Weekly Options Results and Opportunities
Options contracts have an expiration date. When the date is reached, one of two things can happen. In a previous post I talked about using the Wheel Options Strategy and shared the cash covered put trade I completed for Cindie using HPQ as the starting point. That contract has expired. You may recall that I am also adjusting my options trading goal for this year to do more cash covered puts so that I can use the wheel strategy more often. In this edition, I want to show you what “assigned options contracts” look like and what it means to have “expired options.”
January 20 Options Expired
Sixteen of the options that had contract dates for last Friday expired worthless. When I say “worthless”, I mean that the buyers of the thirteen covered call contracts don’t get to buy my shares. They gave me a premium for the possibility of buying my shares. However, because the share price did not rise to the contracted price, they don’t want to buy my shares.
Three of the expiring contracts were for cash covered puts. This included Cindie’s put for HPQ I mentioned earlier, and it also included puts I entered for my IRA for TSLA (Tesla) and VLO (Valero Energy). That means we did not get the shares, but we kept the premium. This is a blessing, as it means the cash is still available next week for new cash covered puts or to buy shares of some investment. The following image shows all sixteen expired contracts. All of these resulted in income for our use in future activities.
If I want to continue Cindie’s HPQ wheel strategy, I just need to enter another cash covered put in her account for a price lower than the market price. If the stock drops during the first part of the week, I might just do that for her.
January 20 Options Assigned and Called Away
Six of the contracts resulted in the sale of some of our stocks and ETFs. I wanted to exit the three positions in our accounts holding ETF QYLD. QYLD closed on Friday at $16.81 per share. The contract agreement was for $16.00 per share. Therefore, our QYLD shares were “called away” and the investors who bought my covered call contracts paid us $19,199.55 for our 1,200 shares. There was a small fee of 45 cents per share, but I am glad that the shares were called away.
This means we have about $19K for other cash covered put opportunities. The buyers of the calls were happy too. However, they may want to sell their shares as soon as they can to book their profit. If they don’t, and the shares fall below $16/share, they will experience a loss.
In addition three other positions were called away. They were OXY (Occidental Petroleum Corporation), RIO (Rio Tinto), and R (Ryder System.) In each case, I wanted to sell these positions for the cash and to begin using that cash for future trades. This added another $22,759 in cash to our accounts. Look at it this way: if I want to do more cash covered puts on HPQ shares, and HPQ closed on Friday at just under $28 per share, I can easily do eight cash covered put contracts at $27 that expire on Friday, January 27.
Because every contract for an investment is 100 shares, 100 shares of HPQ at $27 per share is $2,700. If we divide the cash received ($22,759 from OXY, RIO, and R) by $2,700, the result is 8.4. Because every contract is 100 shares, I can purchase eight covered calls for HPQ at a strike price of $27.
There are only two likely outcomes when you sell covered calls or cash covered puts. Either they expire worthless, or they are assigned. If they expire worthless, then the same steps can be repeated the next week. If they are called away, the cash that is received from the sale of the shares becomes fuel for even more options trading opportunities.
Links for Learning
There are “risks” associated with holding a stock that is committed to a covered call option. But these so-called risks are minimal if you buy and hold quality dividend-growth stocks and ETFs. The link below explains some of the risks you should think about if you are trading options on stocks that plummet in value. You should keep a long-term perspective, even when trading options.