I had several options that expired on Friday, 18 September. After options expire, I post an article to summarize the expirations and I discuss any actions I took. If relevant, I also present potential replacement trades for expired options.
As usual, I'll report on my other options trades in an upcoming article.
When options expire, so do the obligations I have related to those options.
For expired puts, I no longer need to be concerned about having to buy shares, and the margin that was set aside as collateral gets released. And 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.
LyondellBasell Industries N.V. (LYB)
LYB closed at $79.00 per share on options expiration day, some 32% above the strike price of the put option I'd sold. As a result, the option expired and I secured $225 in options income.
It looks like I can sell a $70 put expiring on 18 December for about $370, which would give me an annualized options yield of 19.39% for a boost factor of 3.65. If assigned, I'd be buying shares at a discount of about 16%.
LYB has a quality score of 16, which I rate Decent.
Wells Fargo & Company (WFC)
WFC closed at $25.13 per share, about 12% above the $22.50 put options I'd sold. As a result, the options expired and I secured $187 in options income.
A suitable replacement trade would be to sell two $22.50 puts expiring on 20 November, for options income of about $156. That trade would generate an annualized options yield of about 19% for a dividend boost factor of 11.79. If exercised, I'd be buying shares at a discount of about 14%.
WFC has a quality score of 15, which I rate Decent.
Three put options and one covered call I'd previously sold expired on 21 September. Additionally, one put option I'd sold got assigned, so I bought 100 shares of PEG at an effective cost basis of $51.40.
It looks like I'd be able to replace all of the options and perhaps earn $1,100 in options income.
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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 having to buy shares, and the margin that was set aside as collateral gets released. And 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 18 September, as presented in August's Options Update article:
September 2020:
On Monday, 14 September, the $55 put option I'd sold on PEG got assigned. As a result, I had to buy 100 shares of PEG at $55 per share while shares were priced around $52.48. That looks like a bad deal, but remember that I received $3.60 per share for selling the put option in the first place. So, my effective cost basis is $51.40 per share.
| #499 | 2020-07-24 | : | -1 | × | PM 18 Sep 2020 $80.00 C | $ 162.00 | ( $ -1.10 ) | → In the money by 2% — caution! | ||
| #491 | 2020-07-23 | : | -1 | × | PEG 18 Sep 2020 $55.00 P | $ 360.00 | ( $ -0.30 ) | → In the money by 5% — caution! | ||
| #490 | 2020-07-23 | : | -1 | × | LYB 18 Sep 2020 $60.00 P | $ 225.00 | ( $ -0.35 ) | → Out of the money with a 24% safety margin | ||
| #481 | 2020-06-23 | : | -2 | × | WFC 18 Sep 2020 $22.50 P | $ 188.00 | ( $ -0.90 ) | → Out of the money with an 8% safety margin | ||
| #475 | 2020-06-22 | : | -1 | × | ORCL 18 Sep 2020 $50.00 P | $ 148.00 | ( $ -0.80 ) | → Out of the money with a 14% safety margin |
On Monday, 14 September, the $55 put option I'd sold on PEG got assigned. As a result, I had to buy 100 shares of PEG at $55 per share while shares were priced around $52.48. That looks like a bad deal, but remember that I received $3.60 per share for selling the put option in the first place. So, my effective cost basis is $51.40 per share.
This turned out to be a favorable assignment, not only because I paid less per share, effectively, than the going price at the time, but also because I actually wanted to own PEG!
The other options expired and allowed me to secure options income totaling $720.
Let's consider these in turn and see if there are suitable replacement trades available.
Philip Morris International Inc (PM)
PM closed at $78.08 per share on options expiration day, 2.4% below the strike price of the covered call option I'd sold. As a result, the option expired and I secured $161 in options income.
Let's consider these in turn and see if there are suitable replacement trades available.
Possible Replacement Trades
Philip Morris International Inc (PM)
| #499 | 2020-07-24 | : | -1 | × | PM 18 Sep 2020 $80.00 C | $ 162.00 | ( $ -1.10 ) |
PM closed at $78.08 per share on options expiration day, 2.4% below the strike price of the covered call option I'd sold. As a result, the option expired and I secured $161 in options income.
