Sunday, January 6, 2019

Options Update: December 2018 (Part 2)

December was a busy month for options trading, so my December Options Update article is split into three parts.

Part 1 presented new covered calls. Given increased volatility in the markets and with stock selling off, in December I decided to sell covered calls on most of my DivGro positions. In all, there were 32 covered call trades, which added options income of just more than $5,000 to my options income tally.

In Part 2, I'm covering new put contracts and one options assignment. I'm also taking a look at options expiring soon, mainly to see if I need to take any action before the 18 January expiration date. Part 3 will wrap things up with some protective trades and I'll review my 2018 options goal.

New Put Contracts


Selling put options allows me to set the price I'm willing to pay for a stock I want to buy. In effect, I get paid while waiting for the share price to drop!

Unsurprisingly, I did not sell many put contracts in December as the market generally went down. 

Below is a snapshot showing the put options trades executed in December:



For each sold put contract, I'm indicating my willingness to buy 100 shares of the underlying stock at the strike price, until and including the options expiration date.

MO, AAPL, PM

#2742018-12-06:-1×PM 18 Jan 2019 $80.00 P $ 160.00 ( $  -0.79 )
#2882018-12-14:-1×AAPL 18 Jan 2019 $160.00 P $ 375.00 ( $ -0.79 )
#2892018-12-14:-1×MO 18 Jan 2019 $52.50 P $ 181.00 ( $ -0.79 )

#274 : 2018-12-06: Sold to Open 1 Contract of Option PM Jan 18 2019 80.00 P

I'm willing to buy 100 shares of Phillip Morris International (PM) for $80.00 per share on or before 18 January 2019. PM closed at $84.00 per share on the date of my trade:

Open Date :  2018-12-06
Expiration Date :  2019-01-18    Number of Days in Trade : 43
Price at Close :  $84.00 per shareDiscount at Strike Price : 4.76%
Strike Price :  $80.00 per share
Number of Contracts : 1Number of Shares :100
Put Premium :  $1.60 per shareOptions Income : $160.00
Commission : -$0.79
Net Premium :  $1.592 per shareNet Options Income : $159.21
Options Yield :  1.90%Annualized Options Yield : 16.10%
----------------------------  ----------------------------------------------------  -----------
Commission if Exercised : $0.00
Cost Basis if Exercised : $78.39Discount if Exercised : 6.68%

This put option trade yields 1.90%, or 16.10% on an annualized basis. At $84.00 per share, PM yields 5.43%, so I'm boosting dividend income by a factor of 2.97. If the option is exercised, I'll buy 100 shares at a cost basis of $78.39 per share, a discount of 6.68%.



#288 : 2018-12-14: Sold to Open 1 Contract of Option AAPL Jan 18 2019 160.00 P

I'm willing to buy 100 shares of Apple (AAPL) for $160.00 per share on or before 18 January 2019. AAPL closed at $165.48 per share on the date of my trade:

Open Date :  2018-12-14
Expiration Date :  2019-01-18    Number of Days in Trade : 35
Price at Close :  $165.48 per shareDiscount at Strike Price : 3.31%
Strike Price :  $160.00 per share
Number of Contracts : 1Number of Shares :100
Put Premium :  $3.75 per shareOptions Income : $375.00
Commission : -$0.79
Net Premium :  $3.742 per shareNet Options Income : $374.21
Options Yield :  2.26%Annualized Options Yield : 23.60%
----------------------------  ----------------------------------------------------  -----------
Commission if Exercised : $0.00
Cost Basis if Exercised : $156.24Discount if Exercised : 5.58%

This put option trade yields 2.26%, or 23.60% on an annualized basis. At $165.48 per share, AAPL yields 1.76%, so I'm boosting dividend income by a factor of 13.37. If the option is exercised, I'll buy 100 shares at a cost basis of $156.24 per share, a discount of 5.58%.



#288 : 2018-12-14: Sold to Open 1 Contract of Option MO Jan 18 2019 52.50 P

I'm willing to buy 100 shares of Altria (MO) for $52.50 per share on or before 18 January 2019. MO closed at $51.87 per share on the date of my trade:

Open Date :  2018-12-14
Expiration Date :  2019-01-18    Number of Days in Trade : 35
Price at Close :  $51.87 per shareDiscount at Strike Price : -1.21%
Strike Price :  $52.50 per share
Number of Contracts : 1Number of Shares :100
Put Premium :  $1.81 per shareOptions Income : $181.00
Commission : -$0.79
Net Premium :  $1.802 per shareNet Options Income : $180.21
Options Yield :  3.47%Annualized Options Yield : 36.26%
----------------------------  ----------------------------------------------------  -----------
Commission if Exercised : $0.00
Cost Basis if Exercised : $50.68Discount if Exercised : 2.29%

This put option trade yields 3.47%, or 36.26% on an annualized basis. At $51.87 per share, MO yields 6.17%, so I'm boosting dividend income by a factor of 5.88. If the option is exercised, I'll buy 100 shares at a cost basis of $50.68 per share, a discount of 2.29%.


For selling puts, I like to see a dividend boost factor of 5.00 or more unless I can buy shares at a discount of at least 10%. The put options trades on AAPL and MO match this expectation, but the trade on PM does not.

