Here’s a brief summary of my transactions from last week (May 11-15).
From the week prior, I had seven positions in put option contracts expire. My positions in Beyond Meat (BYND), Square (SQ), Slack (WORK), and Match.com (MTCH) expired out-of-the-money so I kept the premiums and maintained the liquidity. Because US Bancorp closed Friday above $33 but below $36 per share, I was assigned two hundred shares from the two contract I sold with a strike at $36, but my contracts at $33 expired worthless.
On Monday, May 11th, I bought back a contract for 100 DocuSign shares at $0.10 per share. This was a short-lived position due to DocuSign’s strong performance. I originally sold the put on May 7th for $0.65 a share. After the $0.65 commission fee (both in and out of the position), I earned $53.70 over five days while occupying $10,500 of capital (since I only have a cash account, it was really six days because I had to wait for the purchase to settle). While margin account would not force me to ration my capital, the 31.1% annualized return is nothing to complain about.
Also on May 11th, I sold a put for JP Morgan Chase and Peloton. The JPM contract was set to expire on June 12th with a strike of $80.00 for $1.65 per share. The market had been trading JPM at $89.90 at the time I submitted my ask so It would have been a 23.5% annualized return had the shares not fallen 11% in about a month. The PTON contract was just five days from expiration $0.17 per share with a strike of $38 (when shares were trading at $43.25). The value proposition was an annualized 40.8% premium yield (contract price divided by strike price) with 12% margin to execution (spread between market and strike).
Tuesday the 12 of May was very busy - I had capital available after the prior week’s expiring trades settled and I wanted to sell as much time value as possible. I sold a put contract for PTON that expired at the end of the week and contracts that expired in three weeks for US Bancorp (USB) and Salesforce.com (CRM). I closed two put contracts for Rollins (ROL) that expired on the 15th for $0.07 per share to free up capital.
Wednesday, May 13th I sold soon-to-expire puts in Datadog (DDOG) ($0.60 per share on a $65 strike while shares traded for $70.08), two USB put contracts ($27.50 strike with market at $29.90 for $0.07), and a Square (SQ) put contract ($64.50 strike while the market was $72.02 for $0.10). These three transactions only yielded $81.21 after the contracts expired worthless two days later
On an annualized basis, $81.21 on $18,450 over two days is over 80%. Hold on - just because I held the position for two days doesn’t mean I cycled investment on that capital every two days. Consider I wait till Wednesday to take last minute investments on expiring options contracts every week. A weekly return of $81.21 on $18,450 is still 22.9% with the benefit of being out of the market for three of five trading days each week.
March 14th I sold a call on the 100 shares of Match.com in my account (strike at $80 for a $0.79 premium while the market opened at $73.82 and closed at $77.37; May 22nd expiration). Boy was that another mistake. Not only has the market made up the three-plus percent from my call’s strike, but (as of May 21) MTCH is trading north of $84 with one day left till expiration.
MTCH is not a holding I consider to be among my core positions, but we’ve owned it for years - quite successfully - and this will be another lesson in patience.
As the 14th came to a close, made a move in my position in 3M (MMM). My long-term holding in MMM was underwater thanks to the recent market downturn so I sold to realize the capital loss. Ever since, I have had short positions in MMM put contracts to reacquire my shares.
MMM had been trading around $130-140 this week, but the strike price on my option was $155. To initiate my next long position in MMM at a lower basis I bought to close the contract with a $155 strike and sold a put contract with a strike at $140.
The net of repositioning cost me roughly $1,400, but executing at $140 would save $1,500. I had sold the $155 strike contract for $6.50 per share. The market was at $134.57 when I initiated the newest put position. Considering the contract swap was basically free, execution at $140 would result an effective basis of $133.50.
I had a learning experience with Appian (APPN) that seemed to last all week. I held 400 shares when the 11th of May began - with two call contracts written at strikes of $40 and $50. I resolved to let 100 shares go for $40, but bought to close the $50 strike contract (for $2.35 per share). To offset the costs of buying the call at $50, I sold a different call at $55 ($0.45 premium per share) and a put at $45 ($1.90 per share).
On May 14th, APPN had a crazy day. After closing May 13th at $45.58, APPN opened 2.5% lower at $44.42 and promptly fell another 2%. At this point, I was exhausted by APPN’s downward march I sold a call at $45.00 ($0.75 per share premium, it expired in less than two trading days) and took my kids outside. A 3% move in two days is not unlikely so I took a chance to earn an extra $75.
When the options expired on May the 15th, APPN had last traded at $51.10, 17% higher than when I sold my last call option. 400 shares of APPN was more than I cared to hold but, man, I should have diversified the market timing risk by selling contracts with different expiration dates; the 200 shares that were called away after the May 15 close netted a cumulative discount of $1,720 to market value.
https://www.marketwatch.com/investing/stock/appn/charts