Sold Mohawk Industries (MHK) Naked Puts

Three weeks ago, while Mohawk Industries (MHK) was trading around 75.00 I placed a limit order to sell naked puts on it if it dipped and the options’ premiums increased.  Barron’s Lawrence Strauss had a bullish article on it earlier that week, but the chart didn’t seem to match the bullish fundamentals to me.  I saw potential support closer to 65 and placed my order to hit on a decent sized pull back.  That happened today as MHK dipped to its trend line of lower lows.  I’m expecting that declining trend line to be short lived as my target of 65 draws closer.

While at MHK was trading at 67.92, three minutes into today’s trading day, my order hit and I sold two MHK July 65 naked puts (MHKSM) and received $348.50 after commissions.  I didn’t price the option exactly right as MHK fell as low as 67.16 before coming off its lows.  So far, at 12:20 pm, I have the high trade of the day, but briefly after my order hit I saw the bid/ask at 1.75/2.20.  Without an order in to test anything higher than my 1.80 sale price I can’t know for sure if it would have traded higher, but I have to think it would.  That said, I feel confident in the trade and expect to have that full $348.50 as profit next month when it expires.  I also like the advantage I have with this option expiring in only 4 1/2 weeks.  This is where the time decay (”theta” in option Greeks) really starts eating into the option premium’s price.

This trade pulls me above my goal mark of having half my account balance’s potential expire each month.  I have a few more limit orders that I placed over the past few weeks, but none is close to hitting right now.  If none hits this week, I’ll rethink each one and possibly move them to August strikes.  I think this trade is a great example of how being patient and letting a stock/option come to you can really work.