Several options I'd sold were slotted to expire on Friday, 17 January. Some of them were in the money, meaning the options would have been assigned if I didn't take any actions.In this article, I provide a summary of the actions I took to avoid assignment and I present potential replacement trades for the expired options.
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. I consider the options income associated with expired options to be secured.
Recap
Here is a summary of the options that would have expired on 17 January, as presented in December's Options Update article:
Four call options and one put option I'd sold traded in the money, while a few traded out of the money with small safety margins. In the week before expiry, I reviewed all of these options and determined what, if anything, I needed to do about in the money options.
BEN
On 15 January, Franklin Resources (BEN) traded between $25.00 and $25.37 per share, well below the $30 put options I'd sold. To avoid assignment, I rolled forward the options and lowered the strike price.
Buying back the puts cost $1,413.23, so I relinquished secured options income of $1,152.23 when accounting for the $261 originally received for selling the puts. On the other hand, I sold three $27.50 puts expiring in July for $977.74, somewhat offsetting the loss. Including commissions, this trade resulted in a net loss of $435.49.
With BEN closing at $25.74 on options expiration day, the new puts remain in the money. However, now I have six months to see how things develop.
CMCSA
Comcast (CMCSA) traded between $46.01 and $46.28 on 15 January, well above the $45 covered calls I'd sold. To avoid assignment, I rolled forward the options and simultaneously increased the strike price.
In this case, I managed to roll forward the options for a net gain. I secured options income of $135.93 and collected $400.50 in additional options income, net of commissions. The trade resulted in a net gain of $536.43.
CMCSA closed at the money on 17 January at $47.50 per share.
D
Dominion Energy (D) traded between $82.13 and $82.99 on 15 January, well above the $80 covered call I'd sold. To avoid assignment, I rolled forward the options and simultaneously increased the strike price.
Buying back the call cost more than the income originally received, so I relinquished secured options income of $61.64. On the other hand, I collected $266.70 for selling the July $82.40 call. So the trade resulted in a net gain of $205.06.
D closed at $84.05 on Friday, 17 January, so the new calls remain in the money.
KO
On 15 January, Coca-Cola (KO) traded between $56 and 56.98 per share, well above the $52.50 covered calls I'd sold. To avoid assignment, I rolled forward the options and simultaneously increased the strike price.
Buying back the covered calls resulted in a net loss of 743.26 in secured options income, while I collected $715.30 in new options income for selling the September $55 covered calls. Including commissions, the trade resulted in a net loss of $27.96.
T
AT&T (T) traded between $37.79 and $38.03 on 15 January, well above the $35 covered calls I'd sold. To avoid assignment, I rolled forward the options and simultaneously increased the strike price.
Originally, I sold these covered calls for $261.05. Buying back the in the money covered calls cost $2,087.41, so I relinquished secured options income totaling $1,826.36. On the other hand, I collected $2,207.36 for selling the $40 LEAPs expiring in January 2022. The trade resulted in a net gain of $381.
On Friday, 17 January, KO closed at $38.38 per share, so the new covered calls are out of the money.
The remaining options all expired worthless (to the buyers of these options), meaning I have no further obligations and the options income originally received is now secured.
I can now consider replacement trades.
For puts, I only consider stocks I wouldn't mind owning at the selected strike price. When selling puts, I aim to collect options income equivalent to five times the underlying stock's dividend unless I can buy shares at a discount of at least 10%.
For covered calls, the selected strike price could become the selling price, so I need to be OK with selling my shares at that price. When selling calls, I aim to earn options income equivalent to double the dividend income of the underlying stock.
I rarely execute an options trade if the total options income is not at least $100.
CSX
On options expiration day, CSX (CSX) closed at $76.40, so the two $70 put options I'd sold expired. In the process, I secured options income of $818.20, net of commissions.
CSX yields 1.26% at $76.40 per share and has a quality score of 18. My fair value estimate is $78.
