Options Expiration – December 2010

I had a mixed options expiration for December with two of my options expiring while the underlying stock was trading above the strike and the other two finished below the strike.  Here are the details:

  • MDY December 145 naked put – This one finished far out of the money and allowed me to let it expire worthless as I (virtually) shifted the cash I had backing it to other option positions I wrote closer to the money.  I might add another MDY naked put for February expiration although I have a January 160 in place already.  If anything it’ll be out of the money since I don’t have the cash to back any additional option assignments.
  • AVAV December 22.50 covered calls – After starting my AVAV position back in April with a couple of put options and then writing covered calls and rolling them a couple of times I’m finally letting my 200 shares get called away.  While I’ll lose $500 on the shares themselves since I lowered my covered calls strike below my original put strike I’ve made enough on the premiums over the past eight months to give me a $602.74 profit on the series of trades.  That gives me more than a 13% profit in just 2/3 of a year.  My goal is to have more trades like this one where I don’t panic and use patience to work the position for a nice annualized profit.  I might get back into AVAV next year after my wash rule limitation passes.
  • VNQ December 56 puts – I’ll start testing my patience right away with VNQ when I’m assigned 200 shares from this option assignment.  My cost per share will be $54.40 after I buy at $56 and deduct the premiums I’ve already received.  VNQ also goes ex-dividend next week for another $046-0.47 in my pocket per share.  I plan to write out of the money covered calls on Monday when the February options are posted.  I’m not sure what strike I’m targeting yet, but plan to make it out of the money with the expectation that it will come back up a little.  I don’t think the upside is too great though since I don’t expect yields to contract much in the near term.  This position will be more focused on dividends and (smaller) premiums over trying to work it into a higher strike than what I paid.
  • BA December 67.50 put – I’ll be assigned 100 shares of BA from my December 67.50 put, so when I saw that nothing crazy was happening at the start of today I made my move to set up my next legs of this position a day before I actually take possession of the shares..  While BA was trading at $64.54 I sold one BA February 62.50 naked put at $2.24 and one BA February covered call at $1.58.  I received $380.57 after commissions from the option strangle.  I see the low $60s as a likely floor for BA so I don’t mind buying more down there if it drops more in the next nine weeks.  The recent high was just under $67.50 and that will be the first hurdle for BA to get back over, but once it does I could see it back up to $72.00 soon after.  BA goes ex-dividend in early February for an expected payout of $0.42 which will help bring my cost per share down even more.  If BA is above my strike by then and my shares are called away before I earn the right to the dividend I’ll be just as happy to exit my position early and free up the cash for other positions.

Along with the four options I had expiring today I had a little surprise hit too.  A few days ago I entered a limit order to close my AFL naked put if its value dropped some more.  This morning while AFL was trading at $55.70 it hit and I bought to close one AFL January 50 naked put at $0.30 and paid $31.01 with commissions.  That gave me a realized gain of $131.98 in half the time I originally planned.  I didn’t see much benefit in waiting another five weeks to have an additional $30.00 in profit after the majority of the premium had already melted away.  I might sell a new naked put on AFL on Monday once I see what the February options look like, but I’m not sure I want to chase it yet.  It might be a better idea to wait for a small dip before jumping back in.

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