Assigned Options


When an options holder exercises an option, it is said to be assigned.

In December, the following option was assigned:

#2522018-10-29:-1×IP 21 Dec 2018 $42.50 P $ 162.00 ( $ -0.79 )

Yet another assignment, this time of International Paper (IP), a packaging and paper company founded in 1898 and based in Memphis, Tennessee.

The stock traded below $40 a day before the $42.50 put expired, when the option was assigned. The assignment handed me 100 shares of IP at $42.50 per share, while I received $161.21 for selling the option. So, the effective cost basis is $40.80 per share.

Expired Options


In December, no options expired.

Rather than waiting for expiry, I closed some options early and rolled a few forward. In Part 3 of this article, I'll discuss these defensive moves.

Options Expiring Soon


Below I'm listing options expiring in the next two months. On expiration day, in the money options will result in options assignment, which I'd like to avoid in some cases, if possible.

January 2019:

#2892018-12-14:-1×MO 18 Jan 2019 $52.50 P $  181.00 ( $ -0.79 )→ In the money by  4% — caution! 
#2882018-12-14:-1×AAPL 18 Jan 2019 $160.00 P $ 375.00 ( $ -0.79 )→ In the money by  7% — caution! 
#2842018-12-06:-1×VYM 18 Jan 2019 $85.00 C $   80.00 ( $ -0.34 )→ Out of the money with a  7% safety margin 
#2742018-12-06:-1×PM 18 Jan 2019 $80.00 P $ 160.00 ( $ -0.79 )→ In the money by  13% — caution! 
#2512018-10-25:-3×GILD 18 Jan 2019 $80.00 C $ 304.00 ( $ -1.16 )→ Out of the money with a  15% safety margin 
#2492018-10-23:-1×TSM 18 Jan 2019 $40.00 C $ 114.00 ( $ -1.09 )→ Out of the money with a  13% safety margin 
#2482018-10-19:-2×PG 18 Jan 2019 $85.00 C $ 695.00 ( $ -0.83 )→ In the money by  9% — caution! 
#2472018-10-19:-3×NKE 18 Jan 2019 $70.00 P $ 558.00 ( $ -3.84 )→ Out of the money with a  7% safety margin 
#2452018-10-12:-2×WBA 18 Jan 2019 $72.50 C $ 615.00 ( $ -0.83 )→ Out of the money with a  4% safety margin 
#2362018-10-12:-2×AFL 18 Jan 2019 $42.50 P $ 252.00 ( $ -1.58 )→ Out of the money with a  6% safety margin 

February 2019:


#2962018-12-28:-1×JPM 15 Feb 2019 $105.00 C $ 154.00 ( $ -1.09 )→ Out of the money with a  4% safety margin  
#2942018-12-27:-1×WSM 15 Feb 2019 $55.00 C $   75.00 ( $ -0.34 )→ Out of the money with a  8% safety margin 
#2932018-12-27:-1×JPM 15 Feb 2019 $105.00 C $   98.00 ( $ -1.09 )→ Out of the money with a  4% safety margin 
#2922018-12-27:-1×IP 15 Feb 2019 $42.50 C $ 105.00 ( $ -1.09 )→ At the money  — caution! 
#2762018-12-06:-1×SBUX 15 Feb 2019 $70.00 C $ 132.00 ( $ -0.79 )→ Out of the money with a  9% safety margin 
#2632018-12-06:-2×INTC 15 Feb 2019 $55.00 C $ 106.00 ( $  -2.53 )→ Out of the money with a  14% safety margin 
#2562018-12-06:-1×AAPL 15 Feb 2019 $200.00 C $ 167.00 ( $ -0.79 )→ Out of the money with a  26% safety margin 
#2542018-11-01:-2×FL 15 Feb 2019 $45.00 P $ 660.00 ( $ -1.61 )→ Out of the money with a  22% safety margin 

Four options expiring in January are in the money. Three are put options, so I'll have decide if I want to buy shares of MO, AAPL, and PM; or sell my PG shares.

Concluding Remarks


In Part 2 of my December 2018 Options Update article, I presented a few put options trades, as well as the single options assignment that happened in December. The three put options I sold generated options income of $714.

Selling puts in a volatile market is challenging, as the chance of assignment increases significantly. As long as I stick to my mantra of only selling puts on stocks I want to own (and at strike prices I'm willing to pay), assignment is not a bad thing.

I opened a position in IP this month due to an options assignment. The stock yields nearly 5% and its dividend is considered Safe, according to Simply Safe Dividends.

In Part 3 of this particle, I wrap things up by presenting some defensive trades, including closing trades and a few rolled options trades. I'll also review how I faired with my 2018 options goal, and recap my 2019 options goal. 

Thanks for reading! Please subscribe to receive an e-mail whenever I post new articles.
Feel free to comment on this article — I'll do my best to respond
to each comment as quickly as possible.

No comments :

Post a Comment

Please don't include irrelevant links in comments. I will mark such comments as spam and the comment won't be published. To make me aware of your blog or website, comment on my Blogrole page instead.

Contact Form

Name

Email *

Message *

Follow by Email