MON Tanks and I Get Naked

I’m already short one Monsanto (MON) naked put at the October 100 strike (MONVC).  I received $419.25 for selling it on August 19th.  MON was downgraded today by Merrill Lynch and dropped around $20 to start the day.  Since it was trading near the strike yesterday, this knocked a quick chunk out of my account.  I opted not to wait around to see what happened, but ADDED to my position while implied volatility was up over 100 at all nearby option strikes.

While MON was trading at $79.42, I sold one October 90 naked call (MONJU) at $2.75 and received $264.25 after commissions.  Since I’m in the hole for 100 shares I’ll be buying at $100 from my first naked put, I’m essentially covered on this to the upper side to 100, $20 away.  This trade was mainly to try to give me some more cushion if it falls more.  If MON rallies, I’ll either get out completely or buy this back as my original put improves for me.  My original put will change in price quicker than this call will since it’s in the money and moves closer to dollar for dollar now.

Immediately I went back in while MON was trading at 79.02 and sold one October 75 naked put (MONVO) at $4.90 and received $479.25 after commissions.  I’m just pure lucky to have sold these in that order where I sold the put while MON was dipping more.  I think MON is oversold from this downgrade and will come back up or will at least stay flat.  If it drops to 75, I’ll be ready to buy more anyway.

I’ve received $1,162.75 in premiums from these three options which brings my cost under $89 if only 100 shares are assigned.  If MON does make a come back over $90, I’ll end with more than $100 profit.  If it stays below $90 and above $75, I’ll write covered calls at a lower strike and farther out to still plan a profit for this series of trades.  With only 12 trading days before expiration, including today, the time decay on these options will move quickly, especially with how far they all are out of the money and how high the implied volatility already is.

At the end of my writing this up, MON is already up to $82.06.  With a PEG of only 0.80, MON has some room to hit the low side of earnings next week on October 8th and still not take much more of a beating.  If they beat earnings, it’ll be off to the races again.

On a positive note, I received a $40 dividend from the BNI shares I owned last month.  I’ll take what I can get at this point.