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I executed the following option trades during the week of Feb 19-23, 2024:
On Feb 22, 2024, I sold to open 10 $TNA cash-secured puts expiring on Mar 15th, 2024 at a strike of $32 for $0.70 per share and received $700 for the 10 contracts (or $70/contract), minus fees and commissions.
Note that you can obviously scale this trade and change the number of contracts (either to fit your available capital or simply to change the amount of capital you want to risk).
- Fulfilled my preferred criteria of delta <=0.2 and a monthly return of around 2% +-
- Delta (at time of trade execution): 0.18 (~82% chance of expiring worthless
- If the puts expire worthless, it would be a 2.2% return on investment in 22 days (3% monthly return or 36% annualized) with a $32,000 collateral (or $3,200 per contract), minus fees and commissions
- Based on the IV (implied volatility) at the time of my trade, the lower limit of the approximate expected stock price range by the expiration date was around $32.25, just above the strike price. Note that this is just an approximation and the IV and expected price range will change over time, but it's another data point that I use (in addition to others, see below) to decide on a strike price.
- The $32 strike price is well below the blue 20-day, the green 50-day and the red 200-day moving averages (see chart below), all of them might provide support in the near-term if the share price comes down; it closed just above the blue 20-day line today (see orange arrow in top chart below).
- Looking at the top chart below, most recently, the $32 level served as support in mid-Jan 2024, after it served as resistance in Dec 2023 (see annotations in chart). It might serve as support again should the stock fall this much.
- Also, looking at the middle chart (the last 12 months), the $32 strike price level has been a key level, either as resistance, or, once broken, as support (see annotations in chart). It might serve as support again should the stock fall this much.
- Looking at a few technical indicators (bottom chart), I like that $TNA is not trading at any extreme levels (in particular it does not seem overbought); it's trading in the middle of the Bollinger Bands, a RSI of around 50, and small MACD values. The $32 strike price is below the lower Bollinger Band.
- $TNA is a diversified ETF taking out the individual company risk, although bear in mind it's focused on small-cap stocks (Russell 2000 Index).
- Note that $TNA is a 3x leveraged ETF and can move fast and be very volatile (on any given day it moves 3x as much as?$IWM in either direction). With the right catalyst this option can quickly move in the money (ITM). Make sure you are familiar and comfortable with these 3x leveraged ETFs and its volatility before placing any trades.
