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I had no options remaining to expire today, so I’m giving a short recap of what’s in my account at the end of the week.

– 1 GS March $265 naked put with GS trading at $267.62
– 1 ADI March $85 naked put with ADI trading at $86.09
– 1 XLB March $63 naked put with XLB trading at $60.48
– 1 IWM March $159 naked put with ADI trading at $153.35
– 1 WMT March $105 naked put with WMT trading at $104.78
– 2 TLT March $125 short call with TLT trading at $118.71
– 2 TLT March $128 long call with TLT trading at $118.71
– 1 AAPL April $165 naked put with AAPL trading at $172.43
– 1 NFLX April $235 naked put with NFLX trading at $278.52
– 5 UUP June $23 long puts with UUP trading at $23.29

My account balance is $101.947.28 with $104.676.65 in cash. I think it bottomed around $97,500 +-$500 a week and a half ago at the market’s depth. I didn’t bother noting the exact amount since I knew it would change in either direction very quickly from within days. Earlier this week, I thought about selling a far out of the money naked put on IWM, just for more exposure with a play on the rebound. Instead, I stuck with what I had and only rolled my AAPL naked put yesterday. Since I had enough of my options in the money before yesterday, I figured I had enough upside potential without adding unnecessary risks. If we get a good two-day dip, I might sell another out of the money put, but not until we get another mini-scare. If stocks keep pushing higher, I’ll probably roll some of my March options early.

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My AAPL naked put was the only option I had set to expire in February and the timing of AAPL’s move higher worked out well for me. AAPL fell as low as $150.29 intraday on February 9. I thought I had a strong probability of having the option assigned, but the iPhone maker recovered even faster than it fell, at least from $170 to $150 and back. After news hit of Warren Buffet’s increased stake in AAPL, the shares gapped higher today. I was watching when the market opened today (advantage of doing this for a living) and was able to react to AAPL’s price jump while it was still close to the lows of the day. While AAPL was trading at $169.52, I bought to close one AAPL February $165 naked put for $0.17 and at the same time sold one AAPL April $165 naked put for $4.07. I received $388.75 after paying $1.25 in commission for the calendar spread.

I could’ve let the February put expire worthless, but removing the risk was worth $17.62 for me. AAPL closed at $167.38 yesterday and looked like it could easily fall back to $162.50 without breaking its upward trend. Luckily for me, the Buffet news came out today and pushed the stock higher, so I could exit my February put with a realized gain of $317.01. I considered raising my strike to $170 ($167.50 isn’t available for March or April yet), but didn’t want to sell in the money just after the stock gapped higher. As I’ve mentioned before, stocks and indexes often “fill the gap” before continuing their trend higher. In other words, I wouldn’t be surprised to see AAPL retest the $167.38 range before it makes a run towards new all-time highs again.

AAPL is in no-man’s land with trend lines after the fast correction over the past few weeks. It might not be until the $180 range (AAPL’s previous high was $180.09) before a trend can be tested. On the other hand, the moving averages could give some support if AAPL weakens again soon. Today’s gap higher pulled AAPL above its 50-day moving average after passing its 200, 100, 20, and 10-day moving averages earlier this week. The 20-day fell below the 100-day moving average yesterday, but should pull above it again within days if AAPL’ price remains elevated. A dip to retest this crossover would only bring the stock down to $167.50-ish. Well above my cost per share of $160.94 if the April $165 option is assigned.

AAPL can fall 5.06% before I lose any money and if it drops no more than 2.67% and stays above my strike, I’ll earn a 2.53% return, 13.97% annualized. While the chart is harder to love, I still like the fundamentals to support this trade decision. I’m finishing writing this update near the end of trading today and AAPL is up to $172.79, +$5.41 on the day. At this price, AAPL’s forward P/E ratio is 13.09. They can miss earnings estimates and still shouldn’t get derailed at this valuation. Of course, all stocks could take another hit and bring AAPL down again, but I see that as a buying opportunity unless something else fundamentally changes.

