Options Expiration – September 2019

I had a busier options expiration Friday yesterday than I’ve had in a long time. I had four options make it all the way to expiration and all four went in my favor. Two gave me a full profit and two gave me a partial profit. I’ve been rolling a lot of my options before expiration over the past year, but short-term volatility is so high right now, I would’ve left a lot of time value on the table if I had rolled early, even as late as Thursday afternoon.

My first trade was the easiest. I had one IWM September $158 covered call that was far enough out of the money that I was fairly certain it wouldn’t be assigned, so I left it to expire worthless and I earned a realized gain of $248.32. While IWM was trading at $156.49, around lunchtime, I sold one IWM November $162 covered call for $1.60 and received $158.90 after paying $1.10 in commission. I’m a bit more cautious again and debated my strike longer than usual. I wanted to stick to my plan of aiming for a 5% annualized return if not assigned the option, but went with a strike $1 lower to give me a 6.53% annualized return if the option isn’t assigned. If assigned, I’ll earn 29.14% annualized. By going that far out of the money, I only cut my cost by 0.98%.

A few minutes after my IWM trade, I sold a replacement for my MDY September $350 naked put that appeared to be on track to expire worthless. While MDY was trading at $356.29, I sold one MDY December $355 naked put for $10.50 and received $1,049.73 after paying $0.27 in commission. I almost made the mistake of selling a naked call because for a few minutes I forgot I was rolling a put and not a covered call. I mention this because of the different approach I take when I own the underlying shares versus when I don’t. I was looking at $365 and $370 strike calls, but wasn’t even considering $360 naked puts. For whatever reason, I can’t stomach the same risk when I don’t own the shares. That realization pushed me up to the $355 strike instead of the $350 strike, but I couldn’t force myself into a riskier trade, even though I would’ve done it if I owned the shares, like I did on the IWM trade above.

I went out to the December expiry because November wasn’t available yet for MDY and October was too short for my goals. My trade went through about 25 minutes before the bottom fell out of stocks for 10 minutes. MDY fell more than $3 in that span and I could’ve made a couple of hundred dollars more, but that goes back to the insane recent volatility I referenced above and why I didn’t go in the money on my trade. If MDY finishes December expiry above $355, I’ll earn 3.05% or 12.10% annualized. MDY can fall 3.31% from its price when my trade went through before I take a loss on this contract.

I waited until the final 10 minutes of trading to close my QQQ option strangle. While QQQ was trading at $190.86, my limit order hit to buy back my one QQQ September $190 covered call and my one QQQ September $192 naked put for $2.05. QQQ traded as high as $193.31 in the first few minutes of the day, but took a steady slope lower through the day and dropped $2 in the 10-minute sell-off. The sell-off helped me this time because I was being patient with this combination trade. I wanted to clear out as much time value as I reasonably could with still allowing me enough time to get my second order in before closing. The way it worked out, I earned a realized gain of $134.76 on the $190 call and $272.62 on the put. Anywhere in between $190 and $192 would’ve worked for me to profit on both. It was just a matter of which one profited more than the other and it didn’t matter to me since the net profit was the same.

As soon as that order hit, I started entered my next order and waited. I had to lower my ask a few times, but it finally worked with three minutes to go in the trading day. While QQQ was trading at $191.21, I sold a new QQQ strangle. At the same time, I sold one QQQ November $188 naked put for $4.29 and one QQQ November $196 covered call for $3.06. The combination went for $7.35 and I gave me $731.97 in net premiums after paying $3.03 in commission.

My strangle was lopsided for September because I didn’t add the naked put until the covered call was in the money. This time, I wanted to start with a wider area of potential full profit, so I sold strikes $8 apart. If QQQ moves against either side I might roll the opposite contract closer. If the I earn a full profit on the put, I can add 2.33% (15.17% annualized). If the covered call isn’t assigned, I can earn 10.38% annualized (I went with a higher annualized gain on the unassigned covered call since I have the put at risk too). If assigned, I’ll earn 4.1%, 26.66% annualized. “Winning” on both would be ideal, but if one is assigned, I’ll have the profit from the other half of the trade to help add to my net gain or net cost reduction.