Options expiration, naked puts on ABX, JPM, FCX, MT, MOS, BX, COP, AU & more

Due to other projects I’ve had little time in recent months to spend in the markets apart from placing limit orders to sell below-the-market put options (adjusted to reflect the recent price action of the underlying stocks) as I do on most days prior to the opening. I then check back later, or after the market close, to see if anything triggered during any downdrafts. Needless to say, since late last year – when the S&P 500 began an almost 30% move up – this has resulted in few new short put option positions. Until now.

The market’s recent decline and the move in the VIX back up to more normal levels (in the 20s) have given rise to many interesting put selling opportunities. And in recent days I’ve had a slew of my limit orders to sell naked puts being triggered. These include naked puts on ABB Ltd. (ABB), AngloGold Ashanti (AU), ArcelorMittal (MT), Banco Santander (STD), Baxter International (BAX), Blackstone Group (BX), Chesapeake Midstream Partners (CHKM), ConocoPhillips (COP), Ensco (ESV), Exelon (EXC), France Telecom (FTE), Gold Fields Ltd. (GFI), JPMorgan Chase (JPM), Molson Coors (TAP), The Mosaic Company (MOS), Nucor (NUE), NuStar Energy (NS), Pan American Silver (PAAS), Republic Services (RSG), Silver Wheaton (SLW), Stanley Black & Decker (SWK), Teva Pharmaceutical (TEVA), and Total (TOT).

In terms of this and last month’s options expirations (April and May), all of my short put options positions expired out of the money. As a result, I ended up collecting the full premiums from the original put option sales as profits. And since these positions are now expired, I’m no longer obligated to potentially be put the underlying stock and in fact, with the recent market weakness, am now looking to re-establish naked put option positions in several of these same underlying stocks:

AT&T (T) – Some April 25-strike put options I sold against T on 9/6/11 for $1.65 expired OTM for a 7-month net return of about 6.4%.*

Caterpillar (CAT) – Some May 40-strike put options I sold against CAT on 10/4/11 for $2.75 expired OTM for a 7-month net return of about 6.7%.*

Cisco Systems (CSCO) – Some April 15-strike put options I sold against CSCO on 7/29/11 as part of a roll-out and down of an earlier position expired OTM for a net return of about 4.5% in 13 months.*

E. I. du Pont de Nemours and Company (DD) – Some April 28-strike put options I sold against DD on 10/3/11 for $1.75 expired OTM for a 6-month net return of about 6%.*

Freeport-McMoRan (FCX) – Some May 20-strike put options I sold against FCX on 9/29/11 for $1.85 expired OTM for an 7-1/2-month net return of about 9%.*

Stanley Black & Decker (SWK) – Some April 40-strike put options I sold against SWK on 9/22/11 for $3.10 expired OTM for an 8-month net return of about 7.5%.*

Walgreen (WAG) – Some April 28-strike put options I sold against WAG on 9/28/11 for $1.60 expired OTM for an 8-month net return of about 5.5%.*

Closed/Adjusted positions:
American Eagle Outfitters (AEO) – On 5/2/12 I bought back (for $0.10) some January 2013 10-strike LEAPS put options I had sold against AEO for $2.00 on 8/26/11 as part of a roll-out and down of an earlier position, for a net return on the position of about 3.6% in 12 months.

Barrick Gold (ABX) – On 5/16/12 I bought back some January 2013 45-strike LEAPS put options I had sold against ABX on 2/2/12 and then sold an equal number of January 2014 35-strike LEAPS put options as part of a roll-out and down risk reduction trade in this gold exposure position. This trade now reflects a net break even at an ABX price at $35 or above – a price at which I would be willing to begin a core long exposure to the underlying stock and, indirectly, gold.

* As always, the return on sales of cash secured or naked put options was conservatively calculated based on the option premium received from the sale of the options (minus commissions) against the unmargined capital set aside to pay for the possible option assignment (i.e., my being put the shares of the underlying stock).

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