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Remember last week when I didn’t want to spend $43 to close my NFLX naked put? Well, that would’ve been a bargain compared to what I spent today. The good news is that I didn’t make today’s trade out of fear of an option assignment. Instead, I rolled my position higher to take advantage of the volatility that’s spiking this week. While NFLX was trading at $252.68, I bought to close one NFLX March $205 naked put for $1.42 and sold to open one NFLX $235 naked put for $11.62. I received $1,018.74 after paying $1.26 in commission for the diagonal calendar spread.

I received $529.31 when I sold the March $205 put and I paid $142.62 to close it today. That gives me a realized gain of $386.69 in just over three weeks. NFLX was trading at $254.00 when I placed my limit order and thought it might hit tomorrow morning, but then the entire market fell down another large step and the trade went through before the day’s selling was over, i.e. I could’ve made more than I did.

I’ve been eyeing this trade all week and couldn’t wait any longer when I saw the S&P 500 retesting its intraday low from Tuesday morning. I’m expecting support to surface on the large cap index and along with that support, I think most stocks will find their footing. If I’m wrong and stocks overshoot the previous low, I sold the new put $17.68 out of the money to give me a deep cushion. NFLX can fall 11.59% more before I take a loss. If NFLX stays above my strike, I’ll make a 5.20% gain (26.38% annualized). If assigned, my cost per share after deducting the premium will be $223.39.

I chose the $235 strike based on technical reasons more than anything else. NFLX topped out at $286.70 on January 29. If it drops 20%, it’ll hit $229.36, above my cost per share. I drew a few trend lines that supported my decision too. The longer trend line of higher highs beginning with the intraday high on October 24, 2016 and then touching the intraday high on July 24, 2017 and (just above) the intraday high of January 16, 2018 is trending around $235 as of today. I expect this line to hold support. It’s within a dollar of the shorter trend line of higher lows (also ignoring the gap higher from January 23 that was retested this week) that runs from the intraday high on October 17 through the January 16 intraday high. Having these two trend lines close together helps since previous resistance often becomes support when a stock revisits the old trend line. Adding more support around $230-235, the 50%Fibonacci line is around $232.50.

Even if those lines of support fail, I don’t think NFLX will fall below its intraday high of $227.79 on January 22. This price is 20.5% below NFLX’s all-time high and would give the stock the opportunity to fully “fill the gap” from the day before it gapped higher. The one big fear I have with NFLX is its p/e ratio. Using forward guidance, NFLX has a p/e ratio of 60, well north of what I like to own. However, NFLX has been much higher than that for years and I think it’s like AMZN in how investors push the multiple beyond what most of us consider reasonable.

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It feels good to be back in the swing of things and making more trades than I did in most months last year. One drawback to selling options is that you don’t get the big upswings in your account balance when the markets make big moves higher. This lag can be discouraging for those who are new to selling options, but the benefit is that you don’t get the quick account balance drops when the markets drop. The peaks and valleys are smoothed out essentially. While I did have a positive month in January, I was hampered by this lag and the fact that I made more of my trades in the second half of the month and missed out on some gains.

My account ended January with a Net Asset Value (NAV) of $101,128.79 according to Interactive Brokers (IB) after beginning the month with an NAV of $100,000.00 after I withdrew $7,211.56 on January 3. I had a gain of $1,128.79 (~1.13%) on paper for January and had $1,299.86 in realized gains from my three closing trades on my IWM, NFLX, and QQQ naked puts. I received $67.51 in interest ($14.84 more than last month), but no dividends in January since I wasn’t long shares of anything. Quicken reported that I have an account value of $101,058.46, which is the same as what IB says I have with the $70.33 in accrued interest that IB is crediting for me.

It’d be nice to have $1,300 per month in realized gains in this account, so I could end the year with more than $15,000 in gains. That goal might be hard considering I only have one option scheduled to expire in February. I have over $2,200 possible in March, so the average could work out, but a lot can happen over the next six weeks before March expiration.

