Options experiment – part III – expiration week

At the time of writing of this article, the September expiration week is just one week away. This means that on Friday, my options will reach maturity and will either expire in-the-money (means that I have to deliver on my promise) or out-of-the money (means that I can keep my premium). As an option writer, I have 3 choices: close the position, roll the position or let the position reach expiration and maybe get assigned.

Here is my game plan for this expiration week and a step by step description, followed by the actual results.

RDSA

This option is in-the money. I wrote the 24 put and this is what the stock chart looks like at the start of expiration week.

RDSA-expiration weekGiven the fact that the stock did not go back above 24 after the august drop, I plan to roll this position out in time and in doing so, I plan to roll the strike down.

Update: I managed to roll the position down to 23,5 and out to November 20, 2015. I hope this gives me enough time to be “right”.

At 24, RDSA is still priced reasonably, So why not get assignment? I simply cannot commit myself to pay that much more compared to the current market price. I guess this is a great lesson learned…

I need to be really really sure I want to own the stock at that price, no matter what!

Let’s see what this rolling brings me as a lessons learned. Will it change my view?

Coca Cola

The story of KO is quite similar as above. I will try to roll this position as well.

KO-expiration weekThe roll I made was the following: I rolled the position all the way to Jan 2016 at a strike of 39. By doing so, I received a credit and I have now received a total credit of 66USD on the KO put.

One thing I learned from this roll: be careful with the interface when you roll a trade. Right after the roll, it was not clear to me if the position was actually closed or if I now had 2 put positions on: a short put (the original one) and a long put (the buy-to-close), with the risk of assignment and the need to exercise the other option. I needed to contact the help desk to get the answer… It turns out they clean up the positions the next day. It looks so much better now that the position is gone.

How do I feel with this roll? As part of the learning objective, it does make me feel happy. I now know first hand what rolling means, what steps are involved. On the downside, my capital is now tied up until Jan 2016. In the current low interest rates, this is not a big deal…

Think before you roll that much out-in-time. Time decay matters.

The downside of rolling that far is that I will have virtually no time decay the first 2,5 months or so… And let this be the goal of option writing. With this option, I now have to wait and be patient…not a core skill of mine

AXA

Here, it is another story. The stock has recovered enough to be out-of-the-money for several days in a row. On this one, the primary plan is to close the position by buying back the option (buy-to-close) at a price lower than I sold it. If this fails, then I am happy to get assigned this stock and to start writing covered calls against it.

CS-expiration weekI expiration week, I managed to buy back this position and have a very very small profit of 6,5 EUR, all costs included. Not a lot, but consider this:

I got payed to learn about options!

Considering the Aug 24 drop, this option turned out well, paid me a 2 beers and learned me a lot about extreme events.

Next steps

Options provide me with the thrill that I was looking for in investing. Rather than playing with my whole portfolio, I now play with my play money. It keeps my trading account small, and thus my potential losses are limited. I do not feel ready at all to do this kind of trading with the vast majority of my funds. Lets see how it evolves.

Want to read the full story? check out my first steps in options and the follow up post 1 and 2

Do you have an interest in options?

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5 thoughts on “Options experiment – part III – expiration week

  1. Ciao ATL,

    As usual your blog provides a lot of inspiration to me, especially when it’a about learning something new… Now I am on the studybook for Options, let’s see if I understand them well enough to try the system… 🙂

    Ciao ciao

    Stal

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    1. Glad to have inspired you… Good luck with the learning. Keep us posted on how it goes. Some resources I use a lot are tastytrade and optionalpha. I had basic understanding of options before I found them.

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  2. Hi At,

    I thought I would stop by and see what you’re up to with your options trading. Like everything, there is a bit of a learning curve and somethings a person won’t fully understand until they do exactly what your doing now – experiment.

    You already know and said it: “I need to be really really sure I want to own the stock at that price, no matter what!” This is so important when selling puts and when selling calls you need to be willing to let the stock go.

    I like to list out all the possible results – review them and make sure I’m happy with the possible outcomes. During the learning process it’s helpful to be very conservative with your strikes – you will collect less premium, but have a lower probability of the option being exercised. Look at Delta in the option chain for probabilities of the strike price being reached.

    Best,
    Devin

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  3. Thanks for the write-up on your options trades. I’ve only had to roll a few puts and those ended up being for credit so they worked out okay. The few losing options trades I’ve had were all vertical spreads that went so far against me that it would have been too expensive to defend through rolling. I’ve since moved away from fixed risk trades and now tend to prefer the undefined risk trades; I feel those are easier to deal with despite sounding a lot scarier.

    I’ll hopefully be selling more puts pretty soon. The latest options trades for me will be using LEAPS as a stock surrogate and selling calls against those (technically a diagonal spread).

    Do you follow the archived and live videos at tastytrade.com. I highly recommend you check them out if you do. This program is created by the founders of the thinkorswim options platform. They provide very good advice from the absolute beginner to the veteran floor trader.

    Scott

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    1. Hey Scott,

      thx for passing by.
      tastytrade is is program I discovered over the summer and ever since, I have watched hours of content.
      At this time, I try to figure out where I want to land with options trading. Making it a full time job is not the purpose. I tend to see it as a yield enhancer on my portfolio.
      AT

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