Rolled Naked Puts on NDAQ

The NASDAQ OMX Group (NDAQ) has been more than a little bit volatile over the past few months, but at the same time has become somewhat predictable (I hope).  It’s been trading consistently in a trading channel for a while now and I expected it to get back above $20.00 again by now to move my naked puts out of the money and expire worthless today.  Instead it sank a little deeper this week and is still trading in a position that would assign me 500 shares in exchange for a total of $10,000 outgoing cash from my account.

Instead of letting that happen I rolled my naked puts, meaning I bought back my current short April 20 naked puts and sold new naked puts at the same strike for May.  While NDAQ was trading at 19.53 my order hit and I bought to close 5 NDAQ April 20 naked puts (NQDPD) at $0.63 and paid $318.75.  I originally sold these puts for $0.85 and received $411.25, so this purchase gave me a $95.50 realized gain on this leg of the trade.  At the same time the second half of my calendar put spread hit and I sold to open 5 NDAQ May 20 naked puts (NQDQD) at $1.93 received $951.23 after commissions from the joint trade.

I entered the limit order for a net credit of $1.30 and took in a total of $632.48 between the two trades.  My other option (no pun intended) was to take the option assignment and buy 500 shares of NDAQ at $20 and sell May 20 covered calls.  That’s how I traded most of the past 10 years, but what I’m changing on some of my positions this year.  The end result is basically the same except that I have the cash in my account now instead of the shares in my account.  The premiums were very close at the time of the trade. 

I thought about treating NDAQ like I did in March and take the option assignment, buy the shares and wait for NDAQ to rally above my purchase price where I’d sell the shares for a profit and sell new naked puts all over again.  That might have been smarter (assuming NDAQ does rally again soon), but I need to turn my attention to new stocks while I let this one ride so I can get a little more cash flow coming in.  In the end, my basic thought process with this trade was that by rolling the naked puts I increased my chance of having a higher balance in my account in a month from now.  That’s been my pursuit for years and when I keep greed in check it tends to work.  This $632.48 in time value I created today equals a little more than a third of my growth goal for the next month which puts me in a good position if it works.