I’m 101.49% invested in this account, 30.08 percentage points above the end of January. I don’t think I was over 100% invested at the end of any month last year, so it shows I’m in the game more now. My NFLX March $205 naked put is so far out of the money that it could be misleading to say I’m that heavily invested. I’m also not factoring in my two TLT combinations, but they are small enough that it wouldn’t really make a difference. Most of my positions have a paper profit right now, but my options on AAPL, IWM, and XLB need to see time value (theta) erode more to bring me into a paper (or realized) profit. XLB could end up with a loss if today’s 1.45% intraday drop is an indication of a true change in sentiment. I might wait at least another week before making another trade unless something jumps out at me that I can’t wait on. I don’t want to get so overextended that I have no dry powder available for trades when we get more than 2% correction.

This is my asset allocation in my IB account as of the end of January:

– Large-cap ETF: 0.0%
– Mid-Cap ETFs: 0.0%
– Small-Cap ETF: 15.72%
– International: 0.0%
– Individual Stocks & Other Sector ETFs: 87.81% (pretty much large cap really with AAPL, ADI, GS, NFLX, and WMT included here)
– Bonds: 0.0%
– Short ETFs: 0.0%

According to Morningstar, here’s how I compare to the major indexes (including dividends) through the January’s last trading day, January 31, 2018:

– Dow Jones: YTD change +5.88%, 12-month change 34.80%
– S&P 500: YTD change +5.73%, 12-month change 26.41%
– NASDAQ Composite: YTD change +7.36%, 12-month change 32.00%
– Russell 2000: YTD change +2.61%, 12-month change 17.18%
– S&P Midcap 400: YTD change +2.87%, 12-month change 17.61%

These are my returns according to Quicken from February 1, 2017 (when I established new account, albeit with very few trades for a few months leading up to my divorce in June 2017) through January 31, 2018:

– YTD Return: +1.13% (not annualized)
– 1 Year Return: +7.83%

The VIX ended the month at 13.54 and the VXN ended at 19.60. The VIX is 2.50 points higher than at the end of December and the VXN is 3.92 points higher than the end of December. The VIX topped out at 15.42 on January 30. The VXN made it as high as 20.71 on the same day. Both volatility indexes finished close to their highs for the month. It’d be nice to find out that January’s uptick in volatility was the beginning for a bigger trend and we’ll have richer option premiums in the coming months.

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My Trader's Journal by Alex Fotopoulos - 3w ago

I placed a limit order for an XLB (Materials Select Sector SPDR ETF) naked put one week ago when XLB was trading at $62.92, but XLB was still coming off lows from a week earlier at that point and the VIX was 3-4 points lower than today. So, when XLB climbed to $64.17, I figured my order wasn’t going to hit. However, things can change quickly. The bulls threw a little fit yesterday afternoon and this morning to knock stocks lower and push the VIX higher.

While XLB was trading at $63.03, I sold one XLB March $63 naked put for $1.35 and received $134.32 after paying $0.68 in commission. My thought process around XLB is that with the tax cuts in place and possibly more infrastructure stimulus on its way, the materials sector should continue to do well or at least not falter much. Since I sold the put at the money, I only have a 2.18% cushion. On the upside, I have a potential gain of 2.18%, 16.66% annualized.

XLB has been on a steady run higher since early November 2016, like most stocks and equity ETFs, which means it could be susceptible to a reversal beyond the 1-2% we’ve saw through 2017. XLB closed below its 10 and 20-day moving averages today, which is definitely a bearish indicator, but I think the 50-day moving average is more important based on how the past six months have behaved. The 50-day moving average is at $60.82 today and has a fairly steep trajectory. While XLB could fall below my cost per share of $61.66 if the put is assigned, I don’t think it’ll fall much further if the 50-day moving average can act as support again. Just above the 50-day moving average is the trend line of higher lows that began on November 15. The trend line and moving average should converge soon, offering another layer of support. This projection is how I chose this strike. I’m fairly confident it’ll hold support and my option will only be at a paper loss for a brief stint.

