Whipsawed and Weary About IWM Weekly Put Selling

Recently I received this e-mail from an investor regarding his weekly Put Selling of the IWM ETF.

Here are his questions:

Today was a very tough day for me. I got happy selling weekly puts in the last month. I was happy making $100 or less per trade for those out of money weekly’s. Today, that risk caught up on me. Just yesterday (Thursday). I had sold 20 contracts of out of money IWM (Russell 2000) 83 puts expiring today for $0.17. IWM then was trading at $83.50. Today, I applied your technique by rolling those puts. I bought to cover 20 @ 1.35 which cost me $2,700. The loss was (2,700 – 340) $2,360. I then sold 12 contracts of Nov monthly 83 puts for $2.40, netting me $2,880. So by rolling, I reduced my exposure by 8 contracts and still netted $400 (after commissions). I achieved what the rolling strategy promises. However, now I have second doubts because the overall market looks very dangerous here. If there is a sharp correction, I will be in deeper trouble. I don’t have a big account, my funds are around $50,000. I’m worried now and need some advice from a steady hand like you.
My questions are:

1) If there is a severe correction (or worse yet … a crash), can rolling those IWM puts still be effective? Say for example, if IWM crashes back to it’s June lows at $73, those puts would be $10. That is $12,000 to cover. At that deep in the money, isn’t it difficult to reduce the number of puts to be rolled over?

2) I’m upset with myself trying to make $340 and then end up losing on paper $2,400 in 1 DAY. What could I have done to prevent this? What stop loss could I have done? I had it in mind to roll the puts if the market moved against me. I didn’t realize it was such a big down day!

3) Should I just cut my losses? I realize the drawdown on a market collapse will be severe and stressful. Not sure if I can take it.

4) How do I find a mentor? I don’t know anyone personally that trades or invests that is also good at it.

Teddi, you seem to do well selling puts. Even if the stock crashes, you seem to be okay with those sold puts. If I’m willing to hold those IWM puts sold, can I still come out net positive by continuing to roll? I want to not panic at times like this. I want to be level headed and learn from your articles I read on your website. It does say that the best time to buy is when everyone wants out. How do I know if this is not the start of some major correction or if this is may be another great opportunity to roll those puts? Any advice would be appreciated.

I feel like just walking away from looking at the market. I have been whipsawed so much in the past few years that it has been very stressful and unprofitable. I’m still a long ways away from learning what you have put on your website and being successful at it.

PS … I let my INTC Oct 23 puts be assigned to me. I now own 500 shares of INTC at $22.47. Selling covered calls doesn’t look attractive right now.

Thanks,
Neil

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This is one of the longest emails I have received this year. My reply is in the Members Section. This is a direct link to my reply. The reply contains some examples and possible strategies. It is 15 pages in length containing 7,290 words. It is in the new category Mentoring Tips. Members can login to read it. Not yet a member? You can join here.