Options Expiration – January 2018

I only had two options left to expire today, one IWM January $148 naked put and one QQQ January $153 naked put. Both are far out of the money and will expire worthless. I’ll have a realized gain of $340.32 on the IWM put and $286.32 on the QQQ put. IWM was trading at $148.59 when I made this trade compared to $158.16 as I write this update midday today. QQQ was trading at $154.28 when I made that the QQQ trade compare to $166.05 midday today. Clearly, I could’ve sold these in the money and made a lot more money, but considering I made these trades the day after my mom died and at the end of a stellar year for stocks, I didn’t want to take a big risk, especially when my head wasn’t fully in the game.

I plan to replace both expired puts with new naked puts soon, but have been waiting for a down day to pull the trigger. I’m afraid I’ll continue to wait for something that won’t come to fruition until prices have pushed even higher and risks have increased even more. I’m not sitting around doing absolutely nothing at least. I did roll my NFLX naked put earlier this week and this morning, my new order for a WMT naked put hit.

I traded on WMT last year beginning right after Amazon announced its purchase of Whole Foods and traders panicked about various retailers’ futures. I didn’t buy into WMT’s doom and gloom and jumped in with a naked put. I thought I made a few trades on WMT, but I just looked back at my trades in Quicken and saw I only sold one August $75 naked put. Like my puts that expired today, I was far too cautious. I went the other direction today. While WMT was trading at $104.09, I sold one WMT March $105 naked put for $4.20 and received $419.32 after paying $0.68 in commission.

I sell puts in the money on rare occasions. The reduced risk of selling out of the money is always appealing to me, but sometimes I can talk myself into accepting some extra downside risk. I placed this WMT order yesterday when WMT was around $104.05 and still climbing after gapping higher at the start of the day. I thought it would fill in the gap (meaning it would decline in price to its previous intraday high before resuming its move higher) and my order would hit within a week. Instead, it dropped only slightly, and my order hit before the stock pushed higher again. I’m so far underinvested right now that even if I lost on this trade, I have so much cash on the sidelines that I could buy in at the lower prices and hang on for the eventual run higher. Of course, I’d rather this trade just work for me.

If WMT finishes March options expiration at or above $105.00, I’ll have a gain of 4.16% (26.38% annualized). Even though I sold the put in the money, WMT can drop 3.15% before I lose any money. It’s a lot easier to sell in the money when you still have more than a 3% cushion. If assigned, my cost would be $100.81. That cost would be close to where I think WMT could bottom if it revisits its trend line of higher lows. Beginning with the intraday low from November 16, 2017 through nearly a dozen days since then where this line has held support, WMT looks like it won’t fall below $100 on any weakness near-term. The trend line isn’t so steep that it creates an unsustainable trajectory.

Before placing my limit order for the $105 strike, I checked out the $100 strike. It had a decent annualized gain of 12.02% and a cost per share if assigned of $98.12. I opted not to aim lower and safer since I still believe in WMT’s future based on its improving online presence (including a tie-in with Google Express) and the technical analysis I mentioned above.



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