The day after I closed my NDAQ position before my November options expired, NDAQ had a huge day gaining almost 5% intraday. I regretted my timing of having to exit my position to move the cash to my new account, but knew there was no need to worry about it since I couldn’t take it back. I decided to bide my time and keep watching NDAQ for a new, perhaps better, entry point. I missed the opening lows this morning as I watched patiently to see if the bottom would fall out of the markets as a whole, but only saw support show up early and another missed opportunity slip by me with NDAQ well off its intraday lows.
I kept watching throughout the morning and realized I might have missed my best entry point. I placed a limit order for new naked puts in case NDAQ dipped again since I saw it was finding resistance on its 10 day moving average. I thought about holding that order until Monday to get a better read on the follow through, but noticed NDAQ made it back above its 20 day moving average within 30 minutes this morning and thought that could be a good area of support in the days ahead. While NDAQ was trading at $18.88 my limit order hit and I sold three December 19 naked puts (NQDXL) at $0.65 and received $192.90 after commissions.
I started to type in my order at $0.70 per contract, but with the bid/ask at the time of $0.50/0.55 I didn’t think it would get any higher than that before the end of the holiday shortened trading day. I was wrong by 10 cents. NDAQ fell all of the way back to finish the day within pennies of its 20 day moving average. That sets the stage for an interesting start to Monday for NDAQ. Due to its recent weakness, I only started with three contracts which are only worth about $5,500 in underlying stock purchases after deducting the premiums I received. I started the same way last month, with only half an order and this time I’m starting with a strike $1.00 lower. I expect NDAQ to stay volatile and on a dip that I think is temporary I’ll consider adding to my position again or I’ll take the small option assignment and turn it into a strangle plus long shares (sell naked puts along with covered calls).
With only three weeks to go until December expiry, the time value will evaporate quickly with these options. The trick is going to be how the underlying stock moves, especially since the options are currently sitting in the money. Also, with such a short time period before the near term contracts expire I have to decide how much deeper I want to get in the market for December versus January considering that it feels we’re starting to teeter pretty precariously again.
Hello I have followed your blog for a while and I have a very simalar style. I also enjoy selling naked puts. I like uptrending stocks that I can seel with a low probability of getting put to me. This was the plays I put on today.
+NEULE NEU Dec 110 Call Covered call
+SIDXF SID Dec 30 Put 11% pro of getting put to me
+QHBXR FSLR Dec 90 Put 2% pro of getting put to me
+NEUXR NEU Dec 90 Put 7% pro of getting put to me
+APVXO AAPL Dec 175 Put 3% pro of getting put to me
@Robert: On AAPL Dec 175 puts, with 17.5k margin, you probably earned only a net of $40 max, which is 0.23%. Same holds for your other transactions here. Am I missing something? Coz that looks like an awfully small gain to be selling naked puts for! Alex on the other hand sells puts that atleast net him 2-5%(?) I guess. HUGE difference.
@ Joe, you are correct that I aim for higher returns on the puts I sell. I (briefly) tried Robert’s style of using the low probability approach, but got spanked a couple of times when the rare dive happened and decided the reduced risk of selling that far OTM made the reward too small for when it went against me. Robert might be a better stock picker than I was when I tried his way.
@ Robert – At what point do you cut your losses if you see a position moving against you? Your picks would have to take huge dives to give you a loss, so do you leave them all until expiration and stick with the probabilities of their declines stopping before moving below your strikes? Also, thanks for posting your trades to help show others how many different approaches can work.
I usally leave them to expiration and stick with the probalities unless something has fundimentaly changed with the underlying stock. If a position does get put to me and nothing has fundimentaly changed with the underlying stock. Then I turn around and sell the next month out call at the price it was just put to me. I monitor the stocks very closely and usally any major fundimentaly change and I get out at a loss. I just checked my account on 12/2 the Maint margin requirment on my 175 AAPL put is 8,346.75 and the probality has raisen to 5%