Doubled NDAQ Naked Put Position

Last week I opened up a small position with NDAQ November naked puts with the plan to let them expire and then add to the position if the options were assigned or just re-write them if they expired worthless.  After NDAQ’s price fell below the $20 strike a few days later I started eyeing the chart a little more.  Clearly I got in too early the first time.  As much as I like to follow NDAQ’s chart I’m not sure why I jumped the gun before the chart gave me the “entry sign”.  That entry sign to me is when NDAQ’s William’s %R indicator hits 100% oversold.  If you look back over the past year’s chart, this indicator for the 14 and 28 day periods is a winner each time.

Just two days after I sold three NDAQ naked puts last week the entry sign flashed.  I debated it for a couple of days, really waiting to see if NDAQ would pull out of the oversold area before I got in deeper.  It started to ease out yesterday and then this morning it looked more certain.  Once I decided I wanted to add to my NDAQ exposure I had to think about which options to use.  I considered buying calls to really capitalize on a big move, but fell back to my old standby, naked puts.  With calls I’d have to get a bigger move to make a profit.  With naked puts I only needed NDAQ to finish over $20 (sticking with the same strike).  The downside dollar risk is higher with puts, but the probable percentage gain is higher.

I had already missed the premium highs of two days ago, but decided not to chase new puts.  Since I already had exposure I could be more patient and let NDAQ dip back into my hands as it tends to do at least once when coming off its lows.  While the bid/ask for new November 20 puts was at $0.90/0.95 I entered a limit order at $1.05.  While NDAQ was trading at $20.21(more than $0.50 lower than when I first got in) I sold to open three NDAQ November 20 naked puts (NQDWD) at $1.05 each and received $302.75 after commissions.  That brings my total premium intake up to $530.50 after commissions for NDAQ.  If assigned, I’ll own 600 shares for an average cost with commission around $19.15, more than $1.00 (~5%) below the current trading price.

I’ve regretted not putting my money where my mind is enough on this one a few times over the past year, so I hope now that I finally open a decent sized position that the chart doesn’t fail me.  From here I’ll plan to either take the assignment if the options expire in the money or roll them to December expiration.  Of course I expect NDAQ to move higher from here and I’ll get to re-write new puts in November or whenever the chart gives its next entry sign after these puts expire.