Today I decided to close our position in a NextEra Energy (NEE) cash-covered put contract. Forty-six days ago I initiated a short position in a NEE put option contract (strike: $67.50; expiration: 19MAR2021); selling the right to sell shares seven percent below the prevailing market price within the following 105 days for a premium of $215. Usually I prefer to sell contracts with strike prices at least 15% below the market, but I want to buy shares of NEE – badly. Well, not bad enough to buy shares out right due to recent market performance.
The value of the foremost renewable energy utility appreciated significantly as the market realized the Biden administration will be joined in governance by a democratic legislature. With nine weeks remaining before contract expiration the market only required $40 to close our position and I took its offer. NEE shares trade 19% above our strike today and the premium we paid to close the contract was just 3% of the strike. We netted $173.61 of the 46 days we held the position. Our return was 2.6% of the strike price or 20.4% on an annual basis.
If NEE ever has another down day, I will gladly sell another put option contract with an aggressive strike price and a long term to expiration.