If my first lines of defense don’t hold, the 100-day moving average has a better history of support. It hasn’t come into play since August 21, 2017, when it acted as support for the fourth time in less than two weeks. At $59.21 right now, the 100-day moving average is more than 7.5% below the intraday high from the past two trading days. A decline of that much along with a possible longer trend line of higher lows converging with the 100-day moving average has a high probability of bringing the bulls back into play unless some other macroeconomic factor comes into play. If I take an assignment while XLB is around $60 (assuming XLB doesn’t fall more quickly than I think it will), I’ll only have a paper loss of $166 and will consider doubling my trade at a lower strike to help dollar cost average down some before I ride it higher when the bears take a break.

This trade pulls me to fully invested, but I have my NFLX naked put that’s far out of the money still at the $205 strike. I might close it if I can find something I want to replace it with, but if not, I might as well save the $43 I’d have to spend to close an option that’s almost $74 out of the money.

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My Trader's Journal by Alex Fotopoulos - 3w ago

Barron’s cover story from this weekend was on Goldman Sachs Group ($GS). While I try to read most of the articles in Barron’s every weekend, I rarely read more than half of them. This past weekend I made it through more than usual, including the bullish article on GS. Not every cover story speaks to me, but this one did, and I decided I should consider getting into it today. I figured we’d see a pop higher to start the day based on the article and that’s what happened. I wanted to give the morning price action a little time to show if it would simply turn over quickly while the broader market was in the red or if it might have legs. After about 30 minutes, I saw GS come off its morning highs and thought it would be worth a limit order if it came down further.

While GS was trading at $271.34, I sold one GS March $265 naked put for $5.90 and received $589.31 after paying $0.69 in commission. GS continued to decline to $270.50 within 10 minutes of my order going through before pushing higher again. So, I could’ve made a little more income from the option, but think I’ll be fine with the $5.90 premium I received. Before entering this limit order that hit, I thought about the $260 and $270 strikes, but decided I liked the risk/reward for the $265 strike best. If GS remains above $265 by March options expiration, I’ll make 2.23%, 16.84% annualized. GS can drop 4.47% before I take any loss.

I looked at the GS chart after reading the article to see where it could find support or resistance in the coming weeks. Resistance is hard to peg for GS since its trading at an all-time high and just broke above its trend line of higher highs. This trend line of higher highs could become a new line of support as GS continues on the same trajectory, but from a higher starting point. If the upper trend line does not become support, I see multiple lines that could all help GS stay elevated at least enough to keep me from losing money.

Starting from the bottom, Goldman’s trend line of higher lows that started with the September 7, 2017 intraday low moved above $250 today and is on track to be above $160 by March 16. My cost per share if assigned will be $259.21. So, I’m expecting this line to hold support, which was a major factor in my choice or strikes. Actually, I don’t think GS will fall that far before March expiration, which is why I didn’t wait for a larger decline before making today’s trade. Before reaching the lowest trend line on my chart, a steeper trend line of higher lows that started at the November 28, 2017 intraday low (this low was also used to mark my other trend line) will come into play. I can see GS staying above this line and helping GS finish mid-March above $270.

All of Goldman’s moving averages are ascending and each could provide support. The 10-day and 50-day look like they’ve had more influence for support and resistance over the past few months, but neither is magical. The 10-day moving average is at $261.58 today followed by the 20-day at $258.21 and the 50-day at $252.44. These three lines are ascending quickly and even if GS falters in the near-term, these moving averages should give reason for pause before it drops too much.

The one big hesitation I had for this trade is that it equals roughly 25% of my account value. I don’t like having 1/4 of my cash allocated to a single stock, but I think financials will do well in the rising interest rate environment. If GS can improve its trading division, it’ll have a lot more upside potential. It will actually strengthen in a more volatile market because the slow and steady market we’ve had for the past 13-14 months has cut into trading profits as investors became more passive. The second (small) reason I hesitated with GS is that I’ve never traded on it before. I thought I had, but couldn’t find any record in my Quicken history going back nearly 20 years. I’m fine with trading on a new stock, but I usually like to follow them longer before I allocate 25% of my account to it. I’m not coming in blind to it and did leave myself a decent cushion, which will help me sleep at night.

