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.
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.
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?
The story of KO is quite similar as above. I will try to roll this position as well.
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
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.
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.
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.
Do you have an interest in options?