Sold NDAQ November 20 Naked Puts

I keep coming back to NASDAQ OMX Group Inc (NASDAQ:NDAQ) when I see good opportunities on its chart. Long term I think NDAQ is going much higher, but since I don’t know when that day is going to get here, I’m nibbling little bites of profit with naked puts in the meantime. I mistakenly late NDAQ fall off my radar for a little while, but came back to it last week and finally placed a limit order on it yesterday.

While NDAQ was trading at $20.95 (on its way lower before recovering) I sold three NDAQ November 20 naked puts for $0.80 each and received $227.75 after commissions.  Selling that premium, that far out of the money gives me a break even price more than 8% below NDAQ’s price at the time of the trade.  Anything above that gives me a profit.  NDAQ can move 8% in a few days pretty easily, but when it gets below $20 it hasn’t tended to stay too long in the past few months. 

I wouldn’t be shocked to see NDAQ use this morning’s bottom as a near term low and climb back up above $22.00 very quickly.  NDAQ’s trailing p/e ratio is just over 17 and its forward p/e is close to 10.  Ford Equity Research highlights NDAQ’s Price to Sales ratio around 1.14.  That’s at the very bottom of its historical range that goes as high as 4.21.  This should help give a solid area of support somewhere around here, unless they screw it up this earnings season.  I didn’t go any higher on the strike for fear that the entire market will dip and bring NDAQ along with it.  Although as volatile as NDAQ is, its beta is only 0.81.  I should be fairly safe, as much as one can be in the market.

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  1. Comment by Jeff

    Looks like a nice trade — thanks for including your rationale. I have been trying to figure out how I can get access to Ford Equity Research reports as I admire their work and approach — how can I get it?

  2. Comment by mule65

    Why November with so much fun left in October?

  3. Comment by Alex Fotopoulos

    @ Jeff – The Ford reports are available for free if you have an account with TD Ameritrade. They also offer, MarketEdge, Jaywalk and S&P reports. I like Ford Equity Research the most out of that list.

    @Mule65 – the premiums just weren’t good enough for October. Of course if you look at today’s (10/1) prices you’ll see I jumped the gun a little.

    Funny, after I mentioned the beta being less than 1, NDAQ is down 3.5% today and the SPX is down 2%. Shows how flexible beta can be day to day apparently.

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