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The last time I traded UUP I lost almost $279. That was in August 2011 and haven’t thought of the PowerShares DB US Dollar Bullish ETF since then enough to make another trade, until yesterday. I’ve been watching the US dollar lose ground and finally decided I should try to make a profit on it, but without too much risk. I’m happy to trade on nearly any stock or ETF that I think I can make a profit on, but this one means more to me right now. I have a vacation planned for this coming summer to Greece with my dad and son for nearly two weeks and want to hedge the dollar some. My original plan was to buy 10 UUP puts, but this morning the dollar fell another 0.6% and I thought I might have missed the first easy swing. I changed my order to buy only five puts and raised my limit order $0.03. While UUP was trading at $23.26 (on its way back to break-even for the day), I bought to open five UUP June $23 puts for $0.28 and paid $141.86 including $1.86 in commission.

I estimated my original plan to buy 10 puts at $0.25 would’ve cost roughly $255 with commission and will probably add five more puts if UUP makes it back to $23.50 and maybe another five puts if UUP gets close to $24.00. I don’t mind the daily fluctuations and will save a lot more than $255 this summer if the dollar stabilizes. My outlook is that the dollar will weaken further now that the Treasury Secretary has admitted we’re pushing for a weaker dollar to boost US exporting. Currency fluctuations are rarely straight lines and there’s no reason to think these next few months will be any different. That’s one reason I went out five months with this trade. I also wanted to delay the effect of time decay on my long puts, give my trade more time to work out, and run the trade as close to my vacation as possible.

Since UUP is at the bottom of its descending trading channel, I won’t be surprised to see it climb some, which is another reason I cut my initial limit order in half. Moving back to $23.50 would fill the gap in from where it dropped from two days ago. A run back towards $24 would put UUP near the top of its trading channel where it would be ripe for another decline. To see the logic of my price target, you have to look at a five-year chart. In 2013, UUP topped out and fell until May 2014 when it hit $21.14 and started climbing again. I won’t hang on until $21.14, but would like to push my trade until $22.00 if possible. I don’t think I’ll hold on that long really. If I can exit for $0.80, which might be when UUP is around $22.30-22.40, I’ll take a triple and move on. I’m going to let this order sit for a few days and then I might go ahead and enter new limit orders. One of those orders will be for five more June $23 puts and the other might be to sell June $22 puts, creating a vertical spread on the June expiration.

The last time I traded on TLT was in August 2017 when I finished with a $220 profit. I’ve done very well with TLT and I’ve lost my shirt with it too. My big loss came from when I didn’t hedge, just before the Brexit vote and TLT spiked beyond what my margin limits would allow. I was right about what TLT would do, but was way too early and my lack of a hedge killed my plan. Today, I made a small trade and hedged it too. While TLT was trading at $123.82, I sold two TLT $125/128 vertical call spreads for $0.80 each and received $157.56 after paying $2.44 in commission.

The first few interest rate increases from the Fed did little to affect the price of TLT due to macro-economic factors, but if the Fed can raise rates three or four times this year as expected, the price of TLT will have a hard time fighting the pressure. For now, TLT is in a downward trend and I think it’ll be below $120 within a few months. I’d love to see a massive spike in TLT before my spread expires so that I could take the assignment on my short calls and take a realized gain on the long calls. If I can time it correctly, I’d be able to ride TLT as a short position as it comes back down into the low $120s again. I didn’t wait for the next spike in price before I made this trade since I didn’t want to miss even a little potential gain. I only sold two option combinations to keep my risk level low in case I’m wrong on my timing again. The bigger risk will surface if I take an assignment and re-write new a new call spread at higher strikes. My price target for TLT is $117.50, but could see it rise to $126, or even $128 if something bad happens, before it completely rolls over.

I looked at the charts of TLT and UUP together and don’t see a big correlation between price movements, so I think I have a good chance of one of these working for me and could profit (or lose) on both. I wasn’t thinking of these as connected trades, but know rising interest rates can strengthen the dollar if all else was equal. My belief is that rates can go up (and TLT go down since prices and rates move inversely) while the dollar weakens. This trajectory won’t last all year maybe, but I think it can work through the summer.

