Saturday, August 22, 2020

Expired Options (August 2020)

After options expire, I post an article summarizing all expirations and I discuss any actions I took. If relevant, I also present potential replacement trades for expired options.

I had several options that expired on Friday, 21 August. 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 


When options expire, so do the obligations I have related to those options.

For expired puts, I no longer need to be concerned about being forced to buy shares, and the margin that was set aside as collateral gets released. As for expired covered calls, my shares cannot be called away anymore. The options income associated with expired options becomes secured

When options expire I can consider replacement trades to collect more options income, provided my investment thesis remains intact.

Recap


Here is a summary of my options that had an expiration date of 21 August, as presented in July's Options Update article:

August 2020:

#4832020-06-25:-2×PEG 21 Aug 2020 $45.00 P $       380.00 ( $ -0.20 )→ Out of the money with a  16% safety margin   
#4802020-06-23:-3×WBA 21 Aug 2020 $40.00 P $       489.00 ( $ -1.35 )→ Out of the money with a  2% safety margin  
#4792020-06-23:-3×CMCSA 21 Aug 2020 $32.50 P $       132.00 ( $ -1.34 )→ Out of the money with a  34% safety margin  
#4782020-06-23:-2×AFL 21 Aug 2020 $35.00 P $       390.00 ( $ -0.90 )→ Out of the money with a  1% safety margin  
On options expiration day, the $40 puts I'd sold on Walgreens Boots Alliance, Inc (WBA) was in the money, so I decided to roll forward the put. WBA closed at $39.46, which means the puts would have been assigned if I didn't take action.

 WBA 21AUG20 40.00 P 
 2020-08-21 
   3 
 -107.00 
 -2.17 
 WBA 16OCT20 37.50 P 
 2020-08-21
 -3 
317.00 
 -2.18 

I decided to roll forward the puts to the October expiration and, simultaneously, to lower the strike price to $37.50. The trade netted $206.

The other options expired and allowed me to secure options income totaling $890.

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

Possible Replacement Trades


Public Service Enterprise Group Incorporated (PEG)

#4832020-06-25:-2×PEG 21 Aug 2020 $45.00 P $       380.00 ( $ -0.20 )

PEG closed at $53.28 per share on options expiration day, about 18% above the strike price of the put options I'd sold.

Last month, I sold a $55 put on PEG.

By selling an in the money put option, I'm hoping the put will be assigned so I can pick up 100 shares! The stock yields 3.68% and has a quality score of 22, which I rate Fine. PEG is the second-highest ranked Utilities sector stock after NextEra Energy, Inc (NEE).

Since I'm short a PEG put options already, I'm not looking to replace this expired trade.

Comcast Corporation (CMCSA)

#4792020-06-23:-3×CMCSA 21 Aug 2020 $32.50 P $       132.00 ( $ -1.34 )

CMCSA closed at $43.07 per share on options expiration day, some 33% above the strike price of the put options I'd sold. As a result, the option expired and I secured $131 in options income.

It looks like I can sell two $40 puts expiring on 16 October for about $125, which would give me an annualized options yield of 18% for a boost factor of 8.28. If exercised, I'd be buying shares at a discount of about 14%. If exercised, I'd be buying shares at a discount of about 7%.

CMCSA has a quality score of 23, which I rate Excellent

Aflac Incorporated (AFL)

#4782020-06-23:-2×AFL 21 Aug 2020 $35.00 P $       390.00 ( $ -0.90 )

AFL closed at $36.42 per share, about 4% above the $35 put option I'd sold. As a result, the option expired and I secured $389 in options income.

A suitable replacement trade seems to be selling the $32.50 put expiring on 20 November, for options income of about $230. That trade would generate an annualized options yield of 13% for a dividend boost factor of 4.09. If exercised, I'd be buying shares at a discount of about 14%.

AFL has a quality score of 18, which I rate Decent

Summary


Three put options I'd previously sold expired on 21 August. Additionally, I rolled forward an in the money putl on WBA for a net gain of about $206.

It looks like I'd be able to replace two of the options that expired and perhaps earn $355 in options income.

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