August options expiry today was excellent. As readers know, Put Selling is my main investment strategy. My naked puts in T Stock for Aug $34 expired leaving me with only 5 naked puts into September. My Clorox Stock August $65 naked puts expired. My XOM Stock August naked puts for $77.50 and $80 expired and I have a handful of naked puts for September options expiry at $82.50 but I will be closing them for pennies soon I’m sure as XOM stock stays strong. Intel Stock has been absolutely wonderful. All my August naked puts expired. I was holding August $26, $25 and yes $24 naked puts. This releases a total of $86,000 of capital for more put selling into September. Today I tried selling the Oct $25 for .50 cents but no takers. I do not have my Nucor Stock, Kraft Stock or McDonalds Stock charts up to date yet but the August puts all expired. I also am in Walmart Stock but I do not have any charts up yet. Don’t worry, I will get this company up on my portfolio and get everything up to date shortly.
My Microsoft stock August naked puts at $27 and $29 expired. I am still holding September $28 and Oct $28 and $26 naked puts in my Microsoft trades. With my PepsiCo Stock naked puts my August $67.50 expird and I am still holding Sept $67.50 naked puts. The stock is sitting at 52 week highs but the demand for the stock is strong as is the case with so many large cap dividend paying stocks right now.
Finally my YUM Stock August $60 and $62.50 naked puts also expired. I am still holding YUM Stock $62.50 Sept naked puts. But the volatility has declined a lot in YUM Stock which has meant much lower put premiums and not as many chances to swing trade the stock as investors have really calmed down about YUM Stock.
Where To Next For Put Selling
So where to next for put selling? With so many August naked puts expiring out of the money I have a huge amount of capital that is sitting waiting for new positions to be opened up.
VIX Index Tumbles To 5 Year Low
With low volatility in the stock market, Put Selling becomes more difficult as put premiums are smaller. Many investors find Put Selling with low volatility not very worthwhile or too difficult. But this is far from the case.
With the VIX Index today closing at $13.45 investors are more complacent now than at any time over the past 5 years. Can this be good? Who knows, but this summer has been wonderful for my portfolios. Now up over 20% (have to add in my Nucor Stock, Kraft Stock , Walmart Stock and McDonalds trades), I have more than made my goal of 12% for this year.
I will now be watching for dips in my favorite large cap stocks for Put Selling opportunities. I did Put Selling against Walmart stock yesterday, put selling the August $70 naked puts for September. The plan for Walmart Stock is to sell the September $70 naked puts and if the stock falls that low before options expiry in September I will be rolling to $67.50 and Put Selling more $67.50 naked puts. I have a whack of cash to be put selling at $67.50 in Walmart stock if it gets low enough to push up premiums.
Intel stock is weak the last couple of days and I have tried Put Selling the September $26 and the Oct $25. But neither of these will be large trades, probably just 10 or 15 naked puts each.
If the market continues to climb there will be pullbacks for sure. No market can continue to climb steadily with this kind of overbought condition. Eventually the market will pullback to consolidate. That will provide a good opportunity to get more capital back working. Patience is key when it comes to Put Selling.
What About In The Money Naked Puts?
If the market was lower overall, I would be keen to sell in the money naked puts. But with the market this high and stocks pushing into almost virgin territory for many of them, I prefer to remain cautious. Selling in the money naked puts always is a great strategy when the market has fallen 15% or more. It pulls down stocks making Put Selling in the money strikes very profitable as the stock recovers eventually leaving my in the money naked puts, out of the money.
But this is not my type of Put Selling strategy for when the stock markets are almost at new highs.
Play The Stock Market Dips
When a market is reaching this high, it is time to stay cautious and play the dips like the pros are doing. This is part of the reason the market is not lower. Since June the pros have been busy buying the dips in stocks. For myself, when I note one of my favorite stocks really pulls back as Scotia Stock (BNS) did this week, then I load up. This week with Scotia Stock it was excellent. Scotia Stock on Monday fell to $51.37 and strangely just sat there for at least 5 minutes. I bought 1000 shares and then phoned three friends who about bought in. That’s how long it sat at $51.37. It was weird. I sold it today at the close for $53.28.
Scotia Stock for August 13 to August 17 2012
Build A List of Your Favorite Stocks
Here is what I do all the time, but it works well during this type of market environment. Build a list of your favorite stocks. Then look at their 6 month stock charts. For example look at Intel Stock 6 month chart below. This is from my trader’s journal. (You do have one don’t you? If not put one together).
Over the past 6 months where would I have owned Intel Stock if I had the chance. I have picked $26 and $25. If you remember my article on Intel Stock where I discussed the strategy being used, (if not use this Intel Stock link to review it), I had pinpointed $26 and $25 and then explained that I would be using margin for $24 naked puts if I could, just to boost the return like I did in August.
Put Selling strikes for Intel Stock based on the past 6 months
Next step, I look at the put option prices being offered. Below are the put premiums being offered. I look at them and decide what I would be willing to sell for. Right now I have an offer for 10 naked puts $26 for .48 cents. Who knows I might just get it. I also have a standing order for Oct $25 strike at .50 cents. Two days ago it looked bleak. Today it traded as high as .49 cents. I just keep my offers open.
Sept Intel Stock Put Option Premiums
With volatility this low, you want to catch your favorite stocks on the dips and every day there are still dips in stocks. The bigger the dip the better of course.
Consider Swing Trading Your Favorite Stocks
With low volatility in the market, pick your favorite stocks, chart them out and pick low points for the day. Then put in an offer to buy whatever amount of shares you are comfortable with. For example, below is my YUM Stock this week. On Monday it fell quickly to just below $65.80 and climbed back up. I then put in an offer to buy 500 shares at $65.50. A couple of hours later I got a fill and then I sell it either later that day or in a day or two. I only got one fill this week but I came close a couple of times.
Swing trading in my favorite stocks is always interesting when volatility declines.
Use Margin to Boost The Return
Once volatility gets this low I then use my margin for further out of the money put strikes. I do both the closest month, which in this case would be September and far out months like November through to January depending on what is available. I only ever sell at strikes I would be comfortable holding a stock or selling covered calls against.
Since I have already earned better than 12% this year I can continue to earn additional income with margin even if it is just half a percent a month which can still boost my annual return by 3% to 6%.
Put Selling Is About Opportunities
With the market pushing into new highs, the question will be whether or not the market will hold above the April highs and then continue to climb or whether it makes a very dreaded double top. For me, Put Selling as an investment method has always been about looking for opportunities in my handful of stocks and taking those opportunities when they come. By keeping some cash always available I am well prepared for any major pullback should that happen.
In April 2007 the VIX Index was below $13 and analysts claimed that the worst was over for the recession. Many investors were busy back buying stocks. I was Put Selling Johnson and Johnson stock for example, selling the May 2007 $65 naked puts. Today I am Put Selling the $67.50 naked puts. Not really all that much different is it.
We all know what happened in 2008 and the rise again in volatility. There will always be Put Selling opportunity in every market environment. It’s watching for them and taking them when they come. Put Selling when volatility is low often disappoints investors, but opportunities are actually everywhere if an investor just looks.