SO LONG QUALCOM

I Should Have Picked A Different Example. It turns out that Qualcom wasn't a good example to use to illustrate the process of selling naked put options. In the best case scenario, the price of the stock holds steady or increases slightly. In the worst case, it drops like a rock and you have to either buy the option back or resign yourself to owning a stock at considerably below the current market price. In this case, it did neither. The stock gradually dropped from the original $38.87 to yesterday's price of $37.55.

The Price of the Put Option Also Dropped Slightly. As of yesterday, the price of a put option was $.50. Remember, we want the price of the option to drop since this gives us a chance to buy it back for less than we sold it for. I had a number of alternatives at that point. I could have held on and hoped that the price of the stock would either hold steady or increase slightly. I could have also bought back the option and either written a new one for March and pocketed another $600 as either a profit or a hedge for when I eventually had to buy the stock at $37.50. There were other alternatives which I won't discuss at this point.


I Got Boring Of It. That bit of unusual grammar came from my grandson when he was four years old and decided to abandon a book he was reading. For several reasons, I made the decision to exit the position. I didn't like the fact that the stock didn't appear to be following increasing market trends and I didn't want to own another 1000 shares. (I didn't mention that I own 1000 shares of qualcom in another account.) So I bought back the stock for a measly $300 profit. While this is a long way from a home run, 300 bucks will buy my next airplane ticket to Denver and it was created with virtually no capital expenditure. In case you think that brokerage commissions will take all my profit, let me explain that I use a low cost on-line brokerage and I paid $15 when I sold the option and another $15 when I bought it back so my overall gain is $270 and I am off to make another trade.

I Am Not Sure This Exercise Was Valuable to My Readers. I'm not sure I dd a good job of explaining the dynamics of this type of trading strategy. It is easy to become bored with so much rhetoric to explain a process that sounds so simple but contains a number of decision points. Perhaps this is a better topic for a seminar with charts, etc than it is for a written description. I will think about this before offering additional examples.

The Weather Here is Beautiful. Temperatures are in the 70's and I can see numerous premature azalea blossoms out my office window. The camellias are in full bloom outside the living room window. Its far too beautiful to spend a lot of time inside trading options. I'll try to dream up something more interesting for my next post.