Friday, September 27, 2019

Expired Options (September 2019)

I had several options that expired on Friday, 20 September.

When options expire, I no longer have associated obligations. For puts, there no longer is a chance that I would have to buy shares and the margin that was set aside as collateral gets released. For covered calls, there no longer is a chance that my shares will be called away.

The options premium I collected become free and clear, also known as secured. Since I started options trading to boost DivGro's dividend income, I've secured options income totaling $38,865.

This article discusses what happened with my options that expired in September.

Recap


Here is a summary of the options that expired on 20 September, as presented in last month's Options Update article.

September 2019:

#3812019-08-02:-3×PFE 20 Sep 2019 $40.00 C $ 138.00 ( $ -2.39 )
→ Out of the money with a  9% safety margin  
#3802019-08-02:-1×MRK 20 Sep 2019 $80.00 P $ 110.00 ( $ -1.09 )
→ Out of the money with a  4% safety margin  
#3792019-08-02:-1×MDT 20 Sep 2019 $97.50 P $ 158.00 ( $ -0.80 )→ Out of the money with a  13% safety margin  
#3682019-07-16:-2×ORCL 20 Sep 2019 $55.00 P $ 152.00 ( $ -0.99 )
→ In the money by  4% — caution!  
#3672019-07-16:-2×CSX 20 Sep 2019 $72.50 P $ 150.00 ( $ -0.99 )
→ In the money by  2% — caution!   
#3542019-05-28:-2×DAL 20 Sep 2019 $50.00 P $ 310.00 ( $ -1.00 )
→ Out of the money with a  19% safety margin 
#3492019-05-22:-2×ADM 20 Sep 2019 $35.00 P $ 110.00 ( $ -0.75 )
→ Out of the money with a  19% safety margin  
#3482019-05-20:-1×SNA 20 Sep 2019 $140.00 P $ 260.00 ( $ -1.10 )
→ Out of the money with a  11% safety margin 
#3412019-05-15:-1×INTC 20 Sep 2019 $40.00 P $ 105.00 ( $ -0.80 )
→ Out of the money with a  29% safety margin 
#3342019-04-04:-1×HRL 20 Sep 2019 $45.00 C $ 121.00 ( $ -0.30 )
→ Out of the money with a  5% safety margin 
#3072019-02-20:-2×ADM 20 Sep 2019 $45.00 C $ 234.00 ( $ -0.98 )
→ Out of the money with a  7% safety margin 

Note that two out of twelve positions were in the money, Oracle (ORCL) and CSX (CSX).

ORCL


On 20 September, I noticed that ORCL was trading below $54 per share. Since ORCL was trading just a little below the $55 strike price of the puts I'd sold, I decided to roll forward one of the puts and wait for the other one to be assigned.

The 17 January 2020, $52.50 strike price put option paid $213, while it cost me $107 to buy back the expiring $55 put option. Net of commissions, I collected $103.

After expiration, the other put option got assigned and I bought 100 shares of ORCL for $55 per share. Since I collected $75 for selling the option, my effective cost basis is $54.25. The buy adds $96 to DivGro's projected annual dividend income (PADI).

CSX


CSX traded below $69, well below the $72.50 strike price of the puts I had sold. Rather than to get assigned, I decided to roll forward both options. Two 17 January 2020, $70 strike price put options paid $820, whereas it cost me $546 to buy back the expiring $72.50 put options. Net of commissions, I collected $270.

At $69, CSX's current dividend yield of 1.39% is 13% below its 5-year average of 1.60%. Perhaps now is not the best time to buy shares. On the other hand, the market is valuing CSX similarly to how it has in the past, so CSX could be fairly valued:

Source: Simply Safe Dividends

Let's see in January at what price level CSX is trading.

The Remaining Options


The good news is that the remaining options all expired worthless (to the buyers of the options), so I secured options income totaling $1,719! Since my obligations "expired" along with the options, I can now consider selling similar options to collect more options income!

Calls

Pfizer (PFE) is trading at $36.22 per share, a little below my cost basis of $37.05 per share. I'll look sell three more $40 covered calls next week.

Hormel Foods (HRL) is trading at $43.54 per share, well above my cost basis of $34.74 per share. I think I'll consider the $46 strike price this time around.

Archer-Daniels-Midland (ADM) is trading at $40.94, well below my cost basis of $45 per share. I'll look to sell two more $45 covered calls soon.

Puts

At $82.91 per share, Merck (MRK) is trading below my $83.47 cost basis. MRK is a high-quality dividend growth (DG) stock with a perfect quality score of 25, so I'm willing to pay $80 per share. I'll sell another $80 put soon.

Medtronic (MDT) closed at $107.32 per share on Friday, 27 September. This is well above my cost basis of $91.12 per share. With a quality score of 24, MDT is another high-quality DG stock. I'm willing to pay up to $100 per share, so I'll look for a suitable put strike price soon.

At $40.94, Archer-Daniels-Midland (ADM) is trading well below my cost basis of $45 per share. I wouldn't mind lowering my cost basis, so I'll look to sell a $40 put (or two) soon.

Snap-on (SNA) closed at $155.34 on Friday, 27 September. I would like to own more shares (I currently own 25 at a cost basis of $150.12), but the stock's price is a little high for my taste. I think I'll consider selling a single put at a strike price of $145. If assigned, I'll lower my cost basis and I'll be able to sell a covered call and collect more options income.

I already own 500 Intel (INTC) shares, so I don't want to sell INTC puts again.

Concluding Remarks


I secured options income totaling $1,719 from expired options in September. I rolled forward some options, in the process collecting another $373. One put option got assigned and I added 100 shares to my ORCL position, increasing DivGro's PADI by $96. 

I'll be looking to replace some of the expired trades with new ones in the coming weeks... rinse and repeat

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