Jim Cramer ranted about Raytheon (RTN) last night. I charted the stock and saw that it was about to have a bullish cross with its 10 and 20 day moving averages (see the blue and green lines respectfully). For history’s sake, notice the bearish cross of the 20 day moving average when it passed above the 10 day moving average. That’s when it really started heading south. I might be a day or two ahead of time making this trade, but I think RTN is moving in the right direction still.
RTN also broke through the downward trend it has been fighting for the past couple of months. I see a small uptrend possibly starting, if today’s rally holds for it. Breaking the 50 day moving average will be another bullish sign if it gets there, although that line hasn’t proven too powerful of a stopping block in either direction before now.
I figured RTN would drop some after being up early on Cramer’s pick so I entered an order above the ask price at noon by $0.25. While RTN was off it’s highs, trading at 62.09, my limit for two January 62.50 naked puts (RTNMZ) hit and I received $438.50 after commissions. I’ll need this since the job offer I was told I was getting today ended with a call to say it’s on hold for another week while they determine their business model. This is the second offer in a row that didn’t materialize after I was told I’d have it in writting “soon”. I have another lead I’m following up on that seems fairly hot from a friend and will try to stir up some others in the meantime.
Looks like a good trade. Especially considering the market’s move today. Do you have a target, or do you try to hold on until the end of January?
I don’t tend to try to pick price targets when writing naked puts. I only focus on how low I think the stock will go. As long as it’s above the strike at expiration, I’m happy. I think RTN will be above 62.50 by Jan expiry, but even if it’s not, I think I’ll be sitting on a profit since I think the downside is low and the premium was decent.
Hello Alex,
I like your blog and your trading strategy.
Can I ask you why in this particular RTN trade did you rush to buy the put back? Why didn’t you wait longer, you could’ve made significantly more money? What is your usual trading period, another words how long you usually wait before buying put options back, is it hours, days, weeks or months?
Thank you,
Gregory
Gregory,
Thanks – I did not buy the put back. I’m still expecting the full gain on this one. Unless RTN turns sharply down, I’ll let it ride until it expires. I typically aim for 1-2 months per contract. I try to stay as close to 2 months as possible and that allows me to have 1/2 of my portfolio’s options expire each month.