Trade Continuation: GDX Naked Puts

Today I took advantage of the strength in GDX to continue this trade as follows:

03/20/2012    STO 3 GDX Apr 21 2012 47.0 Put @ .53                  146.75
04/20/2012    BTC 3 GDX Apr 21 2012 47.0 Put @.63                   -201.24
04/20/2012    STO 3 GDX May 19 2012 45 Put @.97                     288.70
05/14/2012    BTC 3 GDX May 19 2012 45 Put @3.46                   1050.24
05/14/2012    STO 3 GDX Jun 16 2012 45 Put @3.99                    1194.68
06/01/2012    BTC 3 GDX Jun 16 2012 45 Put @1.20                   - 372.25
06/01/2012    STO 3 GDX Jul 21 2012 43 Put @1.60                      467.74

We were able to roll out and down two strikes for a  net credit of $95.49. This increases  the amount of option premium collected on this trade to $474.14. If put to us our cost basis will be down to $41.42. This ETF is presently trading at $45.84. Although GDX is volatile this is a nice cushion and we have multiple rolling opportunities available to us if need be. If these puts expire worthless we will earn $467.74 in 4 months on ~$3000 in margin maintenance. This equates to a return of 15.6% or 49.8% annual.

This trade demonstrates the power of put selling. When I entered this trade GDX was just below 50 which I incorrectly thought was a strong support level. At one point during this transaction GDX had fallen below 40. Weak hands were flushed but I stuck to my guns. Some would say I was foolish, however, there were so many strikes to roll out and down to I was not going to be a weak hand who bought high and sold low.

I'm not out of the woods on this trade yet, however, I am feeling like I'm in the driver's seat. I'm learning that when a stock tanks, the volatility and the premiums increase thereby creating opportunities for enhanced returns. It seems odd that some of my greatest returns are on trades that initially went against me. Many seasoned traders would have been "prudently" stopped out.

Note: Why didn't I hold the June puts to expiration and drain all the time value and take advantage of the great time decay in the last two weeks? Two reasons: 1) when the opportunity presented I wanted to roll down and out 2 strikes and get paid ~$100 to do it; and 2) I'm going to be on vacation options expiration week and I don't want to have any trading concerns on my mind. Silly reason? Obviously I don't think so. :)