Trade Highlight #7

In this episode of Trade Highlight we discuss a Naked Put on a troubled real estate company. The trade itself lasted for just a few days but it had the potential to take a few weeks or even months. I made sure I was covered and ready to sit out a longer period, however Mr. Market decided to reward me in the short term.

Last week we discussed an Index option on the AEX (Dutch stock index). You can read this post via this link. To see the details about that trade go to #91 on my Options Page.

Introduction

Here is the option I will discuss this week:

-P UBL 19 JUL 2019 €120 €2,17

You can find the details about this trade on number #88 on my Options Page.

On the 27th of June I decided to take another look at Unibail-Rodamco-Westfield. A French real estate company that has hit low after low this past year. Due to declining visitors to malls and thus the declining value of their real estate the price has declined from €190+ to €127 (at that time, now it’s around €120). After doing multiple successful short term options with this company I decided it was time for another.

Background information

I sold a put option without having the intention to buy 100 shares at €120. The expiration date was just 23 days away from when I sold the option, meaning a significant amount of time value would disappear from the option premium. I had a margin of safety of about 5/6%, which I deemed was enough because the stock is traded on the Dutch exchange and I’ve followed to stock for about a year. This gave me a bit of confidence to trade this option in the short term.

Check how I use a Margin of Safety via this post.

After selling the option on the 27th of June at a stock price of around €127, the market actually rallied for a few days. This was very fortunate timing. Stock prices kept going higher for 2/3 days, while the interest rates on bonds kept declining, which has been a weird phenomenon this year. Lower interest rates are great for real estate companies as their many loans cause less interest to be paid. This caused Unibail-Rodamco stock to go up over 3% in one day.

Needless to say, when the stock hit €134 on the first of July I decided to buy back my option. I did this at a price of €0,37. Including fees I made (€217-€2,50-€37) = €177,50 in four days, which included a weekend where the market was obviously closed.

Long story short

I sold a naked put option on Unibail-Rodamco-Westfield. This is a real estate company which is traded on the Dutch stock exchange, I followed the stock for over a year. I decided to sell an option with a timespan of 23 days and a margin of safety of around 5/6%.

After two workdays of rallying stock markets and lower interest rates the stock went op from €127 to €134. This in turn lowered the option premium from €2,17 to €0,37, netting me a profit of €177,50 in four days including a weekend.

I never intended to buy the 100 shares, I was however prepared to sit out the 23 days and potentially having to roll the option. Fortunately Mr. Market decided it was not necessary and gave me the possibility to buy back my option within two days.

To find more information about options CLICK HERE.

For any questions regarding options, leave them down below in the comment section or simply hit me up on any of my social media channels!

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4 Comments

    • DutchIndependence

      Hi SD, thanks for your comment! I love these trades a lot too, as you can imagine. How have your trades been going, any news?

      DI

      • Currently I’m just letting time decay doing it’s thing. Closing them for a profit isn’t really an option (yet) as most of my options are currently in the red because the option premiums increased big time with the recent market volatility.

        But I actually do enjoy these last 2 weeks. I’m still relatively new to options and the last 2 weeks I was able to learn a lot and get some nice experience. I’m confident it with help me become much more profitable going forward.

        • DutchIndependence

          Hi SD,

          Great to hear you’re still in the game! The volatility has thrown some punches that’s for sure. It might be a nice time to average down (same way as with stocks) or to sell some new options for higher premiums.

          Your attitude is the right one: there is no problem yet, you could just have earned slightly more premium. Just wait it out, let the Theta do its thing and wait till the stocks go your way!

          Good luck!

          DI

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