One of the biggest decisions to make when selling options is picking the right strike price. What’s considered the right strike price isn’t a one size fits all. Some investors (I’m saying “investors”, not “traders” because I don’t look at my approach as short-term enough to actually be called trading) might want the maximum premium intake possible while others might want to avoid seeing their options ever go in-the-money (ITM). I try to walk that line of aiming for the highest possible premium intake while trying not to take many option assignments. I can generally stomach my options going ITM as long as I believe support is still close by. I’m pretty happy with how I worked my November options. Aside from the NDAQ options I closed early yesterday for only a few dollars profit, the rest ended much better.
FWLT gave me a little scare as it continued its slide from yesterday. It made it down to $31.45 this morning before returning above $32.00 (my strike price) briefly. Finally, by 3:30 I had enough waiting (especially after seeing it below $28 just a few weeks ago) and entered a limit order to close my two naked puts if they made it back up closer to $32.00 again. Just a couple of minutes later, while FWLT was trading at $31.98 I bought to close my two FWLT November 32 naked puts (UQIWF) for $0.05 each and paid $21.49 with commissions. After originally taking in $298.50 for these options I made a profit of $277.01. If I wasn’t closing my TD Ameritrade account I probably would have rolled these to December expiry or taken the risk of having the options assigned, but that’s not my situation so I had to deal with it earlier than I wanted to. FWLT ended up closing at $32.01 for the day, but when I checked at 4:01 it was still showing $31.97. The after hours settling pulled it higher so I ended up wasting $21.49, but even if I had waited until 3:59 to place my order I would’ve made the same move. FWLT was clearly one of the stocks that was getting pushed around today by the bigger option players.
The underlying stocks for the rest of my options were close enough to their strikes to make me think I did a pretty good job picking the right strike when I sold each naked put.
- EEM Nov 40 puts – EEM closed at $40.66, making my option the closest strike out of the money.
- QLD Nov 50 puts – QLD closed at $53.58, giving me a decent cushion by expiration, but a few weeks ago QLD fell below $48 which made me glad at the time that I hadn’t aimed higher. In the end, I could’ve aimed higher, but the stress might not have been worth it.
- SSO Nov 36 puts – SSO closed at $36.63, making my option the closest strike out of the money.
- UWM Nov 23 puts – UWM closed at $24.93, making my option one dollar lower than the closest out of the money strike. UWM fell below $23 a few weeks ago when it found support, so I felt comfortable at the level.
This is my last options expiration with TD Ameritrade. I’m excited about working in the cheaper pastures of Interactive Brokers next month. I’ve sent a portion of my cash in and can start trading in the account on Tuesday.