I didn’t both writing up projected returns as a percentage for these trades since UUP is so leveraged it would be misleading. The same can be said for TLT, but it has the different twist of being a possible short position with no limit on losses if I sold my long leg of the spread. Only a margin call would force me out if I was trying to weather an unhedged spike, but I don’t plan to take that risk again in 2018.

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My account was void of any index funds and I was looking for another individual stock to sell an option on, but felt I had been waiting too long and opted to come back to the easy trade on an index ETF while I continue to look for individual stocks. QQQ and IWM are usually the best for option premiums thanks to their higher volatility (usually) over S&P 500 ETFs. Since I already have options on AAPL, ADI, and NFLX, I decided to delay selling a new naked put on QQQ and focused on IWM.

While IWM was trading at $159.15, I sold one IWM March $159 naked put for $3.20 and received $319.32 after paying $0.68 in commission. While I usually like to sell farther out of the money, I opted to sell this contract at the money for a few reasons. First, my other options are farther out of the money already and have their own cushion from a loss, so I figured I had room to take more of a risk. Second, I like the risk reward for this contract. IWM can drop another 2.10% before I lose any money and if it stays above $159, I’ll make 2.05% (14.21% annualized).

Lastly, I don’t think small-cap stocks will fall more than 5% in a near-term correction and should bounce back quickly if they do drop that far. IWM was trading at $159.80 when I placed my limit order yesterday and fell as low as $158.40 before recovering. If assigned, my cost per share will be $155.81, 2.8% below yesterday’s intraday high. I expect support to surface at the 20-day moving average ($155.88 as of today) and/or the trend line of higher highs that’s ascending still and is close to $156.00 today. A price decline to $156 would be 2.88% below today’s intraday high, which happens to be an all-time high also.

Until the current bull market shows signs of weakness, it’s hard to avoid pushing for a little extra return with higher strikes. I’ve thought stock prices had risen too much even before the beginning of the year, but with the tax breaks, we could push much higher into a nice size bubble before it pops. I think small caps will go along for the ride without an insane amount of downside risk.

I still have $30,557 in cash and not being used to back any option positions, which is yet another reason to push for a higher strike today than I usually would. My only other limit order in place after today is to buy UUP puts. UUP tracks the US dollar and it appears we’ll have further weakness in the months to come. I’ll give more of my reasoning on the trade if my limit order hits.

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I only had two options left to expire today, one IWM January $148 naked put and one QQQ January $153 naked put. Both are far out of the money and will expire worthless. I’ll have a realized gain of $340.32 on the IWM put and $286.32 on the QQQ put. IWM was trading at $148.59 when I made this trade compared to $158.16 as I write this update midday today. QQQ was trading at $154.28 when I made that the QQQ trade compare to $166.05 midday today. Clearly, I could’ve sold these in the money and made a lot more money, but considering I made these trades the day after my mom died and at the end of a stellar year for stocks, I didn’t want to take a big risk, especially when my head wasn’t fully in the game.

I plan to replace both expired puts with new naked puts soon, but have been waiting for a down day to pull the trigger. I’m afraid I’ll continue to wait for something that won’t come to fruition until prices have pushed even higher and risks have increased even more. I’m not sitting around doing absolutely nothing at least. I did roll my NFLX naked put earlier this week and this morning, my new order for a WMT naked put hit.

I traded on WMT last year beginning right after Amazon announced its purchase of Whole Foods and traders panicked about various retailers’ futures. I didn’t buy into WMT’s doom and gloom and jumped in with a naked put. I thought I made a few trades on WMT, but I just looked back at my trades in Quicken and saw I only sold one August $75 naked put. Like my puts that expired today, I was far too cautious. I went the other direction today. While WMT was trading at $104.09, I sold one WMT March $105 naked put for $4.20 and received $419.32 after paying $0.68 in commission.

