I finished July options expiration with a full profit on QCOM and planned to get back in last week, but had some other orders hit before my QCOM order could. I don’t like selling all of my month’s options within a day or two of each other in case there’s a big market move against me I like to have the cash on hand to sell puts into a dip. Before I could adjust my order on QCOM they settled the lawsuit (in favor of QCOM) with Nokia regarding patent infringements. This has been the big issue holding them back and now that it’s resolved, QCOM has room to run some. Before I could make a trade, QCOM was already up big. I waited to see if it would slide back some, but instead it inched up a little more.
Seeing it up a little this morning I changed my order for a higher strike not far above the bid/ask. While QCOM was trading at $54.45 this morning my limit hit and I sold two QCOM September $52.50 naked puts (AAOUX) and received $418.50 after commissions. QCOM closed the day at $53.42, barely off its low of $53.25. That’s not too bad considering the Dow was down 239 points today, six points off its low. I could’ve gotten a little more on my options, but think this one will work out over the next eight weeks left before they expire.
I’m enjoying your blog. I’m new to options and have been trying to figure out an option strategy. I’ve tried my hand at selling puts with WB, and got burned bad. In reading through what you’ve written, I don’t see that you have written up your downside exit strategy. Say QCOM dropped 2 points a day for the next five days, and then held at $43 until the September expiration of your Puts. How would you handle that?
May 06 QCOM was around 53 before crashing and burning to 36 or so. i hope it’s ready to rise from these levels so your naked sold puts clear, but that gap up recently scares me because of the principle of prices filling the gap, in this case back down again, but perhaps you are right Sept is pretty near. the overall market though still worries me, if it could carry everything down this summer
@ Kadena – congrats on the good trade.
@ Not Herbert – I don’t have a hard and fast rule for an exit stategy. I tend to watch each stock and make decisions on a more dynamic nature. Sometimes I’ll just exit the position for a loss and other times I’ll sell naked calls to try to pull a profit from it that way. Worst case I sit and watch my money vanish and wait it out. For QCOM, I like it long term and wouldn’t mind owning it if it drops before September expiration. Down to $43 would be tough to stomach, but I don’t think it would stay down that long. If it breaks support from where it gapped up is when I’ll sell naked calls on it. Then again, the upside could be somewhat limited in the near term too and I should probably look at the September calls, far out of the money.