I have been down on my Kraft (KFT) July 32.50 naked puts (KFTSZ) since soon after sold them. This morning I received an email that those 300 shares were assigned early. I was forced to buy 300 shares of KFT at the 32.50 strike and paid $9,769.99 with commissions. I received $362.75 from my original sale of these naked puts which makes my cost $31.36 per share. KFT closed yesterday at 28.70 and is up $0.15 during lunch today. I’m not sure how soon I’ll dump my shares. The options are not worth much to try to squeeze anything out of them, but I also don’t think the downside risk is too great. For now I’ll sit on my 300 shares since I have the cash to cover the cost of buying them. Once July options expire I’ll probably take the loss on whatever hasn’t recoved on them yet. If KFT can get back above 29, it could have a short rally.
[EDIT: KFT closed up $0.29 today at 28.99, off of its high of the day by only $0.07. It broke the $29 mark I was hoping for, but closed below it.]
This is the letter I received from TD Ameritrade:
Date: 07-08-2008
Dear Valued Client,
RE: For account ending in ####
You have recently been assigned the following option position:
3 KFTSZ
If you don’t have sufficient cash or positions to cover this assignment, please wire the necessary funds or make the necessary trades to close your position.
If you want to trade the position created by this assignment but it hasn’t posted to your account yet, you can place your trade by calling a broker. Please let the broker know the reason the order can’t be completed online in order to receive the Internet commission rate.
If you have questions, please call Client Services. Please enter your account number or UserID when you call to receive the best possible service.
Sincerely,
Bryce Engel
Chief Brokerage Operations Officer
TD AMERITRADE, Inc.
I’m down on my Mohawk (MHK) July 65 naked puts (MHKSM) by a few hundred dollars with less than two weeks to go before expiration. I charted MHK again this morning and decided that 65 might be a tough price point to climb back above for MHK over the next 8 1/2 trading days. That gave me a few choices. I could wait and do nothing to see how it settles out or could sell naked calls. If I sat and did nothing I’d only have downside risk. If I sold naked calls I’d have upside risk, but would cut my losses. I could sell July or August 60 or 65 strike naked calls to try to limit my loss or create a profit.
While MHK was trading at 61.07 I sold two July 65 naked calls (MHKGM) and received $148.50 after commissions. I went with the same month, same strike options to give me a lower cost basis, assuming the July 65 MHK naked puts are assigned. If assigned the shares, my cost per share will be just over $62.50. That’ll give me more choices for where I can sell covered calls in two weeks and still end up with a profit. I wouldn’t have done this if I didn’t see the trend line of lower highs. If MHK stays flat and I sell covered calls, I’ll probably sell in the money (ITM) to increase my chances for a profit. That’ll be a decision I make that day though.
[EDIT: MHK closed at 64.90 after hitting a high of 65.43 and bottoming out at 60.57 seven minutes after I placed my order. Clearly I was wrong on the ceiling being as firm as I thought it would be. I’m sitting with what I have for now with the expectation that today included some short covering and MHK has a limited run ahead of it for the next eight trading days remaining before expiration.]