My preparation for March expiration

When trading options, there is this one date you need to keep an eye on: the expiration date. My next expiration date is March 18. Time to see if action is needed.

At the expiration date, the option becomes worthless when it is out-of-the-money. As an option writer, this is are best case scenario. When the option is in-the-money, as writer, you need to deliver upon your promise.

What does my portfolio tracksheet tells me?

201603Expiration

At he time of writing, I have 2 option positions open that expiry at the end of next week. One position is in XLF, a NYSE tracker of financial stocks. The other position is on KBC, a Belgian bank. It looks that both positions are OTM. This is good!

The KBC position has 30pct downside protection: trading at 50 on Friday, a strike of 35. This leaves room for a 15 EUR drop or 30pct. Nothing is sure, but it looks that this one will be fine. Why is this position still open? Why did I not auto close it? This position is  a violation against my rules: the liquidity in the options is low. This means I have a difficult time to close the position at a price I estimate ok. I am willing to add this risk to my position as I am very bullish on KBC. Be aware, it is not a god practice.

Taking a closer look at XLF

Things are a little different with XLF. I initiated this position in January, with an expiration in February.It was a mechanical option trade for me with a Probability of Profit of 80pct. As it was clearly in the money in the middle of February, I needed to roll my position. Looks like I was in the 20 pct bracket…

XLF201603

On February 10, I rolled the position to the same strike and got 12 USD credit for doing so. Since early march, the position is flirting with the strike price. It is on the dancefloor.

As per my best practice, I have a buy-to-close order that should close out the position a little over  50pct of max profit. This is a liquid asset, so, I will have to be a little more patient over the next days. I might get filled on my order and then this position is cleared.

If by Tuesday, I can not get out of the position, I most likely will try to reduce my profit. If that still fails, I have to roll to another month once more.

Why so few open positions?

There are 2 positions that already closed themselves as they reached the 50pct of max profit threshold. It is always a nice surprise to get a trade confirmation email for these order fills…Lets hope the same happens for my April options.

Other positions, my covered calls, were already rolled as the stock went through the strike price.

Do you have options outstanding? How do you mange them?

 

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7 thoughts on “My preparation for March expiration

  1. Interesting article. I, too, sell naked puts and covered calls. I rolled 2 Mar expiries within the past 2 weeks as they were ITM and I wanted to earn additional premium vs being assigned the underlying equity. I have 2 others which should expire worthless (a good thing). I typically don’t close OTM positions, but rather let them expire worthless. If they’re close to strike price, but OTM, I may close them to eliminate the risk of a stock price decline and assignment at expiry. Interesting “rule” to have GTC order to close at 50% profit. For clarification, is it 50% after trading fees?

    Liked by 1 person

    1. The rule is inspired by tastytrade. In my specific case, this is 50pct of max profit AFTER trading fees. I look at the net premium that hits my account when selling and am I willing to spend half of it (including the trading fee) to close the position.

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  2. hi , at the moment I am managing 18 options at the same time. with the 50 percent rule its very easy to manage many positiones. But if the price doubles my first action is not to roll the option.

    First I am always trying to sell another option on the other side. Than i have got a strangle. The stock only can go in one direction. If the call lose, the put wins. And if the put lose, the call wins.

    In the next step I roll the option, if the stockprice is near my strike price.

    If the price remains between my two sold options I will double my premium.

    Like

    1. Same approach here. I have in general some 10-15 options at the same time. As I manage at 50 pct as well, for March, I olny had 2 left!
      It is an interesting reaction that you have: sell an option at the other side. I would be ok for selling puts, a lot less for selling naked calls

      Liked by 1 person

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