Sold NDAQ Naked Puts
Last month I eased into a hedged NASDAQ OMX Group Inc (NDAQ) position with a vertical spread (22.50/20 puts) for a credit of $0.80, not counting commissions. I took the option assignment at $22.50 and sold the shares yesterday for $23.40. This morning while NDAQ was down more than a dollar from its Monday close and while trading at $22.67, I sold five NDAQ April 20 naked puts (NQDPD) at $0.85 and received $411.25 after commissions.
I still like NDAQ (obviously) and also expect it to be fairly volatile as the markets ebb and flow. With that in mind I sold these puts more than 10% out of the money (OTM). If you add in the premiums I took in, I have a 15% cushion on this trade and stand to make around 4% within a month. I didn’t hedge this time like I did last month because I think the downside risk is limited below $19.00. While the 52 week low is $14.96 NDAQ didn’t dip nearly as low in the market’s latest tumble when NDAQ hit $18.43 intraday a couple of weeks ago. That $18.40-18.60 range looks like the low end of the trading channel I referenced yesterday. Yesterday’s high around $24.00 marked the high end of the trading range. If that range holds true for another month I made a good trade. I didn’t wait for NDAQ to head back to the bottom of the trading channel because I also saw it find support on its 10 day moving average. Unless something crazy happens and the bottom falls out NDAQ should have a bullish crossover its 20 and 50 day moving averages.
Comment by Mark
Alex,
Check out NYX. I use NYX and NDAQ as comparison trades. Both are earning roughly the same EPS but NYX is a much faster grower. When its below $18, its CHEAP, under 10x earnings with a 15% per annum 5 year growth rate.
Comment by Ronan Mc G
I’m equally bullish on NDAQ. I had actually sold 2 Puts that expired in April at $1.50 premium each. Obviously, they expired on Friday. I had been considering reselling them for May expiry like you did but changed my mind.
However, I saw todays analysts sell recommendation as an opportunity – stupid analysts
– and resold two NDAQ April 20 puts at $1.40. It was trading just above $20.60 at the time so, obviousy, I could have done alot better. However, I’m happy enough with this entry point as it gives me downside protection of about 9 – 10% from it’s current position (and I’d happily buy the shares if put to me). I’ve never bothered your method of hedging either – I’m a long term investor and want to buy shares for the long haul. When the market does turn into a bull, the Put premiums will help accelarate my returns.
Out of curiosity, what broker do you use – I’m with Interactive Brokers and my commision for selling the 2 Put options was $1.40. Nowhere near the $13.75 you paid (although for 5 options)
Comment by Alex Fotopoulos
@ Mark – I like NYX too, but had tunnel vision on this one. I think both have a good future, but the last time I looked (months ago) I NDAQ had better premiums. I didn’t even go back to look for April expiry on NYX. I don’t want to double down on the sector now though.
@ Ronan – I like to think I’m a long term investor, but with a short term horizon for each trade if that makes any sense. I didn’t start hedging until this year after taking a few big losses last year that I could have prevented.
I use TD Ameritrade (AMTD). I’ve used IB in the past, but didn’t like paying commissions when I changed orders which I do fairly often. Do they still charge for any changes to limit orders?
Comment by Ronan Mc G
I know what you mean. I haven’t been with them for long – about 4 months – but have noticed a number of ‘Order Cancellation Fees’ on my account. I can only assume that these are concerning modifying my orders.
I’m currently trading Iron Condors in addition to some covered calls and naked puts. I trade the Iron Condors on the Russell 2000. So far, it’s been going okay but it takes alot of nerve…