I only had one option for today’s expiration and it wasn’t even close. BA made it over $133 today and only eased off a little in the afternoon. Still, my BA November $125 naked put wasn’t anywhere close to being assigned. I’ll take a full profit of $339.20 and will regret not rolling it higher earlier. At least I didn’t panic when BA fell below $120 last month.
I rolled this same put higher in client accounts, but didn’t get to it in my own simply because I didn’t have time to write up the trade details on it. On Monday, BA closed at $128.43 and then moved steadily higher since then. I could’ve rolled the November put to January $125 or $130 and had a decent profit, but now I feel I need to wait for a little retracement to sell the $130 or $135 put. I’d like to see BA below $131.50 before I sell another put and will decide if/when that happens what strike I’ll target.
Thanksgiving week (next week) is usually a positive stretch for the market and I’m coming into it underinvested. To remedy that, in part, I decided to add more risk than I’ve been working with lately. While SSO was trading at $128.77, I sold one SSO January $125 naked put for $3.40 and received $339.27 after paying $0.73 in commission.
I considered the $120 strike and could’ve earned a little more than 12% annualized, but believe there’s more upside in this rally and didn’t want to give up another 5% annualized for the opportunity to save about $400 of downside risk. The February puts are not available yet and I didn’t want to go as short as December or as far out as March. I still need to add other exposure, but this helps in the meantime.
The only part that makes me somewhat hesitant about this trade is the way stocks fell from their opening highs today. The SPX opened 20 points higher and melted lower until it was only up a few points. When it reversed some, I decided it might work out, so I made my trade. I won’t be shocked to see a bigger retracement next week, but not too big that I’d want to exit this position.
SSO Naked Put Risk/Reward Breakdown
- Potential profit: $339.27
- Potential return: 2.75%, 17.79% annualized
- Breakeven price: $121.56
- Downside protection: 5.50% (about 2.75% for the S&P 500)
- Recent high: $130.24, hit on this morning, close to the open
- Cushion from recent high: 6.67%
- Expected support: $125 was the support area for SSO for the past couple of weeks and I think it could be retested and hold again. The 20-day moving average is at $124.04 and rising fast. It could help offer support around $125.00 too. The dip that came on November 4, after SSO gapped higher two days earlier, dragged SSO down to $120.92. I don’t think SSO will fall below this mark before the end of this year and probably not before my January put expires. The 50 and 100-day moving averages are rising and are at $118.65 and $118.07 respectfully as of today. This is as low as I think SSO will fall if my early lines of support don’t work.
- Position close goal/limit: I’d like to see this position into January, but if I can get a good profit on it within the next five weeks, I’ll take it and move on to something else less risky. I’ll try to ride out any dips unless there’s a big fundamental change. In that case, I’ll reevaluate and might have to exit. Since I’m underinvested, even with this trade, I didn’t mind using the leveraged ETF to juice my premiums a little more.