I earned 14.9% in 15 weeks while the underlying stock fell by 8%
With the stock at $100.53, I bought back my 20 March 65 naked puts on BIDU for $37 apiece or $760 after commissions. These options had been sold for $160 each (3,170 after commissions) on Sept. 11 when the stock was at $109.44.
Net profits after commissions amounted to $2,410, a nominal return of 14.9% for the 15-week holding period on cash margin requirements of $16,240.
So why did the option go down so much when the stock itself fell? Because these were 65-strike naked puts and when they were originally sold, there was a little more than six months to go before expiration. Now there is less than three months to go and the stock price drop from $109.44 to $100.53 isn't nearly on pace for BIDU to be all the way down to $65 by the third Friday in March. So of course the option price fell precipitously which is money in my pocket.
12/26/2012 10:20:57 Bought 20 BIDU Mar 16 2013 65.0 Put @ 0.37 -758.34
NO, LYING PINOCCHIO (yes, a redundancy). here's EXACTLY when you posted that transaction (one week AFTER the fact, not "real time"):
BIDU replaces GE in the non-bank naked put-writing portfolio
by fizrwinnr11 . Sep 18, 2012 3:30 AM . Permalink
On Sept. 11 with the stock at $109.44, I sold 20 contracts of the BIDU Mar. 65-strike naked puts for $160 apiece. The contracts fetched $3,190 after commissions with cash margin requirements at my brokerage being $16,240. If the stock can simply remain over the margin-safe price of $73.15, the return if held to March expiration will be a nominal 19.0% which is at the pace of 38.0% for a year. With an almost-certain early out, the annualized return should be about 45% on this investment. Keep in mind that the strike price here is just SIXTY-FIVE.
09/11/2012 14:05:50 Sold 20 BIDU Mar 16 2013 65.0 Put @ 1.6 3,188.58