I wrote three naked puts on DWA nearly a month ago only to see it continue to fall. I still like it long term, but whatever is going against it is certainly punishing the stock in the near term. Maybe it’s the writers’ strike. I can’t find an article that tells me, so that’s just a guess. The box office for Bee Movie has been less than some hoped for, but this seems like more of a beating than should be issued.
I decided to lessen my losses this morning by selling calls on it with the assumption that I’ll be buying the stock in three weeks when December options expire. DWA was down again and I entered a limit to sell three January 30 calls for .45, the bid ask was .35/.50. I waited a little and decided to reduce it to .40. I waited not much longer and decided I could see a ceiling at 30 if DWA rallied. I upped my order to six naked calls, only three of which will become covered in three weeks. I waited a few more minutes and saw DWA fall another 20 cents. I lowered my limit to the bid price of .35 for all six and was ready to accept the lower price, just to get some money back. I waited and then waited some more. I could see the bid/ask was .35/.35, but no orders were hitting.
That’s the point where I made my crucial mistake. I changed my limit order to a market order since I decided I’d be satisfied with the market price and I could see the B/A size was 25/47. All I wanted was six of the 25. I guess Ameritrade’s system had a glitch on reporting the correct bid/ask prices. My order did hit, but when DWA was trading at 25.18. I sold six January 30 naked puts (DWAAF) for 0.20 each and received $105.50 after commissions.
I went through all of that effort for only $105.50 and now have three extra calls than I’ll have shares. If DWA finds support, I might have to consider selling more naked puts. The decision will have to be if I sell the January 25 or 30 strikes. I use a limit order (AMTD does not charge extra for limits) even when aiming for the current bid price to avoid this type of incident. I had a rule against it and blew it. I’ve allowed flexibility on this on heavily traded options, but at 10:15 am, when I traded there were no other option trades at this strike. I’m not bothered by the stock falling, that happens. I am bothered by not sticking to my rules.
If the writers’ strike ends and that’s the catalyst to get DWA going again, I’ll be writing puts in the money (ITM) to gain on the stock’s rapid accent and to cover the naked calls I’ve just written.
My girlfriends grandfather invests heavily in the stock market but doesn’t look at the day to day…he just invests and lets it sit..but then again hes probably not as successful as you at it. Looks like a lot of different factors need to be analyzed.
Interesting. I too use TD Ameritrade and have been frustrated since the merger with limit trades. Seemed like I got better order priority/execution when it was just TD Waterhouse. Now it seems like my limit orders are at the bottom of the stack.
I’ve had good execution with TD Ameritrade for the most part, but then again I use limit orders for almost all orders, so I’m not watching when the hit usually.