Sold New AA Naked Puts

As hesitant as I’m trying to be, I don’t want to roll through the rest of May without opening any new positions.  AA caught my eye this morning again.  As a previous winner, I figured AA could work out for me again.  On the same line of thought, if the markets decide high oil isn’t a killer to the economy then I should stay invested even if I’m cautious and ready to change my positioning as soon as the markets change the mass thinking we’re seeing now.

While AA was trading at $43.33 at 9:46 am today, I sold two July 40 naked puts (AASH) and received $328.50 after commissions.  I could’ve gone a lot closer to an at the money trade, but the premiums are good enough to give me a nice enough return with reduced risk.  AA is on a good run and if it falters I expect 40 to act as a good line of support.  40 was near the high at the end of February, beginning of March, mid-March, early April and even briefly acted as a ceiling again on May 8th and 9th.  Then came May 12th and AA gapped up all the way to 41.64.  For the fifth day in a row since then AA has confirmed this gap up is for real.

I even checked the fundamentals with this trade and liked what I saw.  The PEG for AA is on 0.69, leaving a lot of room for error.  With my sense of caution I’m working with in the near term, I will try to find stocks with lower p/e ratios and PEGs less than 1.00 on top of charts that tell a good story too.

The out of the money call options are good too, leaving me room to cover early in a down turn.  The only regret I may have for this trade is not selling more than two options.

(5/20/08 EDIT: I must be slipping - I was already short three AA naked puts that I wrote about two weeks ago - http://mytradersjournal.com/stock-options/2008/05/07/sold-alcoa-aa-naked-puts-again/ - Now I have to decide if I should take my profits on the first lot and just hold the second lot or risk all 500 shares being assigned.)