The highest strike price that would deliver a discount of at least 10% is $67.50. Selling two May $67.50 puts should earn at least $190 in options income, given the current bid/ask of $0.95/$1.08.
The annualized options yield for this trade would be 3.87%, for a dividend boost factor of 3.08 (below my goal of 5x). However, if the puts are exercised, I'd be buying shares at a discount of 12.91% to the current share price.
GILD
Gilead Sciences (GILD) closed at $62.98 on options expiration day, so the two $60 put options I'd sold expired. Net of commissions, I secured options income of $267.44.
GILD yields 3.93% at $62.98 per share. Since I already own a full position in GILD and I'm not looking to add more shares, selling puts on GILD would be a speculative trade.
The highest strike price that would deliver a discount of at least 10% is $55. Selling two May $55 puts should earn at least $140 in options income, given the current bid/ask of $0.70/$0.83.
The annualized options yield for this trade would be 3.45%, for a dividend boost factor of only 0.86 (well below my goal of 5x). However, if the puts are exercised, I'd be buying shares at a discount of 12.67% to the current share price.
LOW
On Friday, 17 January, Lowe's (LOW) closed at $122.36, so the $125 covered call option I'd sold expired. I secured options income of $181.20, net of commissions.
LOW yields 1.84% at $122.36 per share. I think the stock is worth $129 per share, so a strike price of $135 would seem like a good selling price. Since I own 100 shares, I can sell one $135 covered call. For the April expiration, I'd have to collect $107 to ensure a dividend boost factor of 2.00. The current bid/ask is $1.03/$1.16.
If successful, the annualized options yield for this trade would be 4.76%.
MDT
On options expiration day, Medtronic (MDT) closed at $119.03, so the $100 put option I'd sold expired. In the process, I secured options income of $195.20, net of commissions.
MDT yields 1.82% at $119.03 per share and has a quality score of 24. My fair value estimate is $117.
The highest strike price that would deliver a discount of at least 10% below my fair value estimate is $105. Selling one May $105 put should earn at least $104 in options income, given the current bid/ask of $1.04/$1.17.
The annualized options yield for this trade would be 2.72%, for a dividend boost factor of 1.50 (below my goal of 5x). However, if the puts are exercised, I'd be buying shares at a discount of 12.67% to the current share price.
ORCL
Oracle (ORCL) closed at $55.13 on Friday, 17 January, so the $52.50 put option I'd sold expired. Net of commissions, I secured options income of $211.41.
ORCL yields 1.73% at $55.13 per share. I think ORCL would be fairly valued at $59 per share.
I wouldn't mind adding more shares to my current position. ORCL has a quality score of 24 and a Chowder Number of 15, making it an investment likely to deliver 8% annualized returns based on the Chowder rule.
The highest strike price that would ensure a discount of at least 10% is $47.50. Unfortunately, the March expiration trades at a bid/ask of only $0.20/$0.22, so I have to consider the June expiration with a current bid/ask of $0.71/$0.88. Selling two June $47.50 puts should earn at least $142 in options income.
The annualized options yield for this trade would be 3.07%, for a dividend boost factor of 1.76 (below my goal of 5x). However, if the puts are exercised, I'd be buying shares at a discount of 15.15% to the current share price.
TJX
TJX (TJX) closed at $62.68 on options expiration day, so the two $65 call options I'd sold expired. In the process, I secured options income of $188.
TJX yields 1.46% at $62.68 per share. I think the stock is fairly valued at $62 per share, so a strike price of $67.50 would seem like a good selling price. Since I own 200 shares, I can sell two $67.50 covered calls. The April expiration should provide dividend income of at least $110 since the current bid/ask is $0.55/$0.60.
The annualized options yield for this trade would be 4.93%, for a dividend boost factor of 2.37.
TXN
On options expiration day, Texas Instruments (TXN) closed at $131.70, so the two $70 put options I'd sold expired. In the process, I secured options income of $142.90, net of commissions.