I sell puts in the money on rare occasions. The reduced risk of selling out of the money is always appealing to me, but sometimes I can talk myself into accepting some extra downside risk. I placed this WMT order yesterday when WMT was around $104.05 and still climbing after gapping higher at the start of the day. I thought it would fill in the gap (meaning it would decline in price to its previous intraday high before resuming its move higher) and my order would hit within a week. Instead, it dropped only slightly, and my order hit before the stock pushed higher again. I’m so far underinvested right now that even if I lost on this trade, I have so much cash on the sidelines that I could buy in at the lower prices and hang on for the eventual run higher. Of course, I’d rather this trade just work for me.

If WMT finishes March options expiration at or above $105.00, I’ll have a gain of 4.16% (26.38% annualized). Even though I sold the put in the money, WMT can drop 3.15% before I lose any money. It’s a lot easier to sell in the money when you still have more than a 3% cushion. If assigned, my cost would be $100.81. That cost would be close to where I think WMT could bottom if it revisits its trend line of higher lows. Beginning with the intraday low from November 16, 2017 through nearly a dozen days since then where this line has held support, WMT looks like it won’t fall below $100 on any weakness near-term. The trend line isn’t so steep that it creates an unsustainable trajectory.

Before placing my limit order for the $105 strike, I checked out the $100 strike. It had a decent annualized gain of 12.02% and a cost per share if assigned of $98.12. I opted not to aim lower and safer since I still believe in WMT’s future based on its improving online presence (including a tie-in with Google Express) and the technical analysis I mentioned above.

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My Trader's Journal by Alex Fotopoulos - 1M ago

I sold a naked put $10 out of the money on Netflix ($NFLX) on December 12, while NFLX was trading at $185.70 and on January 2, NFLX gapped higher and has barely hit a speed bump since then. It finished $0.30 higher today, but that was $4.54 below its intraday high. I’ve been hesitating to chase my next trade on NFLX since stocks have been on such a great run for so long, but decided I needed some more skin in the game finally. While NFLX was trading at $224.20, I sold one NFLX March $205 naked put for $5.30 and received $529.31 after paying $0.69 in commission.

Even with this naked put being more than $19 out of the money, I can still make 2.65% (15.49% annualized) on the money I’m keeping in reserves. NFLX can fall 10.92% before I lose a penny. I considered taking more risk and aiming for a higher strike, but 15%+ is where I’d like to be on an annualized basis. The rumor of a NFLX buyout is what got the stock moving at the beginning of the year and I think that fuel for the stock price will ease off and it should come back into line with its previous trading channel, which would bring it as low as $200 (maybe as low as $196 if the price declines more quickly than I think it will) before finding support. My cost per share if assigned would be $199.71, which is why I chose the $205 strike on top of hitting my annualized return goal if the trade works for me.

The 50% retracement line using Fibonacci lines is around $202 based on the early December intraday low and today’s intraday high. I expect that line to hold support, if not the 38.2% Fibonacci line at $196.50. I wouldn’t mind seeing a little retracement, just so I can roll the put at a better strike and better premium in March. By the time NFLX announces earnings, I think it should be ready for another leg higher, simply based on their 10% subscription fee increase that I doubt will cause any subscribers to cancel their plans.

Originally, I was planning to keep my February naked put and let it expire worthless, but after thinking about it for a minute, I decided it was smarter to reduce my risk in case NFLX hit a wall. While NFLX was trading at $224.10, I bought to close my one NFLX February $175 naked put for $0.55 and paid $56.09 including $1.09 in commission. I don’t think there’s much of a chance NFLX could fall 22.15% by February expiration and cause me to lose any money from today’s option price, but I didn’t see the need to hold onto the risk for a 0.31% (1.81% annualized) potential gain.

On a broader market view, the S&P 500 fell 1.39% from its intraday high before recovering slightly to close down 1.11% from its morning peak. Since I’m so lightly invested now, I’d love to see a much better correction than only 1.39%. The market is on such a long steady rally higher that a solid 3%, or better yet 5%, mini-correction would be great for this account. I only have two options set to expire this coming Friday and I’m going to let them expire worthless, but I need to find other investments to add to my account sooner than later. I might go for something that seems fairly bland, like WMT, since its options offer reasonable returns. I’ll see what the next couple of days bring for price change and would like to get another trade in this week.

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