Options Expiration – March 2019

I only had two options set to expire today. Both were covered calls and both were in the money. My IWM call was deeper in the money while my XLF covered call had a profit off and on during the afternoon. I started with my IWM call and then rolled my XLF calls.

I don’t have a high degree of confidence that the rally in small caps can keep going without more of a drawdown first, but I’m somewhat sticking to my plan to sell out of the money covered calls on shares that I own. While IWM was trading at $155.29, up $0.94 on the day, I bought to close my one IWM March $151 covered call for $4.31 and sold one IWM May $158 covered call for $2.51. I paid $0.64 in commission, which brought my net payment to $181.28 to roll the option.

I received $214.33 when I sold the March call in January, so I ended up taking a loss of $217.31, including commissions on both trades. IWM was trading at $145.77 back then, so I got roughly $8 of the $10 gain in the ETF after balancing out my premiums received and paid. It’s not ideal to miss out on gains, but it’s hard to be upset with a 5.5% gain in two months.

If my new May call is assigned, I’ll earn $521.36, which is a 3.36% gain and 19.18% annualized. The reason I said that I was “somewhat” sticking to my plan is because I’ll earn 9.21% annualized from the premium alone if IWM stays flat by expiration. My plan was to sell calls that would net a 5% gain when not assigned. The reason comes back to my lack of confidence that this pace of gains can continue.

My XLF calls showed a loss most of the day, but in the late afternoon, XLF weakened enough to allow my limit order to earn a tiny profit for me. While XLF was trading at $26.54, I bought to close my two XLF March $26 covered calls for $0.55 and paid $110.74, including $0.74 in commission.  When I sold these March calls two months ago, I brought in $113.17 after commission. To save your calculator work, that’s a $2.43 profit, enough for the cost of gas to get to my girlfriend’s house, but not the return trip. I made this trade separate from my new covered calls trade to make sure I could earn a profit, even if just a couple of bucks. Had XLF not dropped enough for my order to hit, I would’ve let my shares get called away for the same reason I hesitated on my IWM strike. XLF might have limited upside, if any upside at all. It’s stuck under its 200-day moving average that it hasn’t closed above since October, more than five months ago.

Since I’m only risking about $5,300, I decided to sell out of the money calls for May. While XLF was trading at $26.54, I sold two XLF May $27 covered calls for $0.47 and received $91.56 after paying $2.44 in commission. Like my IWM covered call, my annualized return of the premium only is much higher than my plan accounted for. If XLF stays flat, I’ll earn 10.11% annualized from the premium alone. If assigned, I’ll earn $172.50, which is 3.24% or 18.53% annualized.

As much as I’m questioning how much is left in the current stage of the bull market, I had to force myself to sell these out of the money calls. I might not have done it if I was fully invested, but with $14,134 unused in cash, I opted to give myself less of a cushion on my current positions. If prices fall, I can put the remaining 16% of my account to work at lower prices.