Closed CHK Naked Puts for Profit

This rally that started at 1:00 yesterday has been very good for me.  I’ve cut my paper losses for the month in half in the past six trading hours.  Among the many gainers, Chesapeake Energy CP (CHK) is up into the $40s from its near-term low on Tuesday morning just above $35.  I am long 200 shares and expected to be assigned another 200 shares from my September naked puts.  Everything I own is up today and CHK is the only trade I’ve made so far.

While trading at $40.40 my limit order at hit a few minutes after I entered it and I bought to close my two CHK September 42.50 naked puts (CHKUT) for $2.20 each and I paid $451.49 with commissions.   This buy back comes after selling the naked puts on August 4, 2008, and taking in $488.50 in after commission premiums.  That’s a realized gain of $37.01 for a position I had a $500+ paper loss on just a few days ago. 

I might have held on and taken the option assignment on those naked puts if I wasn’t about to go on margin with my account Monday morning.  I decided I could come out better by selling naked puts than covered calls considering I’d be paying interest to own those extra shares.  I didn’t wait until the end of the day because I didn’t think the underlying stock was going to make that much more of a move up today, if any.  It’s up $0.60 from when I got out at 41.00 as I write this an hour an a half after my trade.  At least I have my long positions gaining still.

I want to see how CHK continues to move before I get back in.  My 200 shares I already own have covered calls that are expiring today well out of the money.  That’ll give me a clear path up if the rally continues.  Once I pick a time to trade, I plan to sell new naked puts and covered calls at the same time on CHK.  I don’t know the strikes I’ll target yet, but expect them to be close to the money and probably for November expiration, two months out. 

I’m ecstatic that I didn’t cover all my naked puts early.  I’m up $5,600+ so far today.  Covering VIP with a lower set of calls at the 20 strike was a bad move though.  VIP rallied when the Russian markets reopened and it traded as high as $25.50 this morning before settling back some, but still well above $20.  I was very tempted to sell even more calls this morning when I saw how much it recovered, but I couldn’t handle the extra risk and didn’t.  I would have done very well by doing so.

In amusing news, TD Ameritrade’s system had a rough morning.  The screen shot below is from my account’s balance page where it shows I have a negative balance of nearly $40 million.  I also got kicked out of my account twice before 10:30 (that’s not amusing).  I’ve heard from other bloggers that if that happens you can call and complain and get some free trades credited to your account.  I haven’t done that since my order finally got in and hit where I hoped it would.