I only had one option contract remaining today for May options expiration. My one IWM May $110 naked put will finish nearly $15 out of the money. Yesterday was the closest IWM traded to my strike for the past month, but was still more than $7 out of the money. I could’ve rolled the put earlier and been safe, but wanted to see how low the next dip would be before increasing my risk.

As my May contract expires worthless and gives me a realized gain of $869.38, I’m more comfortable raising my strike now than a week ago. IWM is trading lower and has bounced off its lows. It could rollover again this afternoon or sometime in the next couple of months, but as traders we have to take some risks if we want to earn money.

While IWM was trading at $124.52, I sold one IWM July $123 naked put for $8.04 and received $803.34 after paying $0.66 in commission. IWM can only drop 1.15% before I don’t have a full profit, but it can continue to fall 7.67% from here before I take a loss at expiration, or more likely, a paper loss since I’d accept the assignment and sell a covered call. If IWM remains above $123, I’ll earn 7.06%, 40.36% annualized.

I expect the low from yesterday to hold support, but won’t be surprised if the small-cap ETF trades as low as $110 again. I sold close to the money because I do not have a lot of other exposure in my account and can handle one of my investments become a paper loss temporarily.

My broader outlook is that stocks are getting closer to fully valued again and we might see stocks bounce around in a relatively horizontal trading range. That thesis will change when we see a sustained new spike in infections and deaths as more businesses open their doors and fail to maintain a safe work and customer environment. I recognize the worst could be over, but also see a very slow recovery ahead of us. I can also see millions of people becoming too relaxed with their social distancing and hand washing. If that causes more outbreaks, I’m not sure how many consumers and businesses will be willing to go on a full lockdown again.

The result, as an investor, is uncertainty. The result for the market is volatility. Uncertainty and volatility both play well into the hands of option traders who can act patiently with their next trades. I’m not as nervous about the July contract I just sold as much as I will be when I need to start selling contracts that expire in the fall. If schools cannot open for regular school hours, it is going to hurt a lot of individuals and businesses and that might be when we get another severe downturn in stock prices and that doesn’t even factor in the election.

Before the June expiration, I’ll probably sell a QQQ covered call above the price I paid when my shares were assigned. I’ll also replace my MSFT naked put at a higher strike and I’ll roll my TLT covered puts and naked calls. Earlier this week, my account was down only 1.5% year-to-date. As of mid-afternoon today, I’m down 4% year-to-date. The swings in my account balance come from TLT’s price movement more than anything else, but if I can continue to nibble in with $700-800 premiums on my other positions, I’ll be just fine.

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