Sold IWM Naked Put for January

I’ve been sitting on too much cash since the last monthly options expiration and finally decided to put some of that cash to work today. I didn’t like much of what I could see available in the options world while volatility is so low. Eventually, I opted for a naked put on the small-cap ETF, IWM, since I have 100 shares long already with a covered call. I figured that if my call is assigned, my put will finish worthless and vice versa.

While IWM was trading at $161.85, I sold one IWM January $160 naked put for $2.88 and received $287.40 after paying $0.60 in commission. The IWM January covered call I already had in place is for the $164 strike, so I basically went two dollars to the other side to mirror the call. I chose the IWM option because small-cap stocks do well through the end of January historically. While that’s no guarantee, I don’t like to fight seasonal trends.

If my new put is not assigned in January, I’ll earn 1.83%, 12.43% annualized. I have a 2.92% cushion before I lose any money on this trade. The return and the buffer percentage aren’t as good as I’d like, but that’s the problem with the VIX below 12. With the VIX this low, and falling still, I might buy puts on SPY or QQQ next week. It’d be good to have a little insurance going into the new year, even if it’s a small hedge. I still have $9,000 uninvested, so that’s my minor safety plan for now. If we get a decent dip, I’ll have that cash available to invest before I even consider running on margin.

I’m less than $400 from regaining the $100,000 mark again and have roughly $130 in time value left in my December options. If IWM climbs through the end of the year, my shares’ value will add more than $200 and I expect the time value on my January options will erode enough to allow me to hit my $100,000 goal by December 31. If stocks reverse their latest trend, I’ll simply miss that target and be set for a good 2020 with some froth taken away from stock valuations, like last year.