When I saw the market sell-off again this morning, I saw it as an opportunity. I was already planning to sell my IWM hedge, but realized I could raise my limit order and make a better profit than originally planned. I raised my limit order again pre-market, just to be safe that I didn’t get a low trade on a steep sell-off at the open. I raised it too much and ended up having to pull it in lower than the premium I raised it to yesterday afternoon, but better than my first order entry. Make sense?
While IWM was trading at $112.89, I sold to close two IWM January 2016 $124 puts for $13.45 each and received $2689.10 after paying $0.90 in commissions. I paid $2,001.21 for these puts in late March, which makes my realized gain $687.89. I’m still short the other side of the put spread I started with. These IWM January 2016 $110 naked puts are trading around $5.90 right now and are almost $3.00 out of the money. Adding the remaining premium and the amount they are out of the money, I have a cushion of nearly 8% before I would say I made a mistake for not buying the naked puts back today too.
I think we’re within a few percent of turning around and expect my two IWM January $110 naked puts to stay out of the money by expiration or at least not be as much as $5.90 in the money. I’ll buy the puts back if I have the opportunity to get out sooner than expiration with a decent profit. If I’m wrong about when the markets will turn around, I could be in trouble. Since I removed my hedges, I will be over-invested if all of my puts are assigned.