Sunday, April 21, 2013

Option Expirations

Well the third Friday of April finally rolled around so it was option expiration day and I had two open put options expiring.  With both Intel and Bank of America closing above their respective strike prices on the puts I sold, I got to keep the full premium less commission/fees from when I sold them.  Let's look back to see how these put options worked out.

I originally sold the BAC $11 put option on January 31st for $0.52 which netted me a premium less commission of $44.00.  The return is calculated as $44 / $1,110, since each option contract represents 100 shares.  This was a 4.00% return in 80 days which is annualized to a 18.49% return.  Not only did I earn a solid return on my money, this was the last of my cash secured puts that I had written so that $1,100 is now freed up to be used for other purchases.  I added margin to my account in the first half of March and have been selling naked puts since then.  I really like having the ability to sell naked puts since less cash is required to maintain the position so you can use a bit of leverage to earn more option premium.  Of course, it's important to monitor that leverage to make sure that you aren't subject to a margin call.

The second option to expire was my INTC $21 put option that I had sold on March 21st.  I'm going to calculate the returns as if it was a cash secured put for my spreadsheet even though it was sold on margin.  When I opened the trade I received $53.00 less commission to net $45.01 in option premium.  This represents a $45.01 / $2,100 = 2.14% return over 31 days which is equivalent to a whopping 26.10% annualized return.  I'll gladly take a return like that over a 1 month period.

This was a naked put so I don't have an extra $2,100 to use now that it's expired, but I do get to reallocate the cash held to satisfy the margin requirement for the position.  For shiggles, let's calculate the return based on the margin requirement which averaged around $480.  Based on that the return would have been 9.38% for a 114.17% annualized return.

With earnings season upon us the markets have been a bit more volatile so I'll be looking for strategic opportunities to purchase some shares since I haven't been as active on that front in 2013.  Such is the life of a value/DG investor.  If the right combination of option premium and expiration dates come along I wouldn't be opposed to selling another put, although it'll have to be the right situation since the correction we've all been waiting for might be coming.

So far in 2013 I've received $559.79 in option premium from closed or expired options.

I have 2 options set to expire in May, with one most likely expiring out of the money and the other one is currently right around the strike price so it could go either way.

I've updated my Option Summary and Portfolio pages to reflect these changes.


  1. On a side note, I just calculated my dividends total for the year assuming no more increases or reinvestment and the combined total of my option premium I've received so far plus dividends to be received is at $2,777 so I might be revising my combined dividend, interest, option premiums goal higher for the 1st half update.

  2. You're doing well so far on selling puts, I just had my WM put expire and will post that shortly. I expect a lot of expiration this year as long as the market doesn't have a big drop. I also saw HAL had a nice pop today. It might be a good time to sell more calls.

    1. AAI,

      I like what I've been able to do so far and hopefully I can ramp it up a bit more. As the HAL shares end up getting called away that'll free up more cash so I can sell a few more naked puts. I also noticed the pop for HAL today but didn't get the chance to really look through the options tables. I'd like to sell another call with the intention of trading it to increase the premium income and then one that will most likely get assigned.

      Thanks for stopping by!