Option Expiration Friday – May 2008

Options were good to me for yet another month.  With today as the last trading day for May options, I can be happy with almost all of my trades.  These are all going in my favor – the naked puts are expiring worthless and the covered calls are being exercised, releasing me from holding the underlying shares of stock.

• 2 DD May 47.50 naked puts (DDQW)
• 1 SLB May 85 naked put (SLBQQ)
• 5 INTC May 21 naked puts (NQQU)
• 2 QCOM May 40 naked puts (AAOQH)
• 4 NVDA May 20 covered calls (UVAED)
• 4 NVDA May 22.50 covered calls (UVAEX)

Some people might consider NVDA covered calls bad trades since I left a lot of money on the table.  I disagree.  I sold the calls to get me out of the stock which I was assigned earlier and get me back to being more heavily in cash, not stock.  I’m not saying I didn’t make a mistake along the way with NVDA.  Clearly I did because I lost over $2,000 in the end (if it looks interesting I’ll put the whole summary together next week).  The mistake I made was not cutting my losses at the beginning of the NVDA downturn.  I’m taking the loss now for my mistake then.  When I sold these May covered calls I was essentially selling in the money puts.  I gave myself limited upside potential, but pocketed a portion of the profit early.  My trading model is selling naked puts.  I use covered calls to help clean up my mistakes.  Had I not written covered calls along the way with NVDA I’d have had much bigger losses.  I’ll be able to take the cash from the 800 NVDA shares selling and move that to my money market where I can earn interest while I open new naked put positions on other stocks.  I recently bought 200 shares of NVDA in my wife’s IRA and I might add to that next week now that I’m not so over weight in the single company.

I made a mistake with the AMAT options I was short.  I’m blaming the six day steroid-pack medicine for making me emotional about that trade.  Shouldn’t that warning be on the label?  Don’t close good trades early while taking this medication.  It did say it could cause mood swings and make me anxious.  It did and I didn’t stick to my own rules.  I should’ve let it ride until after earnings were released.  The stock barely moved the day after earnings and I closed both my positions when I only would have had to close one or just take the option assignment. Instead I paid over $500 for what I could pay $230 right now.  An extra $270 would be nice to have, but it’s nothing to worry about past this posting.  I’ll chalk it up to a good lesson to have been reminded about.  I sold a good straddle (same stock, same strike, same expiration, both calls and puts) and was in the driver’s seat to let it play out with my orders giving me a cushion since I placed them well ahead of time and then the stock leveling out just before earnings.  Oh well, I hope someone else can avoid this type of mistake without having to lose your own money.

The July premiums aren’t too bad for AMAT.  I’m going to consider a buy-write for AMAT covered calls in my IRA next week.  I’d do it now, but have most of my cash tied up in other positions that expire today.