Sold NDAQ Option Strangle for April Expiration

When my February options were expiring I wrote that I planned to jump right back in on a few of my positions, but by the time Monday rolled around I started having second thoughts.  I entered a limit order to sell new CVS puts if/when CVS takes another dip as it’s prone to do.  I thought about UCO again, but decided I should wait for a dip in oil too.  I haven’t entered a limit order for new UCO naked puts yet, but I’m watching it and still considering the trade.  The $11 strike is getting closer to worth the risk. I actually enjoyed today’s market movement.  There’s nothing like being underinvested while the indexes fall.  I lost less than half a percent and the S&P 500 fell over 1.1%. 

Although I’ve enjoyed that feeling for the day, I don’t want to miss out on future gains, so I added a little to my portfolio today in the form of NDAQ options.  While NDAQ was trading at $18.40 I sold three NDAQ April 19 calls at $0.52 each and three NDAQ April 18 puts at $0.58 each and received $325.72 after commissions.  I started off with a limit order for the strangle at $1.15, but after it didn’t hit for over an hour I changed the order to $1.10.  It hit within 10 minutes.

I started with NDAQ February 20 naked puts and took the option assignment at $20.00.  I received $207.90 from the initial trade.  That gives me $533.62 in premiums I’ve received so far which brings my cost per share down to $18.22.  If I’m assigned 300 more shares from my new April 18 naked puts my average cost will go down to $18.11 per share.  From there I won’t add any new puts and will either hold the shares long and wait for a rally or sell new covered calls and try to work out a profit on the trade.  Of course I don’t expect to have the April puts assigned or I wouldn’t have sold them.  I still like the $18 area for support, give or take a quarter.  If NDAQ rallies I’ll keep the $533.62 I’ve received in premiums and will take a $300 loss on the underlying shares since I’ll be selling at $19 after I bought at $20.  That still will give me a profit of $233.62 for a bad stock pick.  The other way to look at it would be that I could’ve sold my shares today instead of worked with options.  I would’ve locked in a loss that way.  By selling the strangle I have the potential to gain another $180 from the growth in the shares from today’s price on top of the premiums.

I like to look at my choices this latter way.  It doesn’t really matter at what price I bought my shares, but at what price do they trade right now.  Thinking only that I’d like to sell them at my original strike price of $20 leaves too much premium on the table for the way I like to invest.  I prefer the more steady and reliable stream of premiums over the potential for a 10% rally in the shares over the next two months.  That rally could happen with a stock as volatile as NDAQ, but without knowing for sure I prefer locking in gains now.