Put Option on CREE

Type: naked short put
Margin requirement (as of 8/4/2014): $457.50
(While this is technically a naked trade, I have the available funds if I were to be assigned. CREE is a growth stock that I wouldn’t mind owning.)

08/04/14 STO 1 CREE Sep20 2014 40.0 Put @ 0.52
Comm = 1.54
Credit: $0.52

This trade could turn out a few ways:

Max Profit $52 – $1.54 = $50.46 Max profit occurs if CREE is greater than 40 on expiration day, which is September 20. Max Profit = Net Premium Received – Commissions Paid
Max Loss $4000 + $1.54 – $42.46 = $3951.08 Max loss occurs if CREE goes bankrupt before expiration day, which is September 20. Max loss = stock drops to $0
Breakeven Point $0 Breakeven point occurs at 39.48. Breakeven Point = Strike Price of Short Put – Net Premium Received
Possibly Assigned Shares varies At any point when the stock is trading for less than 40 I could be assigned 100 shares at $40/share.

As always, I will look to manage this trade for at least a 50% profit ($26). And, as with the LULU trade, management might involve rolling for credit to extend duration and/or lower strike price. The ultimate goal in that situation is to increase net credit in order to reduce cost basis if I should be assigned.

Update (8/15/2014): Despite CREE dropping over $4 after their earning announcement, volatility still contracted a lot, and I was able to buy the put back for 50% of what I sold it for. I probably could (should?) have waited a bit longer since after commissions my profit is 44%, though still not bad considering I made that much in only 11 days and risked only about $460! That’s a great return-on-profit however you look at it! I’m trying to be mechanical and not overthink things too much. I’d hate to have some bad news come out and lose any profit I did have!

08/15/14 BTC 1 CREE Sep20 2014 40.0 Put @ 0.26
Commission: $1.53

Profit/Loss: $22.93

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