I guess someone on the other side of my QCOM April 57.50 naked put contract got scared and decided to dump their shares on me while the markets sold off yesterday. I knew I was going to take the assignment by Friday afternoon since it was fairly deep in the money so this just gave me a chance to open up my next side of this position a couple of days earlier than planned.
While QCOM was trading at $52.28 I sold one May 50/55 option strangle for $2.22 and received $220.57 after commissions. I sold the May 50 naked put for $1.24 and the May 55 covered call for $0.98. I debated this trade for a few reasons. First I had to decide if I wanted to stay in QCOM at all. That was a pretty easy yes. Then I had to decide if I liked it enough still to risk buying more on a second put assignment. I decided the risk wasn’t too great if I sold the put out of the money, in line with the low from mid-March. Then I had to decide where my exit price should be. I went with $55 for the covered call and possible exit price because the $57.50 premium wasn’t really worth selling for May and the $52.50 strike seemed too low for where I thought QCOM could come back up to. $55 is also the approximate area where QCOM topped out a couple of weeks ago. Lastly I had to pick which expiry I wanted to use. May and July were my only reach choices since the June contracts aren’t posted yet. A lot can happen by July, so I opted for the shorter dated contracts.
If my shares are not called away I’ll own 100 shares with a cost per share down to $53.68 which seems fairly reasonable. If QCOM falls below $50 and I’m forced to buy another 100 shares, my cost per share will go down to $51.84 each. I won’t add any new naked puts below that most likely, but can sell covered calls at lower strikes to get out at break even or better on a trade that went wrong. I actually expect it to work out and I’ll end up selling at $55 in five and a half weeks for about $132 in profit. If I am assigned the next lot I’ll own the shares by the time the next ex-dividend date rolls around which will give me a few more cents in share price reduction.
Your trade looks good to me. I’m in QCOM too but at a $52.50 strike so I may be able to just sell more Naked Puts. That’s what I like about Options, your initial trade was a good trade but, in the short term, the market can do crazy things. Options allow you to turn a trade profitable whilst the market works itself out.
On another note, do you have any opinions on ACOM? To be honest with you, I only came across it when mispelling QCOM into google finance a few days ago. However, I decided to look into it a bit more. It’s gross margins look good, as do it’s revenue and earnings growth. It has no long term debt. It also seems to have solid support at the $30 level and the moving averages are catching up with the stock. The P/E is very rich which I don’t like but it might be a good area to be in with the whole baby boomer thing and the P/E could drop very quickly with their high growth rates. I’m thinking the May 30 Puts at $0.75 might be a good trade for a quick 2.5% return but haven’t really been following the stock for long. Next earnings are on the 25th.
Tech is in murky waters these days. Might be worth buying some postQE2 summer puts.
I think that, because of the doom and gloom, tech’s a pretty good area to be in right now – just look at INTC and MSFT (I have a current position in MSFT). INTC’s dividend is too big to ignore.
I had thought the drop this morning in QCOM was a little overdone and that they’d try to pin it to $52.50 for opex. Therefore, I decided to take a little bit of a risk.
I was short a April 52.50 Naked Put (originally sold at $1) and, today, sold short a May 50 Naked Put at $1.40 (after commissions). I immediately put in an order to close my April 52.50 Naked Put at $0.40 after commissions.
If the second order didn’t hit, I would have been left with a possible 200 shares after May expiry at a $50.05 basis. If the order did, I’ve taken a $1 credit and dropped my strike by $2.50.
It’s now almost 2 hours since the first order hit and I’ve just repurchased my April Put. This leaves me $3.50 better off in the unlikely event that QCOM closed below $50 next month and $1 better off otherwise.
Looks like tomorrow will be time to buy back those short Puts to free up some margin! 🙂
That’s me in ACOM now via May 30 Naked Puts. They release earnings after the close tomorrow so it might be worth keeping an eye on it to see how things go.