Options Expiration – July 2020

Today’s options expiration decision making took me about three seconds. I only have one option left for July expiration, my one IWM July $123 naked put. It’s more than $23 out of the money and expiring worthless to give me a realized gain of $803.34. 

IWM was trading at $124.52 when I made the trade and late in the trading day today, IWM is at $146.62. After mid-June, the low trades were in the $136-137 range as it bounced along in a sideways trading channel. On Wednesday, IWM pulled above its trend line of lower highs, but I’m not convinced we aren’t going to see it move lower before we break out meaningfully.

Due to my concern about the downside risk and limited upside risk, I’m not replacing this option yet. If I see IWM move $4 lower, closer to its longer-term trend line of higher lows, I might sell a new naked put when support looks legitimate. 

I don’t understand why stocks are moving higher by this much with such little regained or expected to be regained in earnings over the next year or two. I might be biased since I live in Georgia where our governor (Kemp) is overriding local laws for facemask requirements and continues to push us deeper into a petri dish. Without lowering contagion risks, schools won’t open for in-person classes and restaurants and other service industry businesses can’t thrive. If those businesses are hurting, people can’t go back to work anywhere close to how it was last year. If they aren’t working, they aren’t buying as many goods and services, which means lower profits for companies. Eventually, this will mean lower stock prices, even if we have a widely available vaccine next year.