Options Expiration – June 2015

I had another profitable options expiration in June.  After making trades in each of the past three days, I added one more trade today to replace the only option contract I had not already dealt with earlier in the week.  My only two sets of options left to expire today (10 TLT June $128 naked calls and one MDY June $275 naked put) finished the contract period worthless and left me with a full profit.  I’ll keep the $842.06 I originally brought in on the TLT calls and will keep $789.64 I brought in on the MDY put.

TLT was trading at $123.40 when I sold the naked calls and finished the week just above $119.00 today (off its recent lows), which gave me a few weeks of not stressing over the trade.  MDY was at $277.18 when I sold the naked put and was just below $280 at the close today.  MDY dipped while I held it, but I never had a paper loss on the contract since it any weakness was quickly bought before the selling intensified.  The next couple of weeks have a lot coming around from Greece that could shake the markets.  I think any such sell-off will be temporary and will be a buying opportunity, so I decided to raise my strike on the new MDY naked put I sold.

While MDY was trading at $280.43, I sold one MDY September $280 naked put for $7.90 and received $789.74 after paying $0.26 in commission.  I tried to get this order to hit yesterday at $7.70, but couldn’t find a buyer.  Knowing that I wouldn’t be at my desk when the market opened this morning, I changed my order to $8.30 in case stocks fell at the open.  They did fall, but mid-caps didn’t fall enough to bring MDY to my premium ask level.  Late in the morning, I changed my order to $7.90 and changed my focus to work on other accounts.  My updated order hit within 30 minutes.

I considered going for the $285 strike since I think MDY will finish the year above $285, but I decided to play it more conservatively due to my belief that MDY won’t run in a straight line to $285.  I won’t be surprised if we see MDY at $276 before we see it at $285.  I wasn’t confident enough with that prediction to avoid the trade I made today.  I would rather have some “skin in the game” and weather a shallow pullback than miss the trade completely if MDY continues to inch higher.

MDY Naked Put Risk/Reward Breakdown

• Potential profit: $789.74
• Potential return: 2.90%, 11.52% annualized
• Breakeven price: $272.10
• Downside protection: 3.08%
• Recent high: $282.61 on 5/20/15
• Cushion from recent high: 3.65%
• Expected support: I was pretty close on my prediction for support last time I traded MDY.  We’ll see if I can come through again.  The 10-day moving average converged with the 20-day moving average today and is signaling a bullish indicator over the next few weeks.  I could see MDY coming down to test these moving averages around $279 in the next few days before taking off to new highs.  The 50-day moving average is around $278 and was support in March and most of April before breaking.  The most important moving average now is the 100-day.  It hasn’t broken support since January and should keep MDY above the $275.50 range, if it even gets that low.  The 100-day moving average also coincides with a trend line of higher lows that goes back about a month and a half.  I won’t even really blink an eye on MDY fluctuations until it’s below $275.50 and won’t truly worry unless it breaks below $268.00, where it bottomed intraday in March, coincidentally about 5% below the recent high.
• Position close goal/limit:  I plan to let this contract run through expiration unless I can roll it for a good profit before then.  I don’t plan to buy it back unless there’s a big change in the global economy.  An event in Greece this month might not be enough to get me to exit, but probably not.  I might buy a vertical put spread as a hedge at some point soon instead.