I’m really shocked that I haven’t made a trade since July options expiration. That was just over a month ago and is the longest I’ve gone without making a trade in this account since I started blogging in April 2007. The main reason for my lack of trading was that I couldn’t find something I wanted to trade in the past five weeks. In the past, I would’ve forced a trade, but I’ve learned not to be overly aggressive when the set-up isn’t there. I’m around 88% invested thanks to my hedges, so I shouldn’t be down as much as the indexes. However, my DIS position got spanked and is costing me a heavy paper loss. My TLT naked calls have moved against me too. I’m still confident on both of these positions and plan to add to both, possibly as early as next week.
Even without recent trades, I had three different options expire today from trades I made a while ago. All were in the money and I’ll be taking assignments on all three. Coming into today, I had one DIS August $115 put, two IWM August $124 puts and one IWM August $126 put.
DIS was my biggest surprise. After Disney hit a high of $122.07 earlier this month and I considered raising my DIS naked put strike to $120.00, but wanted to see a slight draw down first. Instead of a little dip, it broke below bear market territory, 20% lower on an intraday basis. I don’t expect it to fall below $90 and think $95 has a good shot of holding. I’ll be purchasing 100 shares of DIS at $115.00 from my short put with a cost per share after the put premium is deducted of $109.24. I’ll start considering new $95 strike puts to couple with my new holding. I don’t plan to sell covered calls any time soon since I expect DIS to push back towards new highs within a few months.
I wasn’t terribly surprised to be assigned my IWM puts. I was hopeful I’d get out of them closer to the money, but smart enough to hedge a couple of them. I’ll end up buying 300 shares of IWM – 200 shares at $124 and 100 shares at $126 and will have a net cost per share after deducting premiums of $121.79. Like my DIS shares, I do not plan to sell covered calls on my long shares in the near-term. I see IWM, and the other major index ETFs, as oversold and expect a bounce next week. I saw the Williams %R reading for the 14, 28 and 56 day indicators and decided we could be close to a reversal from oversold levels. All three indicators are close to -100, which tends to foreshadow a rebound within two days. Today is the first day of the two days, after the indicators bottomed yesterday. Monday could show more weakness or go ahead and push higher after opening lower.
My two IWM January $124 long puts helped to cut my paper losses this week, but I’m still down more than $7,000 from my highs this year. Part of this paper loss comes from my TLT $124 puts that expire next month. They are more than $2 in the money now and are trading around $3.35 as I write this at the end of the trading session. I’m not worried about getting out of this position within a few months and fully expect to come out with a great profit again. I’ll even add to the short position on further TLT strength. The TLT October $131 calls are trading around $1.24 now and would help dollar cost average the prices where I might short the first lot of shares if assigned. If not assigned, it’d be a nice profit to help me out. I’m not ready to make this trade yet, but could on Monday or Tuesday. TLT was only up 0.3% today while the SPX fell 3.14%. That shows me the longer end of the treasury yield doesn’t have a lot of life left in it. I’m waiting until next week to make that trade, just in case it has a big spike to start the week.
Here are some of the major index returns from their peaks:
- Dow Jones down 10.26%
- S&P 500 down 7.56%
- Mid-Cap Index down 8.28%
- Small Cap Index down 11.4%
I like seeing the fact that we’ve finally hit a correction on the Dow and Russell 2000. Maybe we can get some more normalized trading ranges established soon.