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.

Trade Continuation: GDX Naked Puts

Last week I continued my GDX investment 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

In this latest option roll I was able to get paid $38.26 to roll down a strike AND to reduce my exposure to 2 contracts. By reducing the number of contracts we were able to reduce our maintenance requirement from ~$3200 to ~$2100 thereby freeing up money for other trades. In addition, our percentage return on maintenance increases with the reduction in required maintenance.

It had never occurred to me before to reduce the number of contracts as I roll down and out. Props to Teddi Knight at FullyInformed.com for sharing her experience and insight in that regard.

We have now collected $512.40 in option premium on this trade. Our cost basis if put to us is down to $39.44/share. While this ETF has sunk to new lows recently our cost basis is below that.

The September expiration will make this trade 6 months old. If the shares expire worthless we will earn $512.40 on an average of ~$2600 in margin maintenance. This equates to a return on maintenance of ~19.7% or or 39.4% annual.

Profitable Trade: GDX Naked Puts

On Friday I closed the following transaction for a net profit:

03/19/2012   STO 3 GDX Jun 16 2012 45 Puts@.99   284.71
06/07/2012   BTC 3 GDX Jun 16 2012 45 Puts@.68  -216.28
06/07/2012   STO 3 GDX Jul 21 2012 42 Puts@.99    284.71
07/20/2012   BTC 3 GDX Jul 21 2012 42 Puts @.55  -177.28

In this trade we generated $175.86 in 4 months on ~2600 in margin maintenance. This equates to a return of 6.76% or 20.29% annual. This trade shows the power of naked puts and the ability to roll them down and out for a net credit. Even though GDX continued to tank throughout this transaction we were able to still turn a profit.

This one was a bit too much of a  wild ride for my temperament, however, so I will probably return to trading blue chip stocks with a rising dividend. Right now I'm watching the weakness in MSFT and INTC closely. If MSFT drops below 29 and INTC gets in the low 24's it will be hard not to pull the trigger on some new naked put trades. 

Trade Continuation: GDX Naked Puts

Yesterday I continued the following transaction:

03/19/2012   STO 3 GDX Jun 16 2012 45 Puts@.99   284.71
06/07/2012   BTC 3 GDX Jun 16 2012 45 Puts@.68  -216.28
06/07/2012   STO 3 GDX Jul 21 2012 42 Puts@.99    284.71

I took the opportunity with the recent strength in GDX to roll out and down 3 strikes for a net credit of $68.43. We have now collected $353.14 in option premium. If put to us at the new strike our cost basis will be $40.82. Not bad considering GDX was trading at 50 at the time we entered into this trade.

If these puts expire worthless we will earn $353.14 in 4 months on an average of ~$2300 in margin maintenance. This equates to a 15.35% return on maintenance or ~46% annual.

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. :)

Patience me boy...patience

It looks like we're heading to a higher open so I doubt I will enter into any new positions today. The stocks I am looking at right now are Sysco, Intel, Microsoft, Southern Company, Proctor & Gamble, Lowe's and Johnson & Johnson. Rising dividends for all.  I also have one eye on Exxon Mobil.

I am waiting for some fear and/or panic selling to kick in. I would be looking at the June strike but I will be on vacation during that expiration and frankly I don't want the concern. As such, I'm looking at the July and August strikes.

With the recent pullback, out of the money puts with adequate premiums have become more in line with support levels. One or more large days in the red ought to provide more than enough "Oh my God" type opportunities. Swing at the fat pitch. Patience me boy....patience.

Re my GDX trades: If I can roll down and out my GDX June 45's to July 43's and get a net credit of greater than $100 I will probably take it. If I do, I feel I'm in the driver's seat for these to end up as profitable trades. BTW past experience made it clear not to bail on GDX when it was tanking as I felt they were flushing out the weak hands. In addition there were so many strikes to roll out to there were multiple continuation strategies. Finally, the fundamentals are/have been in place for rising precious metals.

