My XLB naked put was assigned in March at $63, but the ETF was down to $59.16 at the close that day and made it as low as $55.21 on April 2. I didn’t expect the weakness to continue, so I sat on what felt like dead money until today, two and a half months later. Actually, I entered the limit order that hit today a few days ago, but it took until just after the open this morning for the order to get triggered. While XLB was trading at $59.67, I sold one XLB September $60 covered call for $1.70 and I received $168.91 after paying $1.09 in commission.

My cost per share before selling this covered call was $61.66. Now it’s $59.97, which means if the new option is assigned at $60, I’ll leave this trade that takes eight months to play out with $0.03 profit. I’m glad I didn’t sell my shares when XLB was cheaper since the return since then has been pretty good. The mistake, or bad luck, was when I sold the initial naked put on January 30. XLB was trading for $63.03 then and I sold an at the money naked put. There were plenty of other investments I could’ve gone with, but once XLB’s price dropped, I think I made the correct decision to stick with it. The damage was already done by that point.

Even selling the covered call today seems like a good decision. If my covered call is assigned, I’ll earn a 3.39% return, 11.16% annualized from the price XLB was trading when I made the trade. If XLB stays flat, I’ll make 2.92%, 9.61% annualized. It does no good to look at my return from the beginning when making the decision to sell the covered call or not, because I can’t get the price I started with. I can only work from the price that’s trading now. If XLB weakens again, I added an extra 2.82% cushion from the current price, so I can weather further fluctuations. If XLB takes off much higher, I’ll sell a naked put on something new with the expectation that the cash will be available in September to pay for a new naked put assignment. But, I’m getting ahead of myself.



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