Today’s options expiration finished quietly for me as I only changed one position in my account. The real action starts next week when November contracts are posted for all of my positions that don’t have them yet. For the most part it went the way I described it earlier in this week in my lead-up summary. I changed my mind on SPY though. I’m not convinced yet that SPY has much more strength to go much, if any, higher. While SPY was trading at 112.45 I bought to close my one SPY September 112 covered call for $0.67 and paid $68.01 with commissions. At the same time I sold to open one SPY November 12 covered call at $4.22 and received $420.99 after commissions.
I had a much lower strike naked put (September 101) expire worthless and was thinking about selling a new one around 110 to make this a strangle, but decided I’d rather see how SPY reacts next week before I add more potential margin to my account. I’ll really just have to regroup next week when the dust of today settles. If you noticed above, I didn’t even sell my covered call out of the money. If it’s called away in November I’ll lose money on the shares themselves, but am more concerned about having more money by then than I have right now. Selling an in the money covered call increases my possibility of that. Selling a covered call in the money by 45 cents leaves me with about $376 more on the $11,200 left to back it. That’s about a 3.35% gain or 20% annualized. I can’t be upset with 20% annualized gains on in the money calls. I might have been more aggressive if I thought the markets had more left to gain, but I just don’t see it yet. If I change my mind I’ll be quick to sell a new naked call. If we see SPY solidly over $113 for a few days, as if it can stay above it, I could see me selling a naked put at $112 to make my position a straddle, a call and a put short at the same strike.
My cost per share for SPY, including all the premiums I’ve received during this series of trades is down to $100.40. I’ll add a new naked put once it drops or gains some and will reduce my cost even further, but if my new naked put results in me buying shares it’ll bring my average cost higher. That’ll just give me more shares to sell covered calls on then.
Personally, I prefer the rapid time decay of the weekly options. Plus you only have to be right for 5 days (if you open them on Monday). SPY and IWM make good candidates.
@ MikeS – I can see the benefits of selling options weekly, but I don’t have the time to manage that right now. I moved to monthly for a while, but found my timing was better for selling second month out instead of first. I prefer to sell 50-75% of my account each month so I’m generally looking at a small portion of potential margin if everything goes against me for two months in a row.