I’ve been selling options for years and I think it’s safe to say that this options expiration period is the most volatile option expiration period I’ve ever been a part of. The following details show how I ended September options expiration and what I expect to do next.
AA closed at $26.79 – AA is trading below my cost, but I’m not done with it yet. (I may lose more still.) The average price including all my option trades on AA since May 7, 2008 (the first trade in this series) is $29.36. That’s including the 200 shares I’ll buy on Monday from the naked put assignment due. Selling October 27.50 covered calls at the current prices will bring me to closer to even if the stock makes it to the strike. November 27.50 covered calls might be a better trade, but they aren’t posted yet for me to plan around.
- Four AA Sep 27.5 Call +AAIY – Good trade, captured extra profit that I wouldn’t have had if I let my other mistakes ride alone.
- Two AA Sep 30 Put +AAUF – Bad trade, 200 shares of AA will be assigned below my cost. I’d have taken a loss of around $500 if I bought it back on Friday.
- Two AA Sep 35 Call +AAIG – Bad trade, I had the right idea to cover my shares with calls, but should’ve sold in the money if not just exited the position for a loss earlier.
BNI closed at $100.71- I’ll end this series of trades with a realized gain of $117.75.
- One BNI Sep 95 Call +BNIIS – Bad trade, I should’ve been more patient and let BNI recover some and sold at a higher strike. I left money on the table. Interesting though – my covered call sold at 5.70 was one penny away from being the closing price on Friday (95 strike + 5.70 premium = 100.70)
- One BNI Sep 95 Put +BNIUS – Good trade, I recouped some of my mistake from setting the strike on the call too low.
CHK closed at $41.73 – My current cost per share is $55.83. I expect to take a loss on the series of trades in the end. I plan to sell covered calls on the 200 shares I still own and sell new naked puts again to either bring my cost down if assigned the shares or cut my overall losses a little if it stays flat or climbs much.
- Two CHK Sep 42.5 Put +CHKUT – Good trade to sell these naked puts, but Bad trade to buy them back exactly when I did. I could second guess timing all day, so I have to give this a good trade overall since I ended with a profit.
- Two CHK Sep 50 Call +CHKIJ – Bad trade, while I took a full profit on these options I should’ve sold at a much lower strike. CHK closed more than $8.00 under my strike. That’s a $1600 difference considering that I have 200 shares.
CMI closed at $58.68 – I’m out of CMI with a profit of $185.51. I’ll consider getting back in at a lower strike next week.
- Two CMI Sep 60 Call +CDMIL – Good trade, finished with full profit.
- Two CMI Sep 60 Put +CDMUL – Good trade, finished with a partial profit. I could’ve made a few dollars more if I hadn’t exited exactly when I did, but I’m happy to have closed for a profit Friday afternoon.
DRYS closed at $55.15 – I’ll be assigned 200 shares at $65.00 and will have a cost of $61.16. Selling October 60 covered calls sets me up for a profit by the time this series of trades is over.
- Two DRYS Sep 65 Put +DQRUM – Bad trade, if I had bought the option back I’d have taken a loss of nearly $1,200 on Friday.
FCX closed at $73.52 – I’ll be assigned 100 shares at $85.00 and will have a cost of $80.52. Premiums are rich for the next two months. I can sell October 80 or November 75 covered calls and set myself up for a profit.
- One FCX Sep 75 Call +FCXIO – Good trade, recovered some of my losses from the bad naked put trade and set the strike only $1.48 below Friday’s closing price.
- One FCX Sep 85 Put +FCXUQ – Bad trade, if I had bought this naked put back on Friday I would have taken a realized loss of more than $850. I should have sold at a much lower strike.
JOYG closed at $54.78 – I have a cost of $65.07 including the first naked put I sold on June 3, 2008 that got me into this situation. I’m sitting on a $1k+ paper loss and expect to end the series with a loss. At this point, I don’t plan to get in deeper with any new naked puts.
- One JOYG Sep 50 Put +JQYUJ – Good trade, recovered some of my losses from the multiple bad trades I’ve made in this series.
- One JOYG Sep 70 Call +JQYIN – Bad trade, I had the right idea to sell this call in the money, but should’ve just taken my loss back then on the stock and gotten out or at least sold a deeper in the money covered call.
QCOM closed at $48.74 – I’ll be assigned 200 shares at $52.50 and will have a cost per share of $50.51.
- Two QCOM Sep 52.5 Put +AAOUX – Bad trade, I’d have taken a loss of more than $350 if I bought it back on Friday.
USO closed at $82.63 – I’ll be assigned 100 shares at $90.00 on Monday with a cost of $85.21. I’ll be able to sell covered calls to give me a paper profit, but I’m not even going to guess what the price will be when my option expires. I think I’ll be able to work this to a profit in the end, but I don’t know when that will be.
- One USO Sep 90 Put +UNAUL – Bad trade, I’d have taken a loss of more than $200 if I bought it back on Friday.
VIP closed at $23.30 – The 400 shares I’m long with a cost of 23.44 will be called away with my final set of covered calls I sold at the 20 strike. I’ll take a loss on the series of trades of $2,294.62. I could see me working on VIP again after the 30 day wash rule passes.
- Four VIP Sep 20 Calls +VIQID – Bad trade, I picked the wrong strike for this trade so poorly that I left more than $1,000 on the table. I should have known better since VIP is so volatile. VIP actually broke 25.00 on Friday before falling back. At the same time as I’m bothered that I didn’t make the best possible trade, I won’t be surprised to see VIP below 20 again next week. Worth mentioning too, I still have 200 more shares in my IRA that I only had September 25 calls on. Those are still sitting long in my account now.
- Four VIP Sep 25 Calls +VIQIE – Good trade, I took a full profit on these options and had I not sold the extra calls in the bullet just above this, I’d be ready to sell new covered calls to bring me to a profit on the series.
I noticed you don’t tend to roll your ITM puts. Is this because you’d rather make the call income instead of the additional time premium on the puts? Can’t you take better advantage of your margin leverage by staying the the puts? Just curious as to your thoughts on this piece of your strategy.
I have a couple of reasons (and neither may be good). One is the tax side of it, does rolling with a loss to the next new one put you in a position to not be able to write off losses on taxes?
The second is that I don’t tend to find the exact best price by rolling always. If I buy back one and try to sell another quickly, I lose some time value and come out a few dollars behind. I’d rather take the stock and possibly sell a slightly out of the money call to gain back some intrinsic value with the time value.
I have been tempted to change my model to buy back puts when they are at a loss and not get back in, considering that these stocks have likely fallen below my pre-planned support level if the options are in the money at expiration. FCX is a good example of one I should’ve taken my profits and run. Same with DRYS based on how it traded today.
I’ll have to research the tax question. I’ve gotten into options fairly blind to the tax consequences. Probably a bad idea come February.
As for this statement:
“If I buy back one and try to sell another quickly, I lose some time value and come out a few dollars behind.”
Can’t that be mitigated by trading as a strategy instead of single options?
Whether or not to attempt a repair is a decision I’m constantly wrestling with myself.
I probably could use a better trading stategy on these, but still think of myself as a partial investor more than a real trader. If I take ownership of the stock it’s because I believe in the company’s stock still and don’t mind owning for a longer hold.
I don’t think that “wrestling” with the decision will ever be an easy one.