Sold ADI Naked Put for November

I’ve been looking for a good entry point for ADI again after I closed my September $95 naked put early last Wednesday. After a brief bounce higher over the past three days, ADI fell to $90.56 in the first 20 minutes of trading today. I didn’t have an order in place before the day’s trading began and missed the low, but I was able to get an order in just a couple of minutes before the close.

While ADI was trading at $92.52, I sold one ADI November $92.50 naked put for $3.00 and received $299.76 after paying only $0.24 in commission. The price drop this morning came from a downgrade by an analyst on fears of how the tariffs will affect ADI and other chip stocks. I can handle further weakness if it means getting into a good stock at a discount, so I entered an order that I thought would hit tomorrow at the earliest.

The bid/ask for my new put option was $2.70/3.10 when I entered my order for $3.00. It triggered a trade almost instantly and the bid price moved up to $3.85, which placed my trade close to the midpoint of the bid/ask. I knew I had a longshot chance of the order working sooner than later, but I didn’t think it would hit that quickly. The bid size was close to 1,250 and the ask size was 750, give or take 30. When I see an unbalanced bid and ask size for a contract, I push for the higher end of the range with my orders to see if someone will bite on the low supply of sellers. It worked this time, but it doesn’t always.

After peaking in early June, ADI has been in a downward sloping trading channel. I’m not a fan of trying to catch a falling knife usually, but I see likely support coming in around $88.50 – 90.00 where the longer-term trend line of higher lows offers potential support. If the upper $80s doesn’t hold support, $86.50 looks good too based on a trend line of higher lows that hasn’t failed since it began 14 months ago. If the trend lines don’t work this time, the 100-day moving average is at $85.43 and still ascending. 

I could see this position move to a paper loss for a month or longer if the chart’s predictions don’t work out for me near-term, but I think the downside is limited based on ADI’s dominance in the industry. If things really go bad due to tariffs, there won’t be a good place to hide, so I might as well be in a stock that will already be more than 13% off its high at my purchase price minus premiums.

My cost per share if assigned will be $89.50, which gives me a cushion of 3.26% from the price of ADI when my trade went through. If ADI can stay above $92.50 at expiration, I’ll earn 3.35% or 22.92% annualized. I haven’t sold many options with an annualized return over 20% lately, so it’s good to drop one in every once and a while to take a riskier trade to pump up my overall returns. Most of my trades used to have annualized returns over 20%, but the older I get and the more money I have at risk, I don’t like to take as many risks.