I entered a limit order this morning to sell my hedges on SPY and IWM if we saw another price drop over the next two weeks. The S&P 500 was up by more than 20 points at the time and I thought we would have a solid finish to the day. I didn’t intend for it to hit so soon, but my SPY order did as the S&P 500 fell back below the previous day’s close briefly. Before writing this update, I went back in and raised my IWM limit order by a dollar in the hopes of raising my profit on further weakness. If stocks push higher without dipping further, I’ll have plenty of upside to gain from the 300 shares of IWM I’m long already.
While SPY was trading at $195.41, I sold to close one SPY March 2016 $215 put that I had as a hedge for $24.40 and received $2,439.23 after paying $0.77 in commission. I sold the put in April and received $1,541.10 at the time. Today’s sale gave me a realized gain of $898.13, but leaves me with a SPY March 2016 $195 naked put. The remaining March naked put has a bid/ask of $12.86/13.02, so I could probably get out of it for $12.95 or so and take a ~$435 loss, but all of the $12.95 is time value and we have a long time to go before it expires. SPY could fall another 6.6% and I wouldn’t lose any more money at expiration. If SPY stays flat or gains ground, I could pocket another $1,295 over its current value.
I expect the market to be higher by March, if not by the end of this year and thought it was wise to take my profit while I had it on this contract. Friday will be interesting to see how the market reacts to the jobs data. It could move in either direction on good or bad news. I’d like to see strong data, even if it pushes stocks lower briefly. Strong jobs data means we aren’t hitting a recession in the near-term and stocks should eventually move higher.