Monday, December 2, 2019

Options Update: November 2019 (Part 1)

Welcome to my November article summarizing my options activity!

Each monthly update summarizes options trades and I keep track of my options income. It also serves as a status report on open options and the obligations I have.

My goal in 2019 is to collect $21,000 in options income. Happily, I've already achieved that goal and I'm now seeing if my options income might exceed my dividend income in 2019.

Part 1 of this month's article covers an options assignment and several expired, closed, and rolled options. Part 2 will present covered calls and put options trades, as well as a spread trade that I closed early.

Recap


Through the end of October 2019, I collected options income totaling $21,541 in 2019 at an average of about $2,154 per month. This was well ahead of my monthly target average of $1,750. 

Below is a snapshot of November's trades, which included an assignment, nine expirations, six trades to close options early, and seven trades to roll forward options. 



Assigned Options


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

#3902019-09-20:-2×INTC 15 Nov 2019 $55.00 C $ 168.00 ( $ -1.59 )

On 5 November, the option holder of the INTC $55.00 calls I'd sold decided to exercise the options. On that day, Intel (INTC) closed at $57.24 per share, some 4% above the strike price.

As a consequence of the assignment, I sold 200 (of 500) INTC shares for $55.00 per share. This investment generated total returns of 59%, which works out to about 22% on an annualized basis. Selling 200 INTC shares reduced DivGro's projected annual dividend income (PADI) by $252.

The transaction cut my INTC position by 40%. The remaining position of 300 shares has an average cost basis of $22.68 and an average yield on cost of 5.55%. My INTC position now equals 1.93% of total portfolio value and it has unrealized returns totaling 190%.

INTC currently yields 2.18% at $57.69 per share.

The transaction secured about $166 in options income. (Options income is secured when I no longer have associated obligations).

Expired Options


In November, the following option expired:

#4032019-10-01:-1×SNA 15 Nov 2019 $145.00 P $  260.00 ( $ -0.35 )
#4012019-10-01:-1×MRK 15 Nov 2019 $80.00 P $  127.00 ( $ -1.58 )
#3972019-10-01:-2×ADM 15 Nov 2019 $40.00 P $ 228.00 ( $ -1.00 )

#3912019-09-20:-3×INTC 15 Nov 2019 $45.00 P $ 129.00 ( $ -3.83 )
#3772019-07-25:-2×MS 15 Nov 2019 $42.00 P $ 263.00 ( $ -0.85 )
#3652019-06-28:-1×UTX 15 Nov 2019 $115.00 P $ 222.00 ( $ -0.80 )

#3622019-06-28:-2×CL 15 Nov 2019 $65.00 P $ 248.00 ( $ -1.00 )

#3602019-06-28:-2×ABBV 15 Nov 2019 $60.00 P $ 224.00 ( $ -1.00 )
#3432019-05-15:-2×SO 15 Nov 2019 $45.00 P $   88.00 ( $ -0.99 )

For details on these expirations, please read this article.

I secured options income totaling $1,778 with these trades. 

Closed Options


When an out of the money option goes further out of the money, you can close the option early and secure most of the options income.

#3842019-08-14:-1×TIF 17 Jan 2020 $85.00 P $    769.00 ( $   -1.66 )
#3632019-06-28:-2×EMR 20 Dec 2019 $60.00 P $    374.00 ( $   -9.19 )
#278b2018-12-06:-3×TJX 17 Jan 2020 $45.00 P $ 1,309.50 ( $ -33.00 )
#2322018-09-05:-1×MGM 17 Jan 2020 $28.00 P $    405.00 ( $ -21.73 )

Tiffany (TIF) jumped 6% on 25 November after LVMH (LVMHF) reached a deal to acquire Tiffany for $135 per share. The $85 put option I'd sold was (very) deep out of the money, yet I managed to close it early by buying back the put for $1, securing about $767 in options income in the process!

The $60 put options on Emerson Electric (EMR) also were deep in the money, so I decided to buy back the options for $8 and secure about $365 in options income. While EMR offers a Safe dividend (with a Dividend Safety Score of 78 according to Simply Safe Dividends), its dividend growth rate is so low now that I'm no longer interested in owning EMR.

With TJX (TJX) trading near its 52-week high, I decided to close out my short options position early by buying back the January 2020, $45 put options for $33. The trade secured $1,277 in options income and I no longer have the obligation to buy TJX at $45 per share.

