I sold naked puts on NVDA last year bought them back for a loss rather than take the option assignment. I also sold naked calls before finally getting out with a loss for the overall series of NVDA option trades. NVDA was trading at $10.92 when I bought those puts back. It went farther south before bouncing around a little for a while. I missed the recent low, but decided to give it another run now based on the hope of an economic recover sometime in the not too distant future. NVDA has a forward P/E ratio of 22.46, which isn’t insane if they can actually hit the estimates.
Today, while NVDA was trading at $9.22 ($1.70 below the price it was when I exited last August) I sold six NVDA June 9 naked puts (UVARI) for $0.50 each and received $285.50 after commissions. My original limit order was for $0.55, but after they didn’t hit I got anxious and lowered my order. I should’ve waited longer probably, but decided that since I am only selling six puts that would cost me around $5,125 (subtracting the premiums I received) I could sell covered calls if assigned while also selling new naked puts at a lower strike to dollar cost average down some and reduce my per share price.
I have $75,000+ in cash right now and only NVDA, SLB and NDAQ naked puts sitting in my account right now (and SLB naked calls). If all of those puts were assigned it would cost me $24,900 and I’d still have $50k plus in cash. So, I’m thinking of rolling my SLB put higher to the $50 strike and maybe even the $55 strike. More likely I’ll do the $50 strike and then add in some new USO naked puts. I’m mulling this over now and might make the trade tomorrow.
I am looking at the chart for NVDA. I see your logic (retracement from recent rally?) but the premium is so small. Why do you think that this is a higher probability trade?? Why not just buy the stock with a $150 stoploss and $300 profit target?? Buy 600 shares Buy Limit $8.50, Stoploss at ~$8.25 and sell target at $9.00?? That seems doable if you are bullish on NVDA and will make you $300?? just a thought…..
Obviously the NVDA numbers are higher since NVDA is going up but the concept is the same.
Joe, your method requires more capital, a 6% move in the stock and is much riskier.
What Mule65 said, plus I think the premium isn’t too small, $0.50 from a $9.00 strike is more than a 5% return in a month. That’s 60% annualized. That’s good to me. Also, I’m not saying I’m as bullish as I am saying that I think the downside is limited and I should be able to make a profit even if it slips a little. That’s the part of OTM naked puts that I like – stocks can go up or stay flat and I still profit in full.
I also like the idea of selling naked puts on good stocks. However, I am waiting for the (inevitable) correction before doing so. I hate it when a stock or the stock market declines soon after I sell a naked put 🙂