Sold New Celgene (CELG) Naked Puts

I’ve been watching Celgene Corp (CELG) ever since my last naked puts expired and yesterday morning I put in a limit order to sell new ones if it dropped deeper. I’m nervous about all sectors right now the way the economy is looking, but figured if a safer haven can be found it might be in Healthcare – Biotechnology and Drugs.

While CELG was trading at $66.49, five minutes before bottoming for the day (so far) at $64.63 my order hit and I sold two October 60 naked puts (LQHVL) at $1.55 each and received $298.50 after commissions. It’s good to see something in my portfolio that’s only made up of extrensic value, meaning that more than half of my options are in the money and part of their value is intrinsic, not time value. Half doesn’t do justice to the paper losses I’m sitting on since a pile of those that appear to be out of the money are covered calls, so I’m losing on the underlying stock.

I’m off my lows for the day, but my account balance is below $90,000 now. Remember last weekend’s end of the month summary had me just over $99,000. Have I mentioned I’m not enjoying this market? Some of my biggest paper losses are on FCX and DRYS which could both pop back in the blink of an eye. Both offer good premiums still which means I’ll hold, take the option assignment and sell covered calls while I ride out this latest downturn. I’ll continue to try to cherry pick potential winners like I think CELG will be and will ease my way through the next few months.

Read more on Celgene at Wikinvest

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Comments (5)

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5 Comments

Comment by Options Strategery

FCX was down ~4 earlier in the day. The recovery was pretty amazing.

I am not sure if I believe the hype but the story is that there is a lot of pressure from hedge funds liquidating.
Comment by Alex Fotopoulos

Yep, that was a crazy day. I ended up finishing positive for the day. I didn’t think the bounce was going to be until Monday, but was happy to see it.
I heard the same, pressure releaved from Gustav not doing much and the unwinding of hedges. We’ll see what Ike brings over the next few days. Maybe they unwound too soon.
Comment by PW

I am in a straight put on CELG and it’s doing good so far. Is there a certain amount of money one needs in order to trade naked puts?
Comment by Alex Fotopoulos

I think TD Ameritrade requires $10k for full margin accounts. I still have cash available in my account to cover my naked put. I try to run at double the value of the underlying stocks if all were assigned. In other words, if all my puts were assigned I’d have half on margin. I’m not that deep in now since I’m not too hot on the economy. I’ve heard some call my naked puts, cashed back. It’s still naked if you haven’t shorted the stock. It sounds like your put is probably a “naked put”.
Think of it as the reverse of a covered call. If you own a stock and sell a call, it’s a covered call. If you short a stock and sell a put, it’s a covered put. Without owning or shorting the underlying stock it’s naked, ie, not covered.
Good luck on your CELG put as I’m in the same boat as you.
Comment by PW

Thanks for the info.