Finally, I'm no longer interested in owning MGM Resorts (MGM), and with the $28 put options deep in the money, I decided to close this short position early by buying back the $28 put option. In the process, I secured $383 in options income.

I wouldn't mind adding to my TJX position, so I'll see if I can sell more TJX put options soon. As for the other stocks, I'm not interested in selling additional put options at this time.

There is a pair of closing options trades that I'll cover in Part 2 of this article:

#1792018-05-11:-2×DIS 17 Jan 2020 $100.00 P $ 1,845.00 ( $     -6.59 )
#1782018-05-11:  2×DIS 17 Jan 2020 $130.00 C $ 4,438.00 ( $ -712.94 )

This is a spread trade, which I want to cover in more detail.

Rolled Options


Rolling forward options means buying back an option and selling another option with a later expiration date. You can do this to avoid options assignment for in the money options, or to collect more options income for out of the money options.

I rolled forward the following options this month:

#4282019-11-26:-1×WMT 19 Jun 2020 $100.00 P $       158.00 ( $          -0.65 )
#3662019-06-28:-1×WMT 20 Dec 2019 $100.00 P $       213.00 ( $          -3.44 )→ #428
#4192019-11-26:-1×LLY 17 Apr 2020 $100.00 P $       140.00 ( $          -0.65 )
#3762019-07-25:-1×LLY 17 Jan 2020 $85.00 P $       106.00 ( $          -7.74 )→ #419
#4162019-11-13:-2×XOM 17 Apr 2020 $75.00 C $       194.00 ( $          -1.69 )
#3862019-08-16:-1×XOM 17 Jan 2020 $80.00 C $         33.00 ( $          -4.69 )→ #416
#3742019-07-22:-1×XOM 17 Jan 2020 $80.00 C $       127.00 ( $          -5.32 )→ #416
#4132019-11-13:-5×SKT 19 Jun 2020 $20.00 C $       120.00 ( $          -3.73 )
#3522019-05-24:-3×SKT 17 Jan 2020 $20.00 C $       188.00 ( $        -26.08 )→ #413
#3512019-05-22:-2×SKT 17 Jan 2020 $20.00 C $       112.00 ( $        -16.78 )→ #413
#4122019-11-13:-1×PM 19 Jun 2020 $100.00 C $       102.00 ( $          -0.65 )
#3172019-02-22:-1×PM 17 Jan 2020 $105.00 C $         95.00 ( $        -10.43 )→ #412
#4112019-11-13:-1×JNJ 20 Mar 2020 $140.00 C $       163.00 ( $          -0.65 )
#2442018-10-12:-1×JNJ 17 Jan 2020 $150.00 C $       518.00 ( $        -11.28 )→ #411
#4092019-11-13:-2×ABBV 15 Jan 2021 $90.00 C $    1,310.00 ( $          -1.52 )
#3582019-06-28:-2×ABBV 15 Nov 2019 $80.00 C $       303.00 ( $   -1,332.34 )→ #409

On 26 November, Walmart (WMT) traded above $119 per share, so the $100 put option I'd sold was deep out of the money. I decided to roll forward the option to the June expiration date to collect more options income. Net of commissions, the trade secured $210 in options income, and I collected an additional $l57 in options income for selling the June 2020, $100 put option.

With Eli Lilly (LLY) trading above $117, the $85 put option I'd sold was deep out of the money on 26 November. I decided to roll forward the put option to April 2020 and, simultaneously, to increase the strike price to $100. The trade secured $98 in options income, and I collected an additional $139 in options income in the process.

On 13 November, I noticed that Exxon Mobil (XOM) was near $69 per share, well below the $80 covered calls I'd sold. With the options deep in the money, I decided to roll forward the options to April 2020 and, simultaneously, to lower the strike price to $75. Doing so secured options income of $150 and I collected an additional $192 for selling the April 2020, $75 covered calls.

Tanger Factory Outlet Centers (SKT) have been struggling of late, so I decided to roll forward the out of the money call options to the June expiration date. In doing so secured, I secured $257 in options income and added an additional $116 in options income to my account. Hopefully, SKT will start to recover soon. I'll gladly let my shares be called away if SKT trades above $20 per share on 19 June 2020.

