Handling Deep In The Money Naked Calls – Investor Questions On Baidu Stock (BIDU)

Sometimes trades that we enter get away from us. They either move too quickly or we react too slowly. Sometimes when a trade is starting to turn against us we wait, hoping the trade will turn back our way and we will still get out with our profit intact. Most of the time that doesn’t happen.

An investor emailed wondering about his trade in Baidu stock which trades on the NASDAQ under the symbol BIDU. When he sold naked calls he did not imagine the stock would push higher by almost 25%.

Who Is Baidu?

Baidu Inc. is a Chinese-language Internet search provider that focuses on customers as well as Baidu Union members. Similar to Google, Baidu has an estimated 800,000 searches a day. The company makes its income primarily from advertising and online marketing of small to medium size companies. The company trades at 38.1 times price to earnings which is on par with Google which trades at 36.5 times price to earnings.  Book value is $22.88 per share with earnings of $5.38 per share and free cash flow of $6.59 per share.

In The Money Naked Calls

The investor who emailed, is holding deep in the money naked calls due to expire in January. Let’s review his question and look at some answers.

Investor Questions:

I’ve got myself into a pickle managing a trade.  I sold the Bidu January $160 call during a recent roll.  Bidu is hovering around 200 now and it looks like I can roll up and out to the January 2018 $210 or $220 call for a small credit.  I have taken in $17.75 in credits over the past 5 months.  I am worried about being so far in the money and wondered if you have any advice.  Thanks in advance….Tony

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Handling Deep In The Money Naked Calls

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Disclaimer: There are risks involved in all investment strategies and investors can and do lose capital. Trade at your own risk. Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed and presented are financial or trading advice or recommendations. Everything presented and discussed are the author’s own trade ideas and opinions which the author may or may not enter into. The author assumes no liability for topics, ideas, errors, omissions, content and external links and trades done or not done. The author may or may not enter the trades mentioned. Some positions in mentioned stocks may already be held or are being adjusted.


 

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