Opened TMF covered put (7/15 expiration, $125.00 strike)
Sold to open 200 shares of TMF for $125.94, and sold to open 2 put contracts with $125.00 strike price expiring 7/15 for $2.55. Total proceeds after commission are $25,680.60, or $128.40/share.
This is an attempt to replicate the success I just enjoyed with the NUGT covered put.
The same elements are in play: I am again picking a 3x levered ETF to go short. Again, this ETF is sharply overbought: RSI(14) is above 77, both on the daily and weekly charts. The absolute level of volatility is lower for TMF than for NUGT. I am compensating for that by adjusting position size upwards. The liquidity of this ETF is not nearly as good as it is for NUGT. In fact, it does not offer weekly expirations; I am simply taking advantage of the fact that monthly options are about to expire next week.
While the lack of liquidity definitely meant that I had a wider bid/ask spread on the option side to contend with, I think the timing here is good:
- The Brexit fear is behind us (resolution to the downside is still resolution)
- Today’s jobs report was far more bullish than expected. This cannot be good news for bonds.
- Next week marks the start to earnings season — the first quarterly earnings reports that lap the dollar stength and oil weakness that brought on the earnings recession of the past year. I am hopeful that the outlook presented here will be more constructive than in the past 3 quarters, leading to more stock market strength and bond market weakness.