Trade Continuation: GDX Naked Puts

Well this one has been a wild ride. :) GDX is trading at ~41.50/share at the time of this writing. I continued the transaction 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

We rolled out for a net credit of $144.44. We have now brought in $378.65 in option premium. Our cost basis @ the 45 put strike is now $43.73. I considered rolling out and down for a net credit to the September 43 puts but I didn't want to commit to that much time.

There are plenty of strikes to roll out and down to if need be. Whatever we do it will only be for a net credit. Are we near the bottom? If not we will deal with it after all the time value has been drained from this continuation trade. The maintenance on this trade has increased to ~$3500.

We might want to roll down and out for a credit while lowering the number of contracts to 2 when the opportunity presents itself.

Trade Continuation: GDX Naked Puts

Today on options expiration Friday I continued the following transaction:


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

GDX has trended downward and was at ~46.40 when I continued this transaction. After draining every drop of time value I rolled out one month and down two strikes for a net credit. Margin maintenance on this trade is ~$2800. If these puts expire worthless we will earn $234.21 in 61 days which is an 8.36% return on maintenance or 50% annual. At the close GDX dropped down to 46.10. The precious metals miners have not been able to get much of a bid. Sentiment is very low and most of  the weak hands have had to have been scared away. In the event GDX continues its downward descent I will look to roll out and down again for a net credit. If put to us our cost basis will be $44.21 so we still have some breathing room in this trade. We will have time decay over the weekend and I won't look to roll down and out until I've wrung every drop of time value out of this trade.

Note: when these puts went into the money, margin maintenance increased to ~$3200 which will lower the returns

Thoughts on GDX Trade...

I've always wanted online authors to reveal their thought patterns when a trade seemingly goes against them. Alas, there head is usually in the sand. I'm bucking the trend with this post.

Well GDX has fallen below support and seems to be consolidating at ~46. I sold the April 47 puts @.53 in one account. There is still some time decay to be had and I'm going to gobble it all up before deciding what to do next. Next Friday at expiry I'm looking to roll out and down to the May 45's but only if I can get a worthwhile credit. Otherwise I will roll out and down to the May 46's or July 44's.

Either way I expect a floor to be in place soon. The Fed saying they aren't going to engage in quantative easing for a while is hogwash IMO. Our debt is rising as I type. In any event there are many more strikes that I can roll out and down for a credit. My undefeated streak ain't ending on the gold miners!  :)

Any thoughts?

New Trade: GDX Naked Puts

Today at the close I entered into the following transaction in a taxable account:

03/20/2012    STO 3 GDX Apr 21 2012 47.0 Put @ 0.53                146.75

As stated in my prior post I believe that GDX has reached it's support level of $50/share. I sold these while GDX was trading at ~$49.60/share. If these puts expire worthless we will earn $146.75 in 32 days on margin maintenance of $2,350.00. This equates to a return on maintenance of 6.24% or 71.17%f annual. If this precious metal miners ETF drops we should be able to roll out and down for a net credit. As such, an exit strategy is in place. As long as there is not an immediate drop in price we have time decay working in our favor and our prospects for rolling increase each day.

Note: ITM the maintenance increased to ~$3,000.

New Trade: GDX Naked Puts

This morning in a taxable account I entered into the following trade:

03/19/2012   STO 3 GDX Jun 16 2012 45 Puts@.99               284.71

If these puts expire worthless we will earn a 15.5% return on margin maintenance of $1835.11 in 89 days. This equates to 63.56% annual. GDX is at it's support level of $50/share. These puts are written 10% below that. When there is a strong market without fear these shares have suffered. This trade is based upon the belief that: 1) the market is toppy; 2) precious metals are still in a bull market due to fundamentals and, therefore, buying on the dips is warranted; and 3) support levels have held up well. In the event I'm wrong, I have an exit strategy in place as GDX is a strong candidate to roll down and out for a net credit.

