Alcoa (AA) Naked Puts, again
My last option trade on AA was three July 37.50 naked puts that expired worthless. Today, I sold two September 35 AA (AAUG) naked puts and received $318.50 after commissions. AA was trading at 38.11 when my limit order hit, down from an intraday high of 48.11 just two weeks ago on July 16th.
This was my first option trade in over two weeks. I’ve had such a hard time finding stocks I like fundamentally and have charts to match that I’ve waited patiently, at least in my taxable account. AA doesn’t have the best chart in town so I sold farther out-of-the-money (OTM) than usual. AA’s lows seem to be edging lower and it no longer seems to be a sure thing to be sold very soon. I still believe the fundamentals are strong enough to keep AA from dipping too much farther and the chart shows a few potential points of support between here and 35. I’ll be happy if any of them catch. I would have sold three puts if I had a stronger conviction, but with implied volatility over 53 for this option I am still looking at a potentially nice return.
If tomorrow’s market plays nicely, I may consider getting back in CAT which has also had a good dip from its recent highs, but still boasts strong fundamentals. If this was three months ago I’d go ahead and knock them both out in the same day, but times have changed and I’m being more cautious.
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Comment by Pete
First time commentator. Seems like this stock dropped below $35 during the timeframe of your put. Just curious the pnl on that trade. Thanks.
Comment by The Trader
Pete, I don’t own any shares of AA and have only sold puts and calls on it this time around and those options are still short. That means that if the options expired today, I’d have $318.50 from the puts listed above and $138.50 from when I sold 2 Sept 40 naked calls which I wrote about here - http://mytradersjournal.com/stock-options/2007/08/15/cboe-vix-finds-recent-highs/.
I will have 100% profit if AA closes at expiration between 35 and 40. Before I take a loss, AA will have go higher than 42.28 or lower than 32.72. That’s the total of the option premiums plus and minus the strikes on either side.
Comment by Pete
Are these Euro puts or American puts? Sorry for my lack of knowledge, but if they are American puts, wouldn’t the holder want to exercise the puts and make you buy them back?
Comment by The Trader
American puts. The buyer would have lost money if he had excercised them as the underlying stock came back above the strike. I rarely have a put excercised unless it’s well out-of-the-money and doesn’t look like it will rally. For example, the morning after an options miss. In this case, AA was down some with most of the market, but to be so far from expiration wouldn’t have been wise for him. It would have been great for me though. I would have kept my premium and owned the stock and made even more on the rebound it’s had.
It’s not a bad question at all. The holder (buyer) cannot make me buy them back, but he can FORCE me to buy the stock, which I would have been happy to do at a discount. Most puts are excercised at expiration. I’m not sure of an overall percentage of all puts, but for all the puts I’ve been assigned 95% didn’t happen until expiration day. I ended up being long (owning) the stock and kept the premium.
Comment by Pete
Thanks! I learn a lot from your blog and look forward to reading more!
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