Sold FWLT November 32 Naked Puts

I was able to slip another trade in on Foster Wheeler AG (NASDAQ: FWLT) while it was down this morning.  I didn’t get in at the low, but did get in before its second run higher showed up.  After my two FWLT naked puts finished out of the money at the end of October expiry I wanted to see how today opened before getting in again.  FWLT started higher, but pulled back fairly soon.  That made me want to wait a little longer to see how low it might go.

In the few minutes I took to read a couple of emails on my work computer FWLT had already come off it’s lows by more than $0.35.  I toyed with a couple of limit orders and when it took a small dip a couple of minutes later my order hit.  I sold two FWLT Nov 32 naked puts (UQIWF) for $1.55 each and received $298.50 after commissions.

I expect FWLT will remain volatile and support to hold not much below $30, if not closer to $32.00.  I picked the $32 strike because I only sold two options and wanted the higher premium it offered over the lower strikes.  I didn’t want to go any higher after coming so close to the option assignment last week.  I want to be invested, but with a little less risk than at-the-money options offer.  The FWLT chart also showed potential support near $32 based a few intraday highs near there over the past month and more recently intraday lows near that same level.  In addition, the 10 and 20 day moving averages are almost dead on $32 today with the edge going to the 10 day as it starts it bullish crossover.

The decision always comes down to how I want to use the level I think will be support.  Sometimes I don’t want my underlying stock to dip under that level.  Other times I’m willing to take a bigger risk (like I’ve done on NDAQ recently) when I think the underlying stock might dip under my strike, but only for a short period of time.  I probably should’ve gone in with a higher strike on FWLT since I don’t have much else on the table, but by going lower I don’t think I’ll be as timid with entering future trades.

I’m not sure what I’m trading on next now that the market has moved up so much already today.  I’d rather wait for at least a small pullback, but that logic has me chasing the $SPX average return lately instead of just beating it like I used to do.