It looks like I can sell an $82.50 covered call expiring on 18 December for about $200, which would give me an annualized options yield of 10.3%. If assigned, I'd be selling 100 shares of PM for a gain of 5.49%.
For selling covered goals, I aim to double the underlying stock's dividend yield. With PM currently yielding 5.99%, that is hard to do. In this case, the boost factor is 1.72 (10.3%/5.99%).
PM has a quality score of 18, which I rate Decent.
Public Service Enterprise Group Incorporated (PEG)
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As mentioned above, this option got assigned and I bought 100 shares of PEG at an effective cost basis of $51.40 per share.
It looks like I can sell a $50 put expiring on 18 December for about $255, which would give me an annualized options yield of about 21% for a boost factor of 5.38. If assigned, I'd be buying shares at a discount of about 14%.
PEG has a quality score of 22, which I rate Fine.
It looks like I can sell a $50 put expiring on 18 December for about $255, which would give me an annualized options yield of about 21% for a boost factor of 5.38. If assigned, I'd be buying shares at a discount of about 14%.
PEG has a quality score of 22, which I rate Fine.
Adding another 100 shares of PEG would turn it into a full position in my portfolio. I'm looking to increase my Utilities sector exposure. My fair value estimate of PEG is $55 per share.
LyondellBasell Industries N.V. (LYB)
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LYB closed at $79.00 per share on options expiration day, some 32% above the strike price of the put option I'd sold. As a result, the option expired and I secured $225 in options income.
It looks like I can sell a $70 put expiring on 18 December for about $370, which would give me an annualized options yield of 19.39% for a boost factor of 3.65. If assigned, I'd be buying shares at a discount of about 16%.
LYB has a quality score of 16, which I rate Decent.
LYB is a Materials sector stock trading about 19% below my fair value estimate of $97. I own only one other Materials sector stock, so adding LYB would be a good move, in my option.
Wells Fargo & Company (WFC)
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WFC closed at $25.13 per share, about 12% above the $22.50 put options I'd sold. As a result, the options expired and I secured $187 in options income.
A suitable replacement trade would be to sell two $22.50 puts expiring on 20 November, for options income of about $156. That trade would generate an annualized options yield of about 19% for a dividend boost factor of 11.79. If exercised, I'd be buying shares at a discount of about 14%.
WFC has a quality score of 15, which I rate Decent.
WFC cut its quarterly dividend to only 10¢ per share. My interest here is to lower my cost basis and hopefully, to close out my WFC with a smaller loss when the stock price somewhat recovers. I think WFC is fairly valued at $35 per share, which would be a great exit point!
Oracle Corporation (ORCL)
ORCL closed at $59.75 per share, about 20% above the $50.00 put option I'd sold. As a result, the option expired and I secured $147 in options income.
It looks like I could sell a $55 put expiring on 20 November for about $122. That trade would generate an annualized options yield of about 12% for a dividend boost factor of 7.67. If exercised, I'd be buying shares at a discount of about 10%.
ORCL has a quality score of 24, which I rate Excellent.
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ORCL closed at $59.75 per share, about 20% above the $50.00 put option I'd sold. As a result, the option expired and I secured $147 in options income.
It looks like I could sell a $55 put expiring on 20 November for about $122. That trade would generate an annualized options yield of about 12% for a dividend boost factor of 7.67. If exercised, I'd be buying shares at a discount of about 10%.
ORCL has a quality score of 24, which I rate Excellent.
I already own a full position in ORCL. For high-quality stocks like ORCL, I'm willing to increase my holdings, though, especially if the stock is trading well below my fair value estimate. I think ORCL is worth $64 per share.
Summary
Three put options and one covered call I'd previously sold expired on 21 September. Additionally, one put option I'd sold got assigned, so I bought 100 shares of PEG at an effective cost basis of $51.40.
It looks like I'd be able to replace all of the options and perhaps earn $1,100 in options income.
Soon sections of my blog will only be available to subscribers, so I encourage you to sign up now!
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