TXN yields 2.77% at $131.70 per share. Since I already own a full position in TXN and I'm not looking to add more shares, selling puts on TXN would be a speculative trade.
The highest strike price that would deliver a discount of at least 10% is $115. Selling one April $115 put should earn at least $120 in options income, given the current bid/ask of $1.20/$1.35.
The annualized options yield for this trade would be 3.25%, for a dividend boost factor of only 1.19 (well below my goal of 5x). However, if the puts are exercised, I'd be buying shares at a discount of 13.48% to the current share price.
WBA
Walgreens Boots Alliance (WBA) closed at $54.41, so the three $65 covered calls I'd sold expired. Net of commissions, I secured options income totaling $489.35.
WBA yields 3.36% at $54.41 per share. I think the stock is worth $63 per share, so a strike price of at least $65 would be a good selling price. Since I own 300 shares, I can sell three $65 covered calls.
Unfortunately, none of the available $65 strike/expiration date combinations will allow me to get a dividend boost factor of 2.00. So I won't look to replace these expired options.
Of the options I'd sold that were to expire in January, I rolled forward one put and four covered calls. The remaining eight options expired. In all, I relinquished secured options income of $1,153.86 but collected new options income totaling $4,567.60.
As mentioned last month, the markets continue to make all-time highs and a bear could be around the corner just waiting to pounce! While I have a challenging options income goal for 2020, I want to be cautious going forward...
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Four call options and one put option I'd sold traded in the money, while a few traded out of the money with small safety margins. In the week before expiry, I reviewed all of these options and determined what, if anything, I needed to do about in the money options.
BEN
On 15 January, Franklin Resources (BEN) traded between $25.00 and $25.37 per share, well below the $30 put options I'd sold. To avoid assignment, I rolled forward the options and lowered the strike price.
| Symbol |
Date
|
Qty
|
Proceeds
|
Comm.
|
| BEN 17JAN20 30.0 P | 2020-01-15 |
3
|
-1,413
|
-0.23
|
| BEN 17JUL20 27.5 P | 2020-01-15 |
-3
|
978
|
-0.26
|
Buying back the puts cost $1,413.23, so I relinquished secured options income of $1,152.23 when accounting for the $261 originally received for selling the puts. On the other hand, I sold three $27.50 puts expiring in July for $977.74, somewhat offsetting the loss. Including commissions, this trade resulted in a net loss of $435.49.
With BEN closing at $25.74 on options expiration day, the new puts remain in the money. However, now I have six months to see how things develop.
CMCSA
Comcast (CMCSA) traded between $46.01 and $46.28 on 15 January, well above the $45 covered calls I'd sold. To avoid assignment, I rolled forward the options and simultaneously increased the strike price.
| Symbol |
Date
|
Qty
|
Proceeds
|
Comm.
|
| CMCSA 17JAN20 45.0 C | 2020-01-15 |
2
|
-256
|
-1.49
|
| CMCSA 17JUL20 47.5 C | 2020-01-15 |
-2
|
402
|
-1.50
|
In this case, I managed to roll forward the options for a net gain. I secured options income of $135.93 and collected $400.50 in additional options income, net of commissions. The trade resulted in a net gain of $536.43.
CMCSA closed at the money on 17 January at $47.50 per share.
D
Dominion Energy (D) traded between $82.13 and $82.99 on 15 January, well above the $80 covered call I'd sold. To avoid assignment, I rolled forward the options and simultaneously increased the strike price.
| Symbol |
Date
|
Qty
|
Proceeds
|
Comm.
|
| D 17JAN20 80.0 C | 2020-01-15 |
1
|
-236
|
-0.29
|
| D 17JUL20 82.5 C | 2020-01-15 |
-1
|
267
|
-0.30
|
Buying back the call cost more than the income originally received, so I relinquished secured options income of $61.64. On the other hand, I collected $266.70 for selling the July $82.40 call. So the trade resulted in a net gain of $205.06.
D closed at $84.05 on Friday, 17 January, so the new calls remain in the money.
