Sold April MDY Naked Put

I’ve been ridiculously gun shy about making new trades lately for fear of losing money again. Also, I’ve been busy, but I probably could’ve made time to trade more in my own account if I wasn’t being so nervous about what could happen. My rationale is based on how far we’ve come over the past two months. If nothing else, we need a longer consolidation period if not a good 4-5% draw down to help reset expectations.

I pushed myself out of my bearish funk some today and made my first opening trade in a while. While MDY was trading at $348.78, I sold one MDY April $350 naked put for $7.00 and received $699.75 after paying $0.25 in commission. Not only did I finally make a trade, but I sold the put in the money to push for a better return.

I thought about the April $345 strike for $5.10, which would’ve offered a 2.59% cushion and a potential 10.68% annualized return, but thought I should force myself to take a bigger risk since my 100 IWM shares are covered with a call that’s $6 in the money and expires two weeks from tomorrow.

By selling the $350 strike, I have a cushion before a loss of only 1.68%, but have a potential return of 2.01%, 14.32% annualized. If assigned, it will be a difference of $320 that I could’ve saved if I had gone with the lower strike. If it’s not assigned, I’ll earn $180 more than what the lower strike would’ve provided.

MDY moved above its 200-day moving average eight days ago and hasn’t closed below it since then, but has tested the long-term moving average yesterday and today. The mid-cap ETF is 1.67% below its intraday high from three days ago. I expect more downside since I’m not terribly bullish at these levels, but I don’t think the weakness will be back breaking and won’t last longer than I can stomach.

It’ll be easier to handle a dip since I still have 16% of my account in cash and can buy more at lower prices if that’s how the next couple of weeks work out. If my IWM covered call is assigned in two weeks, it will open up another $15,100 that needs to be invested. I don’t plan on waiting the full two weeks if I think it has a high probability of getting called away. Then again, if MDY falls below its 200-day moving average and my new naked put looks likely to be assigned, I might fall prey to fear again and wait longer. Basically, I’ll have to see how next week plays out and then I’ll decide.