I made a mistake by not jumping back into a new Boeing (BA) naked put when my November put expired last week. The stock moved up another $2.00+ this week and when it dipped this morning, I decided to go ahead and pull the trigger. While BA was trading at $134.76, I sold one BA February $135 naked put for $4.85 and received $484.20 after paying $0.80 in commission.
I’m just as bullish on BA as I was when I got into BA in early September, but was trying to time my entry better by waiting for a bigger retracement. Seeing so much cash not working for me in my account, I decided the downside risk wasn’t too big on a stock like BA and figured I could afford to sell the put slightly in the money if I extended the expiration a little longer and buffered my risk a little.
I thought about the $130 strike, but BA was too far out of the money to make it work for my needs. The annualized return would’ve been below 10% and even though I expect a little more downside to the stock, I don’t expect it to fall below $130 and stay down. By going out to the February expiration, I was able to pull my cost if assigned close to $130 and pulled my annualized profit over 15%. I also wanted to avoid yet another January put since I have five other options expiring on January 16. I find it much easier to manage my portfolio when I don’t have everything expiring on the same day. In good times, I risk being far too under-invested if I have little time value remaining on every option. When markets turn lower, I prefer not to have every option assigned on the same day. Sometimes, markets act as they did in October and the dips are steep, but short lived and by having staggered expirations, I can be patient.
As I was charting BA again today, I noticed what I should’ve noticed six days ago. I had been looking at three and six-month charts, but the one-year chart showed a technically bullish indicator that I had marked months ago, but didn’t remember to review again. As BA pulled off its lows from October, it ran up against an imposing trend line of lower highs that started on January 22, at $144.57. On June 9, BA peaked at $138.40. On November 18, BA climbed nearly $3.00 and broke through this potential resistance. The next two days saw a retest of this trend line and then BA gapped higher and kept climbing until yesterday afternoon. If I had noticed this break of resistance last week, I would’ve jumped on new naked puts sooner. Now that a few days has passed, BA might refill the gap (i.e. come back down and retest that day’s intraday low), but then I expect it to resume its climb. I opted not to wait for further downside because I didn’t want to miss the trade again.
BA Naked Put Risk/Reward Breakdown
- Potential profit: $484.20
- Potential return: 3.72%, 15.35% annualized
- Breakeven price: $130.16
- Downside protection: 3.47%
- Recent highs: $138.40, hit on June 9 and $135.59 hit yesterday
- Cushion from yesterday’s high: 4.01%
- Expected support: $133.44 was the low from two days ago when BA jumped higher yet another leg. It could retrace that day’s big gain or even come back down to the $132.52 mark, the intraday low from the gap higher on November 21. The 10-day moving average isn’t far from that mark now and is ascending fast. The 20-day moving average is rising quickly too, but is only around $128.31 today. The 20-day moving average should offer support again when the 10-day moving average fails. If BA has already started its retracement, that convergence might happen around $130 (close to my cost per share if assigned). The $130 area was resistance for BA through July, again in September and very briefly in November before it broke on November 18 as mentioned in the above paragraph. What was once resistance often becomes support after a stock or index breaks through it. I’m expecting $130 to be very strong support if BA sinks as much as 4% before my option expires.
- Position close goal/limit: I’m planning to ride this put until I can close it for a good profit or it is assigned. Even if my $130 mark fails to hold support, the 50, 100 and 200-day moving averages are all at or above $125.73 and ascending. I think they’ll catch any overshot by the bears and unless the fundamentals for BA change, I won’t mind buying BA at that level.