Sold CSCO March Naked Calls

(2/4/10 EDIT) The copy below is what I originally wrote two days ago, but I just realized today that I screwed up on my order and sold calls instead of puts.  I’ve changed the above post title and scratched through my original description to edit it to say “calls” instead of “puts” now.  I wrote a new post for my CSCO adjustment today.

I was planning to wait another day before making another trade, but while I was doing some planning I came across CSCO and decided I didn’t need to wait.  I was actually starting to research CTXS and in my stock list CSCO is next to it.  I clicked CSCO by mistake and even though I realized it fairly soon, I kept reading about CSCO.  CSCO has a forward P/E ratio of only 13.92 and tons of cash on hand.  I charted it next.  CSCO fell 10% over the past two weeks and has started to recover.

My first impulse was to sell six out of the money naked puts at the $22 strike.  It seemed like a fairly safe trade to make and the premium was OK.  I considered it for a few minutes and when I looked at the current price I saw that it had edged up a bit to just over $23.00.  I decided to check the $23 strike and found that I could get almost as much reward for nearly half the dollar risk by raising my strike to $23.  While CSCO was trading at $23.00 I sold three CSCO March 23 naked puts calls at $0.87 each and received $258.86 after commissions.  By lowering my overall dollar amount at risk I increased my probability risk.

CSCO is my second technology stock I’m exposed to now, along with INTC.  Unless I find something else I really like a lot I will probably take a little break from tech, although I could open another small position without messing up my diversification too much.  I’m still considering CTXS, but will sit back and watch it for a few days at a minimum.  I have a limit order on some KFT naked puts too.  If that order hits it’ll give me some exposure to Consumer Goods where I have none.  I could also use some Healthcare exposure if anyone has some recommendations you’d like to share.

« « End of Month Summary – January 2010 - | - Adjusted CSCO Mistake and Added KFT Naked Puts » »

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  1. Pingback by Adjusted CSCO Mistake and Added KFT Puts

    […] couple days ago I posted my trade details about selling CSCO naked puts at the money.  I was psyched when I saw CSCO beat earnings last […]

  2. Comment by R Pell

    Re: healthcare stock ideas

    Here are a few healthcare-related stocks on my watchlist that are showing up as reasonably priced (or even somewhat undervalued) at current levels:

    Pfizer (PFE) – pharmaceuticals
    Bristol Myers (BMY) – pharmaceuticals
    Owens & Minor (OMI) – medical and surgical supplies, healthcare supply-chain management services
    Cardinal Health (CAH) – health care products and services
    Medtronic (MDT) – medical device maker

    I’m currently short some puts at lower prices on PFE, BMY and MDT.

  3. Comment by Alex Fotopoulos

    Thanks! I’ve watched PFE off and on, but haven’t watched the others much in a while. I’ll get back to them today.

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