Options Expiration – January 2020

I came into 2020 with a light load of equity exposure and that low percentage of my invested cash is only going lower today. I had three option contracts expire today and sold one new one.

Two of my option contracts were on IWM where I had a strangle using an IWM January $160 naked put and an IWM January $164 covered call. Technically, I guess that’s not an exact strangle since I was long 100 shares of IWM, but you get the point. My put expired worthless and my covered call will be assigned, forcing the sale of my 100 IWM shares more than $5 below where it’s trading this afternoon.

I bought my IWM shares at $171 when I was assigned a naked put. Including that original put I sold in September 2018. IWM was trading at $171.63 back then, more than $2 higher than it is today. I held my shares through the nosedive that ended on December 24, 2018 and continued selling covered calls when the timing seemed right. I brought in $1,209 in premiums through this series of trades and will end with a realized gain of $508.56 (not counting dividends). That’s a small gain over 16 months, but it’s better than the loss I would’ve had if I had bought the shares instead of selling a put.

I could’ve rolled the covered call higher and further out on the calendar, but opted to wipe the slate clean and start over. If I thought the rally in stocks had more legs, I would’ve rolled the call, but I expect to see a little drop in prices soon. I’d be more apt to sell another naked put if I saw IWM below $166 soon. For now, I’ll continue to watch the gains slip past me.

My third option contract to expire today was on QQQ. As with my IWM position, I could’ve and maybe should’ve adjusted it sooner. My one QQQ January $200 naked put expired worthless nearly $23 out of the money. I’ll have a realized gain of $408.39 from this trade.

Since I only had these three January option contracts in my account, my account would’ve had no exposure at all after today. While I expect at least a small drop in prices, I didn’t like the idea of not having any money invested in this account. While QQQ was trading at $222.75, I sold one QQQ February $223 naked put for $3.80 and received $387.40 after paying $0.60 in commission.

I sold the February expiration because I want to start rebuilding my staggered option expirations. If I sold the March expiry, I would probably only add to March when I replace my IWM puts. By selling the February expiry, I don’t feel I need to go out to April with my subsequent trades. 

I sold this put in the money because it is my only position. If stock prices drop, this QQQ put will be my only source of losses. If stocks continue to rally, I’ll be glad I pushed for a little more risk with this trade. If QQQ ends February 21 above $223, I’ll make 1.77%, 18.03% annualized. If QQQ moves lower, I’ll save only 1.63% before I take a loss. My cost per share if exercised would be $219.13, which happens to be where the trend line of higher lows and the 20-day moving average will be in a few days.

I don’t have any limit orders in place right now, but might enter some over the next few trading days to try to catch a dip lower. I’ll decide how everything looks after the long weekend.