Saturday, September 8, 2012

Profitable Trade: GDX Naked Puts

Yesterday I took advantage of the strength in GDX (precious metal miners ETF) and closed the transaction, without a commission 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
07/19/2012    BTC 3 GDX Jul 21 2012 43 Put @1.40                     -432.24
07/19/2012    STO 2 GDX Sep 22 2012 42 Put @2.41                    470.50
09/07/2012    BTC 2 GDX Sep 22 2012 42 Put @.04                        -8.04

This wild ride has come to an end with a profit in tow. We earned $504.36 in 5 1/2 months. Due to the rise in the stock price our average maintenance was lowered to ~2100 in average margin maintenance. This equates to a 24% return or 52% annual.

We rode this trade through a serious decline, a bottom and then a rise. I stuck to my guns and always sought to roll out and/or down for a net credit. In July I was able to roll down and out for a net credit and lower the number of contracts I had in play thereby lowering the amount of capital committed to the trade. Amazingly I got paid to do this.

This trade is my poster child for the power of rolling options. A five and a half month hold is longer than usual for me but at the end it was an educational, challenging and most importantly, a profitable trade.

3 comments:

  1. Hi

    Nice trading. You still made a nice profit even when reducing the number of contracts.

    Have you ever been unable to roll down/out and been assigned 'unwilligly'? I've only just selling out this year but they are always cash secured in case I get assigend on all contracts.

    This of course limits the numbersw of puts I can sell and the profits I can make.

    Selling puts on margin seems very profitable, but too easy (perhaps I'm too suspicious!). There must be some risks that are not obvious with this approach.

    Thanks
    Robert

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  2. Hi Robert, I have never been assigned unwillingly. I'll roll the option before expiration but I think assignment is more common with calls when a party wants to collect the dividend.

    I use only about 50% of my margin to avoid margin calls. There are definitely risks. It's never good if the stock tanks but it can be navigated through.

    Good luck with your trading. Keep us posted :)

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