Expired Options (July 2020)

Last Friday was options expiration day. Following options expiration, I post an article summarizing all expirations and any actions I took. If relevant, I also present potential replacement trades for expired options.

I had several options that expired on Friday, 17 July. Most were out of the money, which means I didn't need to take protective actions to avoid assignment. There was one option, though, that was in the money. I decided to roll forward that option to avoid assignment.

As usual, I'll report on my other options trades in an upcoming article.

Background 

The obligations I have related to options that expire, expire with those options.

For expired covered calls, my shares cannot be called away anymore, and for expired puts, I can't be forced to buy shares anymore. Also, the margin that was set aside as collateral gets released. The options income associated with expired options becomes secured. 

When options expire I can consider replacement trades, provided the investment thesis remains intact and I can collect a reasonable premium.

Recap

Here is a summary of my options that had an expiration date of 17 July, as presented in June's Options Update article:

 July 2020:

#484	2020-06-30	:	-1	×	PEG 17 Jul 2020 $50.00 P	$       185.00	( $ -0.35 )			→ Out of the money with a  5% safety margin
#482	2020-06-25	:	-1	×	LYB 17 Jul 2020 $61.00 P	$       335.00	( $ -0.25 )			→ Out of the money with a  13% safety margin
#470	2020-05-28	:	-3	×	CMCSA 17 Jul 2020 $35.00 P	$       150.00	( $ -2.21 )			→ Out of the money with a  20% safety margin
#468	2020-04-17	:	-1	×	LOW 17 Jul 2020 $90.00 P	$       702.00	( $ -0.66 )			→ Out of the money with a  57% safety margin
#444	2020-01-15	:	-1	×	D 17 Jul 2020 $82.50 C	$       267.00	( $ -0.30 )			→ Out of the money with a  9% safety margin
#443	2020-01-15	:	-2	×	CMCSA 17 Jul 2020 $47.50 C	$       402.00	( $ -1.50 )			→ Out of the money with a  12% safety margin
#430	2019-12-12	:	-2	×	TROW 17 Jul 2020 $120.00 C	$    2,209.00	( $ -1.64 )			→ In the money by  10% — caution!

The covered call trade on T. Rowe Price Group, Inc (TROW) was deep in the money, with TROW trading well above $130 per share. I decided to roll forward the covered call, choosing the $135 strike price and the 15 January 2021 expiration date. The trade realized a net loss of $397.

TROW 17JUL20 120.0 C	2020-07-16	2	-2,600.00	-0.29
TROW 15JAN21 135.0 C	2020-07-16	-2	2,202.00	-0.34

TROW's price has continued to climb higher, closing at $136.20 per share on 22 July. This means my $135 strike covered call is back in the money, so we'll see how this one goes!

All the other options expired, allowing me to secure options income totaling $2,036.

Let's consider these in turn and see if there are suitable replacement trades available.

Possible Replacement Trades

Public Service Enterprise Group Incorporated (PEG)

#484

2020-06-30

:

-1

×

PEG 17 Jul 2020 $50.00 P

$       185.00

( $ -0.35 )

PEG closed at $55.08 per share on options expiration day, about 10% above the strike price of the put option I'd sold. I sold the $50 put hoping for an assignment, as PEG made June's top 10 list of dividend growth stocks, ranking #8.

Now trading at $52.99, PEG still looks interesting to me. The yield of 3.70% remains attractive, and PEG has a quality score of 22, which I rate Fine. PEG is the second-highest ranked Utilities sector stock after NextEra Energy, Inc (NEE).

I'm considering selling the $55 put option on PEG expiring in September. 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 September put has a premium of about $3.90, which would generate an annualized options yield of 48% for a dividend boost factor of 12.94. If exercised, I'd be buying shares for about 3.6% below the current price.

By selling an in the money put option, I'm really saying I want to buy 100 shares!

LyondellBasell Industries N.V. (LYB)

#482 2020-06-25 : -1 × LYB 17 Jul 2020 $61.00 P  $       335.00  ( $ -0.25 )

LYB closed at $68.50 per share on options expiration day, some 12% above the strike price of the put option I'd sold. As a result, the option expired and I secured $335 in options income.

When I recently considered the Top Holdings of Dividend ETFs in the different GICS sectors, LYB was the highest-yielding Materials sector stock. At $68.37, LYB yields 6.14%, which is very attractive indeed. The only thing that gives me some pause is LYB's quality score of 16, which I rate only Decent. On the other hand, I own only one Materials sector stock in my DivGro portfolio, so it would be good to add LYB.

The September $60 put has a premium of about $2.30, which would generate an annualized options yield of 22% for a dividend boost factor of 3.56. If exercised, I'd be buying shares at a discount of about 15.6% of the current price.

Comcast Corporation (CMCSA) 

#470 2020-05-28 : -3 × CMCSA 17 Jul 2020 $35.00 P  $       150.00  ( $ -2.21 )

#443

2020-01-15

:

-2

×

CMCSA 17 Jul 2020 $47.50 C

$       402.00

( $ -1.50 )

On options expiration day, CMCSA closed at $42.18 per share, well above the $35 put option I'd sold and also well below the $47.50 covered call I'd sold. As a result, both options expired and I secured $548 in options income.

For selling covered calls, I think an achievable goal is to earn double the dividend yield.

CMCSA yields 2.16% at $42.57 per share. It looks like I can sell two $47.50 covered calls expiring on 16 October for about $112, which would give me an annualized options yield of 7.3% for a boost factor of 2.62.

Last month, I sold three $32.50 puts on CMCSA that expires in August, so I don't want to sell more puts ono CMCSA at this time.

Lowe's Companies, Inc (LOW) 

#468 2020-04-17 : -1 × LOW 17 Jul 2020 $90.00 P  $       702.00  ( $ -0.66 )

LOW closed at $143.84 per share, about 60% above the $90 put option I'd sold. As a result, the option expired and I secured $701 in options income.

A suitable replacement trade seems to be selling the $125 put expiring on 16 October, for options income of about $234. That trade would generate an annualized options yield of 6.82% for a dividend boost factor of 4.61. If exercised, I'd be buying shares at a discount of about 17%.

LOW has a quality score of 21, which I rate Fine. 

Dominion Energy, Inc (D) 

#444 2020-01-15 : -1 × D 17 Jul 2020 $82.50 C  $       267.00  ( $ -0.30 )

D closed at $78.58 per share, about 5% below the $82.50 covered call I'd sold. As a result, the options expired, and I secured $267 in options income.

In announcing a deal in which Berkshire Hathaway (BRK.A, BRK.B) will buy D's Gas Transmission & Storage segment assets, D indicated that its dividend will be reduced by about 33.5%. I'm not too thrilled with this announcement, so I wouldn't mind selling my shares at the right price!

The October $85 covered call could generate options income of about $150. This would give me an annualized options yield of 8.9% for a boost factor of 1.72. If exercised, my overall gain would be about 19%.

Summary

Six options I'd previously sold expired on 17 July, four puts, and two calls. Additionally, I rolled forward an in the money covered call on TROW for a net loss of about $397.

It looks like I'd be able to replace all but one of the options that expired. Expiration dates in September and October should generate reasonable options income of about $1,233.

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