Profitable Trade: GDX Naked Puts

Today in a taxable account I closed the following transaction for a profit:


01/20/2012    STO 4 GDX Feb 18 2012 49 Puts @.57                  214.89
02/02/2012    BTC 4 GDX Feb 18 2012 49 Puts @.03                  -12.05

In this trade we made $202.84 in 13 days on margin maintenance of ~ $3200.00. This equates to a return of 6.34% or 178% annual. I could have waited for these puts to expire worthless but we had drained most of the profit out of the trade and there was no commission at exit. I'm going to be looking for other, more profitable opportunities in this account.

New Trade: GDX Naked Puts

Today with GDX trading at ~52.50 I entered into the following transaction in a taxable account:

01/20/2012    STO 4 GDX Feb 18 2012 GDX 49 Puts @.57                  214.89

If these puts expire worthless we will earn 6.7% in 29 days on a margin maintenance requirement of $3195.88. This equates to 84.3% annual. I was looking at the 48's for .44 but decided to take on a little more risk since this ETF is easy to roll down and out.

Profitable Trade: GDX Naked Puts

Today I closed and took profits in the following transaction in a taxable account:

12/30/2011    STO 3 GDX Jan 21 2012 48 Puts @.5               137.71
01/12/2011    BTC 3 GDX Jan 21 2012 48 Puts @.02               -6.04

We made $131.67 in 12 days on a margin maintenance requirement of ~ $2300. This equates to a return on margin of 5.7% or 173.3% annual. This account is now all cash and we're waiting for the next opportunity. The market is feeling toppy but as we've learned we will let the prices come to us and not chase trades just for the sake of trading.

New Trade: GDX Naked Puts

Today with GDX trading at ~51.70 I entered into the following transaction in a taxable account:

12/30/2011    STO 3 GDX Jan 21 2012 48 Puts @.5               137.71

I feel that precious metals just hit a bottom and will be moving back up. In any event GDX, a precious metals miners ETF,  has shown great support at 50 for quite some time. Writing these at 48 give even more buffer than that. This trade expires in 22 days. The margin maintenance requirement is 2323.97. If these puts expire worthless the return on margin (ROM) is 5.92% or 98.2%.

Trade Continuation: GDX Covered Call

Today I continued a GDX Gold Miner's ETF investment in a traditional IRA as follows:

10/25/2011  10:37:57     Bought 100 GDX @ 56.7268                              -5,682.67    
10/25/2011  10:38:30     Sold 1 GDX Oct 28 2011 56.0 Call @ 1.52               141.23    
10/27/2011  10:52:44     Bought 1 GDX Oct 28 2011 56.0 Call @ 3              -310.76    
10/27/2011  10:53:06     Sold 1 GDX Nov 19 2011 56.0 Call @ 4.1                399.23    
11/10/2011  10:11:02     Bought 1 GDX Nov 19 2011 56.0 Call @ 4.6          -470.76    
11/10/2011  10:12:04     Sold 1 GDX Dec 17 2011 56.0 Call @ 5.75              564.22
12/19/2011  10:15:55     Sold 1 GDX Feb 18 2012 56.0 Call @ 1.5                139.23

With this transaction our amount out of pocket is down to $52.20/share. That's good because the ETF has dropped to 52 and change. We are bullish the precious metals and believe that the recent downturn provides a buying opportunity. In fact we have some GDX puts that we wrote at the 52 strike.

It should be noted that before we entered into this trade we actually collected $489.25 in put money which we are not reflecting in these calculations. In any event, if we get called away in February we will make $380 which equates to 6.9% or ~21.1% annual. If we don't get called away then we'll write new calls, with a good hard look being given to the 56 strike again.

Sold GDX Puts

Today with the DOW down 168 points to just over 12000 and GDX, the gold miners ETF, down to~ $55.50 I entered into the following transaction in a taxable account:

STO 2 GDX Jan 21 2012 52 Puts @ 1.47                    +282.45

GDX has bounced off $52.50 for a year now. We are bullish precious metals and will be happy to own GDX at 50 and change. This might not be the absolute bottom but I anticipate that GDX, like the South, will rise again.

If the puts expire worthless this is a 2.7% return for 40 days or 24.7% annual. For those that give merit to return on margin (ROM) the return is a whopping 21.26% or 194% annual.