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