Philip Morris International (PM) traded above $84 per share on 13 November, so the $105 covered call I'd sold was deep in the money. I decided to roll forward the option to the June expiration date and, simultaneously to lower the strike price to $100. This trade secured $85 in options income, while I added $101 to my options income tally for selling the June 2020, $100 covered call.

Also on 13 November, I noticed that Johnson & Johnson (JNJ) was trading at $130 per share, well below the $150 covered call I'd sold. With the option deep out of the money, it gave me the opportunity to roll forward the option and collect additional income. The trade secured $507 in options income and I collected an additional $162 in options income for selling the $140 strike covered call expiring on 20 March 2020.

Finally, AbbVie (ABBV) traded above $86 per share on 13 November, so the $80 covered calls I'd sold were deep in the money. To protect my shares, I decided to bite the bullet and roll forward the calls, simultaneously increasing the strike price to $90. Buying back the covered calls was costly, so I had to roll forward to the January 2021 expiration date. The trade cost me $1,029 in secured options income, while I collected $1,308 in options income for selling the LEAP calls. That's still a net gain of $279, which isn't too bad.

In all, rolling forward these options secured $278 in options income, while I added $2,175 in additional options income to my trading account. 

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.

 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 

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.

 January 2020:

#4142019-11-13:-1×TXN 17 Jan 2020 $110.00 P $ 144.00 ( $ -1.10 )→ Out of the money with a  8% safety margin 
#4062019-10-18:-2×TJX 17 Jan 2020 $65.00 C $ 188.00 ( $  0.00 )→ Out of the money with a  7% safety margin 
#4002019-10-01:-1×MDT 17 Jan 2020 $100.00 P $ 196.00 ( $ -0.80 )→ Out of the money with a  11% safety margin 
#3962019-09-20:-1×ORCL 17 Jan 2020 $52.50 P $ 213.00 ( $ -1.59 )→ Out of the money with a  8% safety margin 
#3922019-09-20:-1×LOW 17 Jan 2020 $125.00 C $ 182.00 ( $ -0.80 )→ Out of the money with a  7% safety margin 
#3882019-09-20:-2×GILD 17 Jan 2020 $60.00 P $ 270.00 ( $ -2.56 )→ Out of the money with a  10% safety margin 
#3872019-09-20:-2×CSX 17 Jan 2020 $70.00 P $ 820.00 ( $ -1.80 )→ At the money  — caution! 
#3852019-08-16:-1×DGX 21 Feb 2020 $100.00 C $ 675.00 ( $ -0.31 )→ In the money by  7% — caution! 
#3692019-07-22:-1×D 17 Jan 2020 $80.00 C $ 175.00 ( $ -0.35 )→ In the money by  3% — caution! 
#3612019-06-28:-3×BEN 17 Jan 2020 $30.00 P $ 261.00 ( $  0.00 )→ In the money by  10% — caution! 
#3592019-06-28:-1×TSM 17 Jan 2020 $45.00 C $ 105.00 ( $ -0.30 )→ In the money by  17% — caution! 
#3532019-05-28:-2×CMCSA 17 Jan 2020 $45.00 C $ 396.00 ( $ -2.58 )→ Out of the money with a  3% safety margin 
#3372019-04-22:-1×WBA 17 Jan 2020 $65.00 C $ 163.00 ( $ -0.80 )→ Out of the money with a  9% safety margin 
#3362019-04-22:-2×WBA 17 Jan 2020 $65.00 C $ 328.00 ( $ -0.85 )→ Out of the money with a  9% safety margin 
#3132019-02-22:  2×KO 17 Jan 2020 $52.50 C $   67.00 ( $ -1.58 )→ In the money by  2% — caution! 
#3092019-02-20:-1×T 17 Jan 2020 $35.00 C $   52.00 ( $ -0.79 )→ In the money by  7% — caution! 
#3082019-02-20:-4×T 17 Jan 2020 $35.00 C $ 213.00 ( $ -3.16 )→ In the money by  7% — caution! 

Most of the options expiring in January are in the money or out of the money with small safety margins, so I'll have to monitor all of these options carefully as the options expiration date approaches.

Concluding Remarks


This article covered an options assignment and several expired, closed, and rolled options. Part 2 will present covered calls and put options trades, as well as a spread trade that I closed early.

My options goal in 2019 is to collect a total of $21,000 in options income at an average of $1,750 per month. I've already achieved that goal, and now I'm hoping that my options income will exceed my dividend income in 2019. Part 2 will provide an update! 

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