My outlook is generally bullish year in and year out and that’s why I’m an investor. I know that stocks tend to go up most years, but the down years are brutal and that’s why I invest with options. This year I’ve missed a lot of upside from being too cautious and I missed some downside by using options. I’m starting to doubt the strength of the bull market to carry us through 2019 and will probably draw down my risk in a few months. However, I think we’ll see one (if not two) more rallies before the bull is completely done and I want to be a part of it.
I had four options expire today and two of those were naked puts that will be assigned. My signal good trade was on AAPL, so I’ll start with it. My AAPL October $205 naked put finished out of the money and I’ll take a realized gain of $474.33. Even though it was far out of the money for the past month, I wait until today to sell a replacement. While AAPL was trading at $219.10, I sold one AAPL December $210 naked put for $6.60 and received $659.33 after paying $0.67 in commission.
I don’t think AAPL will fall as low as my strike, but I wanted a solid buffer from another loss in case the market continues to fall. If the market rises (and that’ll mean AAPL is up most likely), I’ll make enough on my other positions to be happy and if it falls further, I’ll be glad I didn’t use a higher strike. Even being over $9 out of the money, I can make 3.24%, 18.52% annualized on this trade. That’s with a cushion of 7.16%. $215 looks like support based on the trend line of higher lows. $215 is roughly the area of support over the past two months. If this line breaks, we could see a sharp decline back to where it had an intraday low after gapping higher in early August around $205. The 100-day moving average is at $106.11 and ascending, so I’d expect it could provide support around that level too. With a cost per share if assigned of $203.41, I feel comfortable.
My IWM October $171 naked put took a beating and will be assigned. So, I took the opportunity to lower my cost per share a little more with a covered call. While IWM was trading at $153.22, I sold one IWM December $162 covered call for $1.54 and received $153.33 after paying $0.67 in commission.
IWM found support at $151.89, close to where it bottomed intraday on May 1. IWM is below all of its moving averages I track, but the winter months tend to favor small caps, so I wanted to leave room for a sizeable upside move. Its 200-day moving average is at $161.11 and starting to flatten out. I expect IWM to head back up to its 200-day moving average and left some upside above that in case it overshoots. I could drop another $10 just to get close to its 52-week low, but I think the worst is over for small-caps in the near-term.
I’ve been talking about replacing my XLB naked put since my last shares were called away at the last options expiration. I’m glad I waited because XLB’s price action has been ugly. Yesterday, I entered a limit order to hit if it got much weaker and it only took a few hours to hit. While XLB was trading lower in the early afternoon yesterday, my order hit. While XLB was trading at $53.46 yesterday, I sold one XLB December $53 naked put for $1.60 and received $159.33 after paying $0.67 in commission. XLB is trading ten cents lower as I write this after bottoming at $53.01 this afternoon.
Like IWM, XLB is trading below all of the moving averages I track. I’m basing this trade on the idea that it’s oversold after being 12.5% below its high in September. I have a 3.84% cushion before I take a loss and can make 3.1%, 17.33% annualized. XLB hasn’t seen levels this low in 17 months and should find its footing soon.
I’ll also take an assignment on my two XLF October $28 naked puts, but I’m waiting until next week to sell covered calls on the 200 shares I’ll own after today. My cost per share will be $27.56 after deducting the naked put premiums and with XLF trading at $26.74 right now, I’m trying to decide what I want to do. I might dump it and move on since I still have my GS shares in the financial sector that will give me a better boost on a recovery. The other route I’m considering is December $27 or December $28 covered calls. I’m not in a rush since I made these other trades today and yesterday, but I won’t wait long to make a decide.