KO
On 15 January, Coca-Cola (KO) traded between $56 and 56.98 per share, well above the $52.50 covered calls I'd sold. To avoid assignment, I rolled forward the options and simultaneously increased the strike price.
| Symbol |
Date
|
Qty
|
Proceeds
|
Comm.
|
| KO 17JAN20 52.5 C | 2020-01-15 |
2
|
-807
|
-1.68
|
| KO 18SEP20 55.0 C | 2020-01-15 |
-2
|
717
|
-1.70
|
Buying back the covered calls resulted in a net loss of 743.26 in secured options income, while I collected $715.30 in new options income for selling the September $55 covered calls. Including commissions, the trade resulted in a net loss of $27.96.
T
AT&T (T) traded between $37.79 and $38.03 on 15 January, well above the $35 covered calls I'd sold. To avoid assignment, I rolled forward the options and simultaneously increased the strike price.
| Symbol |
Date
|
Qty
|
Proceeds
|
Comm.
|
| T 17JAN20 35.0 C | 2019-12-12 |
5
|
-2,089
|
-1.59
|
| T 21JAN22 40.0 C | 2019-12-12 |
-5
|
2,209
|
-1.64
|
Originally, I sold these covered calls for $261.05. Buying back the in the money covered calls cost $2,087.41, so I relinquished secured options income totaling $1,826.36. On the other hand, I collected $2,207.36 for selling the $40 LEAPs expiring in January 2022. The trade resulted in a net gain of $381.
On Friday, 17 January, KO closed at $38.38 per share, so the new covered calls are out of the money.
Expired Options
The remaining options all expired worthless (to the buyers of these options), meaning I have no further obligations and the options income originally received is now secured.
I can now consider replacement trades.
For puts, I only consider stocks I wouldn't mind owning at the selected strike price. When selling puts, I aim to collect options income equivalent to five times the underlying stock's dividend unless I can buy shares at a discount of at least 10%.
For covered calls, the selected strike price could become the selling price, so I need to be OK with selling my shares at that price. When selling calls, I aim to earn options income equivalent to double the dividend income of the underlying stock.
I rarely execute an options trade if the total options income is not at least $100.
CSX
On options expiration day, CSX (CSX) closed at $76.40, so the two $70 put options I'd sold expired. In the process, I secured options income of $818.20, net of commissions.
CSX yields 1.26% at $76.40 per share and has a quality score of 18. My fair value estimate is $78.
The highest strike price that would deliver a discount of at least 10% is $67.50. Selling two May $67.50 puts should earn at least $190 in options income, given the current bid/ask of $0.95/$1.08.
The annualized options yield for this trade would be 3.87%, for a dividend boost factor of 3.08 (below my goal of 5x). However, if the puts are exercised, I'd be buying shares at a discount of 12.91% to the current share price.
GILD
Gilead Sciences (GILD) closed at $62.98 on options expiration day, so the two $60 put options I'd sold expired. Net of commissions, I secured options income of $267.44.
GILD yields 3.93% at $62.98 per share. Since I already own a full position in GILD and I'm not looking to add more shares, selling puts on GILD would be a speculative trade.
The highest strike price that would deliver a discount of at least 10% is $55. Selling two May $55 puts should earn at least $140 in options income, given the current bid/ask of $0.70/$0.83.
The annualized options yield for this trade would be 3.45%, for a dividend boost factor of only 0.86 (well below my goal of 5x). However, if the puts are exercised, I'd be buying shares at a discount of 12.67% to the current share price.
LOW
On Friday, 17 January, Lowe's (LOW) closed at $122.36, so the $125 covered call option I'd sold expired. I secured options income of $181.20, net of commissions.
LOW yields 1.84% at $122.36 per share. I think the stock is worth $129 per share, so a strike price of $135 would seem like a good selling price. Since I own 100 shares, I can sell one $135 covered call. For the April expiration, I'd have to collect $107 to ensure a dividend boost factor of 2.00. The current bid/ask is $1.03/$1.16.
