I was able to bring in $2,069.17 in premiums today by selling calls on TLT, DIS and IWM and rolling my DIS naked put higher. The TLT calls are naked, meaning I don’t have any shares I’m covering. The DIS and IWM calls are covering shares I already own. I was planning to make these trades on Monday, but wanted to see if the market’s strength at the beginning of the week would hold. It didn’t and I opted to wait until today to see if we could get a bounce. The bounce turned out to be a temporary flattening and I decided to go ahead and bring in the premiums while I could.
I started with TLT since it was beginning to weaken this morning after a very strong day yesterday. While TLT was trading at $121.34, I sold 10 TLT November $125 naked calls for $1.25 each and received $1,245.74 after paying $4.26 in commission. I’m simply repeating the type of order that has worked for me most of this year. I think TLT has limited upside and I won’t mind shorting it above $125. I started with an order at the $126 strike, but when TLT started losing value, I lowered my strike and found a buyer. I could’ve done better by applying more patience. Based on the bid/ask posted while I write this mid-day, I could’ve sold these same calls for $1.38. Still, if I can pocket $1,245.74 in two months, I’ll be very happy, especially if my 10 TLT October $125 naked calls expire worthless too.
I moved to Disney (DIS) next. I came into the day long 100 shares and short one DIS October $95 naked put. I’ve been hesitant to sell a covered call on my shares since I’m bullish on DIS and expect it to recover before the end of the year. I decided I could sell a covered call far out of the money to bring in a little money if I also raised my naked put’s strike at the same time to bring in more premiums. While DIS was trading at $101.76, I bought to close my one DIS October $95 naked put for $0.78 and at the same time, I sold one DIS November $100 naked put for $3.60. I received $279.81 for the spread after paying $2.19 in commission.
I sold a DIS covered call immediately after I rolled my put higher and farther out on the calendar. While DIS was trading at $101.73, I sold one DIS November $110 covered call for $1.26 and received $124.90 after paying $1.10 in commission. If my covered call isn’t assigned, I’ll make 1.23% (7.53% annualized) from the premium. If it is assigned, I’ll make 9.36% (57.26% annualized) from the current price. Ideally, DIS will finish the November expiration around $109-110 so I can take a profit on the call without selling my shares just before the Star Wars movies hit the theaters. If the covered call is assigned, my put will expire worthless and I’ll be up over $1,200 from where I was after these DIS trades.
I received $299.57 when I sold the DIS October $95 put a few weeks ago and paid $79.09 to close it today. That gave me a realized gain of $220.48 on the trade. By rolling the strike higher, I was able to stomach the risk of a possible option assignment on my covered call. If my new $100 strike naked put is assigned, I will have a lower average cost per share and will be able to work a profit from this series of trades even easier.
DIS Naked Put Risk/Reward Breakdown
- Potential profit: $358.90
- Potential return: 3.72%, 22.77% annualized
- Breakeven price: $96.41
- Downside protection: 5.26%
- Recent high: $122.07 on 8/4/15
- Cushion from recent high: 21.02%
- Expected support: $99.21 was the intraday low on September 1. I’d like to see it hold support. DIS is already below its 10, 20, 50, 100 and 200-day moving averages, so the easiest technical guidance to use comes from previous support. If $99.21 doesn’t hold, we could see DIS hit $95.79, where it reversed after closing near its low of the day on August 25. I don’t think we’ll see any trading below $95.79 unless it’s for a few minutes at the open of a panic day.
- Position close goal/limit: I’m willing to take an assignment on DIS and do not plan to sell my shares unless Star Wars disappoints at the box office, Star Wars merchandise doesn’t sell well during Christmas and Shanghai Disney tanks. In other words, I’m comfortable selling covered calls far out of the money and waiting for it to recover.
I went back and forth on my decision to sell covered calls on IWM, but finally opted to bring in some cash today at the risk of missing out on more upside down the road. While IWM was trading at $113.24, I sold three IWM November $118 covered calls for $1.40 each and received $418.72 after paying $1.28 in commission. If these calls are not assigned, I’ll make 1.23% (7.52% annualized) based on the current price. If they are assigned, I’ll make 5.43% (33.24% annualized). I would end up taking a loss on the shares if they are assigned in November, but I’ll also gain more than $900 on the two IWM January $110 naked puts I still have in play. At this point of the market cycle and the time of the year, I’d be happy to have my IWM exposure increase my account value by more than $2,750 in two months.