Tuesday, July 9, 2013

Recent Option Transaction

Yesterday Lorillard (LO) traded 2% higher early in the day and that provided a good opportunity to close out the put option that I had sold.  I love when I get opportunities to close out puts early for a solid profit.  I had originally sold to open a put option back on May 1st and received $177.26 in option premium after commission and fees.  Lorillard has risen although slowly so I haven't had a really good chance to close out the position until this morning.

With shares of Lorillard trading higher in the morning this pushes the price of put options downward making it cheaper to close out the position.  I bought to close the $40 September put option for $0.78 which cost $85.98 after commission and fees.  The total profit on this trade was $177.26 - $85.98 = $91.28 which turns into a solid 2.28% return in just over 2 months that it was open.  This is equivalent to a 12.26% annualized return.  Overall I was able to capture 51.5% of the option premium in 47.6% of the days the option would have been opened.  I typically like to close out earlier if the price is right but it just never really came.

My actual cash-on-cash return for this was closer to 10.5% since I had sold the put on margin.  I don't keep track of the actual cash return since the margin requirements fluctuate on a daily basis and the returns are quite juiced on any closed/expired positions.

I was planning on letting this option go until expiration or at least deeper into the contract when the time factor starts to really eat at the premium.  But as I mentioned this put was sold on margin and I'm close to my comfort level on leverage so I wanted to open the gap back up by closing this position.  If all my put options were executed today I would be short about $13k; however, 2 of the options are currently out of the money.  Three of the four open options don't expire until the August cycle or later, but I do have one on Clorox that expires later this month and is currently in the money.  No worries on being over-leveraged though since I have plenty of capital to cover the shortfall in my savings account if needed.

This brings my 2013 total option premiums from closed/expired positions to $1,360.82 which is actually higher than my dividend income.  I expect the 2nd half to bring lower option premium due to having to conserve more capital for a potential house purchase.  This leaves me around $330 short of my full year goal of $2,750 in combined dividend/option income.

I've updated my Option Summary and Portfolio pages to reflect this change.


  1. I was eyeing my LO put yesterday since I have a 77% gain on it but decided to buy back my COP put instead. I'm also at my comfort level of leverage plus I needed to free up some cash for another put that's in the money.

    It looks like you will easily meet your combined goal of $2750. Nice work!

    1. AAI,

      I didn't really want to close out the LO put because I feel I left some profit on the table but I was a bit over-leveraged in case the markets turned sour plus I'm needing to extract some capital for a possible house purchase later this year.

      I'm excited to see the goal almost met and it's only half way through the year. Although the option income will probably slow down during the second half.

      Thanks for stopping by!