If successful, the annualized options yield for this trade would be 4.76%.
MDT
On options expiration day, Medtronic (MDT) closed at $119.03, so the $100 put option I'd sold expired. In the process, I secured options income of $195.20, net of commissions.
MDT yields 1.82% at $119.03 per share and has a quality score of 24. My fair value estimate is $117.
The highest strike price that would deliver a discount of at least 10% below my fair value estimate is $105. Selling one May $105 put should earn at least $104 in options income, given the current bid/ask of $1.04/$1.17.
The annualized options yield for this trade would be 2.72%, for a dividend boost factor of 1.50 (below my goal of 5x). However, if the puts are exercised, I'd be buying shares at a discount of 12.67% to the current share price.
ORCL
Oracle (ORCL) closed at $55.13 on Friday, 17 January, so the $52.50 put option I'd sold expired. Net of commissions, I secured options income of $211.41.
ORCL yields 1.73% at $55.13 per share. I think ORCL would be fairly valued at $59 per share.
I wouldn't mind adding more shares to my current position. ORCL has a quality score of 24 and a Chowder Number of 15, making it an investment likely to deliver 8% annualized returns based on the Chowder rule.
The highest strike price that would ensure a discount of at least 10% is $47.50. Unfortunately, the March expiration trades at a bid/ask of only $0.20/$0.22, so I have to consider the June expiration with a current bid/ask of $0.71/$0.88. Selling two June $47.50 puts should earn at least $142 in options income.
The annualized options yield for this trade would be 3.07%, for a dividend boost factor of 1.76 (below my goal of 5x). However, if the puts are exercised, I'd be buying shares at a discount of 15.15% to the current share price.
TJX
TJX (TJX) closed at $62.68 on options expiration day, so the two $65 call options I'd sold expired. In the process, I secured options income of $188.
TJX yields 1.46% at $62.68 per share. I think the stock is fairly valued at $62 per share, so a strike price of $67.50 would seem like a good selling price. Since I own 200 shares, I can sell two $67.50 covered calls. The April expiration should provide dividend income of at least $110 since the current bid/ask is $0.55/$0.60.
The annualized options yield for this trade would be 4.93%, for a dividend boost factor of 2.37.
TXN
On options expiration day, Texas Instruments (TXN) closed at $131.70, so the two $70 put options I'd sold expired. In the process, I secured options income of $142.90, net of commissions.
TXN yields 2.77% at $131.70 per share. Since I already own a full position in TXN and I'm not looking to add more shares, selling puts on TXN would be a speculative trade.
The highest strike price that would deliver a discount of at least 10% is $115. Selling one April $115 put should earn at least $120 in options income, given the current bid/ask of $1.20/$1.35.
The annualized options yield for this trade would be 3.25%, for a dividend boost factor of only 1.19 (well below my goal of 5x). However, if the puts are exercised, I'd be buying shares at a discount of 13.48% to the current share price.
WBA
Walgreens Boots Alliance (WBA) closed at $54.41, so the three $65 covered calls I'd sold expired. Net of commissions, I secured options income totaling $489.35.
WBA yields 3.36% at $54.41 per share. I think the stock is worth $63 per share, so a strike price of at least $65 would be a good selling price. Since I own 300 shares, I can sell three $65 covered calls.
Unfortunately, none of the available $65 strike/expiration date combinations will allow me to get a dividend boost factor of 2.00. So I won't look to replace these expired options.
Summary
Of the options I'd sold that were to expire in January, I rolled forward one put and four covered calls. The remaining eight options expired. In all, I relinquished secured options income of $1,153.86 but collected new options income totaling $4,567.60.
As mentioned last month, the markets continue to make all-time highs and a bear could be around the corner just waiting to pounce! While I have a challenging options income goal for 2020, I want to be cautious going forward...
Soon sections of my blog will only be available to subscribers, so I encourage you to sign up now!
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