares will give me plenty of upside if DIS rallies as I think it will. If it sinks again, I’ll have better protection from a loss and a better average cost if assigned another 100 shares.
DIS Vertical Put Spread Risk/Reward Breakdown
- Potential profit: $339.50
- Potential return: 4.29%, 24.26% annualized
- Breakeven price: $79.10
- Downside protection: 5.40%
- Recent high: $91.19, hit on 9/4/14
- Cushion from recent high: 13.25%
- Expected support: Ideally, the 200-day moving average will hold support at $82.79 (and rising). This mark is only a few cents below this morning’s low, so a retest wouldn’t be shocking. If the 200-day moving average doesn’t hold, we could see a retest of the low two days ago at $78.64. I don’t think DIS will fall below the recent low. If it does, I don’t expect it to break below the springtime low of $76.33.
- Position close goal/limit: I’d consider buying more (meaning selling a third put) if it gets that low and I might end up holding it for a long time. I have no plans to sell a covered call on the 100 shares about to be assigned since I think DIS will be back in the $90s and beyond before long. These plans are always subject to change.
I waited until late in the day (3:46 pm) to make my weekly TLT trade because I’ve been burned the past few weeks for jumping in early. That said, I did cut my losses a little yesterday by exiting this week’s spread a day early. That decision ended up being a good move since TLT bottomed at $120.48 this morning and then recovered. TLT ran as high as $121.71 after 2:00 pm, but pulled back to spend the final 45 minutes of the trading day bouncing between $120.94 and $121.17. While TLT was trading at $121.03, I bought three TLT October 24 $122 puts for $1.63 and sold three TLT October 24 $120 puts for $0.53. I paid $334.88 for the $2 spread that I bought using a limit order at $1.10. If TLT closes next Friday below $120, I’ll make 265.12. If not, I’ll try to close it at some point in the final day or two to cut my losses or pull out a little profit.
TLT spent most of this week (outside of most of Wednesday and half of Thursday morning) between these two boundaries. It found support from its 10-day moving average today and has closed off its highs for the past three days and closed lower than the preceding day for the past two days. Blow-off tops like TLT had on Wednesday tend to turn into a week or more of weaker prices. I’m banking on that trend to continue.
In case we get another random scare for the market, I also entered a limit order to sell TLT call spreads for next week at $126/128, just in case we get another five-minute spike that peaks near the zenith from Wednesday.
I thought about selling another BA naked put today when I saw large caps making another move higher, but decided to let my single November put run its course a little longer. I would’ve been up $40 in one day if I had hit enter on the order, as I am with my new DIS put. I might enter a limit order to catch any sudden dip that I expect to be short-lived.