Yesterday our first two Cloudflare put option contracts (strike: $60; expiration: 19MAR2021) were purchased to close on a standing limit order. Cloudflare (NET) is highly recommended by our newsletter service because it is well positioned to grow as more information and content is shared online. Since October 2020, NET has doubled so option prices are attractive. Cautious to a quick reversal, I positioned this option contract position to only be in the money if the NET share price fell 26%.
Source: MarketWatch.com
The contract was due to expire in a bit more than 6 weeks, but our limit order purchased to close the position for $151.37. By my calculation that purchase price reflects a 10% annualized return, my standard threshold for closing limit orders. Over the eight days of holding the position we earned 1.1% of the $12,000 collateral required to hold the cash-covered put option position ($127.25); 48.4% on an annual basis.
Since February began (today is 4FEB), I have closed four option contract positions and this NET position was the longest-held position – it was active for just 8 days. We have seen significant valuation growth in the markets over the past week and I am happy to have closed these positions for modest gains (roughly $590 on collateral of $44,750). As markets continue to move ever-higher, our portfolio is at a record high and I’d like to have more liquidity (today’s available cash was roughly 13% of the portfolio); the NET position liquidation liberated almost 1.5% of our portfolio.