Coming into today’s option expiration, I had three contracts set to expire. My only put was on MSFT at the $115 strike, around $14 out of the money. My IWM $158 strike covered call was out of the money by roughly $4 and my XLF covered call was only a nickel in the money. I expected a little sell-off today as traders hid before the weekend out of fear of a random tweet that would spook the market. With that thought, I didn’t wait until the end of the day to make my two replacement trades and that appears to have been a good idea.
My MSFT May $115 naked put expired worthless, giving me a realized gain of $334.32. I’m waiting to sell a replacement naked put on MSFT to see if it dips some first. The premiums weren’t very good for the out of the money strikes and I don’t want to sell in the money on it. I might go back in with another ETF option instead of MSFT or any other individual stock. Either way, I didn’t pick a next step yet. Now that the market has closed for the day, I just looked back on the MSFT put premiums and see the July $125 premiums aren’t too bad any longer. I’ll have to revisit this idea on Monday.
My IWM May $158 covered call expired worthless too, giving me a realized gain of $250.36. I didn’t wait to replace this call. While IWM was trading at $154.13, I sold one IWM July $158 covered call for $2.41 and received $240.32 after paying $0.68 in commission. I opted to sell nearly $4 out of the money to give me more upside if the market bounces. If stocks don’t recover and we see prices move lower, I’ll be happy that I didn’t replace my MSFT naked put yet and will be able to put that cash to work at lower prices. That tradeoff will make the sting of not selling a lower strike covered call a little easier to digest. If stocks rally, I’ll be happy I left a good chunk of upside potential in my position. If my call is exercised, I’ll earn 4.07%, 23.38% annualized. If the call isn’t exercised and IWM stays flat, I’ll earn 8.96% on an annualized basis for capping my earnings potential.
My two XLF May $27 covered calls gave me a reason to pause for a minute. I thought about letting my 200 shares get called away since XLF spent most of the day between $27.00 and 27.10. I thought about waiting until the last minute to see if XLF would fall below its strike and save me from having to pay to close my May calls. After a few minutes of weighing the choices, I decided to go ahead and roll the calls. However, the only near-term expiry was in June. I wanted to push it out to July, but those contracts won’t be available until Monday. So, while XLF was trading at $27.06, I bought to close my May calls and at the same time sold two new XLF June $27 covered calls. My limit order was for $0.52 on each combination and I received $99.34 after paying $4.66 net in commission. The two orders hit 12 seconds apart, even though I entered them together. I paid $0.08 for one of the May calls and $0.09 for the other. That means I received $0.60 for one of the June calls and $0.61 for the other.
As luck would have it, an hour and a half after my trades hit, XLF started to crack. It closed for the day at $26.88, which means I didn’t have to buy back my May calls since they would’ve expired worthless. The June calls’ bid/ask finished at $0.51/.054, so I know I could’ve sold these for $0.52. The end result is I paid a few bucks extra in commission at the most.
If my 200 shares of XLF are called away, I’ll earn 1.99% or 20.25% annualized, based on where XLF was trading when my order hit. If XLF sinks again, at least I cut almost $0.50 per share from my losses.
Sometimes selling before the end of the day works out and sometimes you miss out on a few bucks. I’m glad I made my trades when I did because my new IWM covered calls finished with a bid/ask of $2.03/2.07, which means I’m ahead $36 or so on paper (although the drop in IWM’s share price this afternoon is greater than that). If I’ve learned anything trading for the past 20+ years, it’s not to sweat the minor swings that cost you a few bucks on occasion. It all works out in the wash over enough trades.