Saturday, December 28, 2019

Expired Options (December 2019)

Two options I'd sold were slotted to expire on Friday, 20 December.

When options expire, the obligations I have related to those options seize to exist. 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.

Expiration creates an opportunity to replace some of the expired options with new ones in the coming weeks. In this article, I provide a summary of expired options and discuss potential replacement trades.

Additionally, I discuss what happened with in the money options that would have expired this month. Sometimes, I decide to roll forward such options to avoid assignment. The alternative is doing nothing and waiting for an assignment.


Here is a summary of the options that would have expired on 20 December, as presented in November's Options Update article:

December 2019:

#4072019-10-18:-2×TROW 20 Dec 2019 $115.00 C $ 339.00 ( $  0.00 )→ In the money by  6% — caution! 

#3732019-07-22:-1×VLO 20 Dec 2019 $100.00 C $ 105.00 ( $ -0.68 )→ Out of the money with a  4% safety margin 

In the article, I noted:
One option expiring in December it in the money and one is out of the money with a small margin of safety, so I'll have to monitor these carefully as the options expiration date approaches.
While Valero Energy (VLO) traded below $100 per share throughout the timeframe leading up to options expiration, the same is not true for T. Rowe Price (TROW).


In fact, TROW traded above $123 per share on 12 December, one day before TROW was to go ex-dividend. With my TROW covered calls deep in the money, the options likely would have been assigned. So I decided to roll forward the covered calls and to protect my dividend.

Buying back the covered calls cost $2,089, so I relinquished secured options income totaling $1,750 ($2,089 - $339). On the other hand, I managed to sell two $120 covered calls expiring in July 2020 for $2,209. Including commissions, the trade netted $116.77 in options income.

 TROW 20DEC19 115.0 C  2019-12-12 
 TROW 17JUL20 120.0 C  2019-12-12 

With TROW still is trading around $123 per share, the new covered calls remain in the money. However, now I have a few more months to see how things develop.


The VLO covered call expired worthless (to the buyer of the option) and I no longer will be obliged to sell my 100 VLO shares. In the process, I secured options income totaling $104!

I now can consider selling another VLO covered call to collect more options income!


Two options I'd sold were slotted to expire in December. I rolled forward the deep in the money TROW covered calls, while the VLO covered call expired. In all, I relinquished secured options income totaling $1,656 but collected new options income of $2,207 net of commissions.

The markets are at all-time highs and a bear could be around the corner, waiting to pounce! This makes me somewhat nervous about options trading in 2020, so I feel I need to be more cautious going forward... 

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