The 3rd Friday of May just rolled around. What? Already? And with that comes option expiration. Two of the puts that I sold expired this past Friday and I also closed one out late last week. Work's been busy and the satellite has been very shady so the report for the closed option is just now getting done.
I originally sold a $37 put on Wells Fargo (WFC) back on March 12th and received $154.81 in premium. On Thursday, May 16th I bought to close the put option for $0.38. After commission and fees this cost $45.98 and brought the option premium profit to $108.83. The return is calculated as $108.83 / $3,700 = 2.94%, good for an annualized rate of 16.53%.
I was debating closing the put early but went ahead and closed it out as the markets continue to climb higher every day. I'm hoping for a pullback in the markets so I wanted to free up more capital in case that comes. This freed up the margin requirement that averaged close to $1,100 over the time the option was open, so the return was actually $108.83 / $1,100 = 9.89%, although for tracking purposes I'll calculate as if it was a cash secured put.
Option Expiration 1:
On March 11th I sold a $37.50 put option on Lorillard (LO). When I sold the put I received $122.01 in option premium after commission and fees. Since Lorillard closed trading above $37.50 the put option expired worthless to whoever owned it, but worked out nicely for me since I earned a solid $122.01 / $3,750 = 3.25% return in just over 2 months. This is equivalent to a 17.48% annualized rate.
Since this put was also sold on margin, the cash held to cover the margin requirement is now freed up again. My margin requirements for this put averaged around $850 while it was open so the actual return was closer to 14.35% based on the cash that was set aside.
Option Expiration 2:
On May 10th I sold $21 strike put option on Cisco (CSCO) and received $47.01 after commission and fees. Since Cisco closed trading above $21 on expiration I got to keep the full option premium as profit. This worked out to a nice $47.01 / $2,100 = 2.24% return in just over a week which was good for a 102.20% annualized return. This put was also sold on margin and the margin requirements averaged around $400 so the actual return was closer to 11.75%.
Cisco was reporting earnings 5 days later and I was expecting them to beat estimates and guide well so I sold the $21 put option since it still gave a solid cost basis if the earnings report was negative or the stock sold off. My thesis was spot on for this trade as Cisco beat on earnings and the shares jumped over 10% the next day. Too bad I didn't go heavier into this position because I could have had a solid profit. I wish I had at least made a small purchase of some shares of Cisco before earnings but such is life. The yield is now down around 2.80% and while I still feel it's undervalued I'd like to purchase with over a 3.00% yield.
My total option premiums from closed and expired options in 2013 are now up to $935.37. It's pretty exciting to see the premiums piling up while the dividends have been subpar for where I'd like them to be. I'm glad that I'm comfortable with options because they allow me to still grow my investment income when the markets are a bit overheated like they are currently. The option close and 2 expirations freed up around $2,250 in total capital that was being set aside to satisfy the margin requirements of these puts. I haven't yet decided if I want to keep some of this capital on the sidelines or try to get it invested again through puts. The markets just seem like their due for a retraction, although I've been feeling that for about 3 months now and it hasn't come.
I've updated my Option Summary page to reflect these changes.