Options Expiration – August 2019

The only option I had in my account that will expire today was one QQQ August $187 covered call. Knowing that it will expire worthless this afternoon (giving me a reduction of my average cost per share of $2.27), I sold a new covered call on my QQQ shares this morning. While QQQ was trading at $184.55, I sold one QQQ September $190 covered call for $2.30 and received $229.40 after paying $0.60 in commission.

QQQ was up close to $2 when I made this trade, but the NASDAQ Trust ETF added another $1.40 within the next hour and 20 minutes. So, I could’ve made more on my trade this morning if I had waited, but that could be the case any day with any trade. At some point, we have to make our trades and understand that not every trade (or not even the majority of trades) will be timed perfectly.

Luckily, trading is not a job that requires perfection as much as consistency. As traders, we tend to perform better over time if we don’t try to completely time every trade to perfection, but instead, we make educated decisions and stay invested in the best positions we can identify on the day we make the trade. Hiding from trades and fearing losses is no way to manage an investment account for the long-term. I’ve been guilty of not being invested enough sometimes, but I always have skin in the game to some extent.

I only went out to the September expiration because I already have a QQQ September $192 naked put in place and wanted my put to line up with it. By selling this QQQ September $190 covered call, I can manage the two contracts together more easily. If QQQ stays below $190, my shares won’t be called away, but I’ll also be assigned another 100 shares. If QQQ rallies above $190 and my new covered call is assigned, I’ll gain on my deep in the money $192 naked put along with my 100 shares for another $4.45 in intrinsic value plus the premiums I received. If QQQ is between $190 and $192 at expiry, I’ll have to decide which side, the put or the call, that I want to buy to close. I could exit both sides and start over, but that decision can wait until I see what the market and the economy look like closer to that time.

Based on where QQQ was trading when my order went through, I can make 4.20% if this option is exercised. That’s 41.95% annualized. If it’s not exercised and QQQ was magically still trading at $184.55, I would make $1.24%, 12.42% annualized. Not counting the naked put I’m short, I could add another $774.40 if QQQ pushes above $190 by September expiration. My $192 naked put was trading over $8 this morning, so I could add another $600-800 from it too. On the other hand, if QQQ sinks, at least I sold the premiums to help cushion the fall.