Wednesday, June 23, 2010

AKAM naked put sale

This is the one other trade I had on my radar for today. I'm looking at selling either the naked $40 puts, or the 40/39 put spread. Setting the risk at 1% of trading capital near the break point of the trend line near $40 for either scenario leaves me with a $540 net on the naked $40's, or $480-540 on the spread (depending on if I get filled at .10 or .11). The buying power needed is three times as much for the nakeds and obviously leaves you with extreme risk, so I think I just talked myself in to doing the spread. Initially I thought .10 reward for .90 risk and 100 contracts vs. 15 didn't make any sense, but now that I've done the math this makes even more sense, especially if I can get filled at .11. (Update: After my initial write up I took a look at IV. It is relatively low right now to its recent past, so what I did was increased IV by 12 up to its recent past of 55. I'm assuming that a break of that $40 trend line would coincide with a rising IV. Looking at the two alternatives again after increasing IV, the nakeds leave me with a loss of 1.5% of capital at the $40 break and the spread is still at 1% because you have less delta exposure with the spread. So even if I can only get filled at .10 I'm going to go with the spread.)

The light blue lines are copies of the worst down moves the stock has seen in the last six months. It looks like I would need slightly move than steeper drop than any recent history just to touch the uptrend line tomorrow. Earnings are not due until after July OPEX.  I'm going to look for 1-2 more trades to put on because otherwise the $500 I paid for the SPY put spread as directional bet/hedge doesn't make a whole lot of sense. I think I need to shoot for selling at least $2000 of premium on other trades to be giving up $500 on that SPY bet.


  1. I had to put this order in at IB because I don't want to overextend myself with the amount I have in TOS. I used the spread trader feature and it's been sitting there all day not getting filled. I'm signing the ACATS today to finally transfer over to TOS in full.