Yesterday our initial limit orders to repurchase recently established short positions in put option contracts on NextEra Energy (NEE; strike: $72.50; expiration: 19MAR2021) and the Walt Disney Company (DIS; strike: $140; expiration: 16APR2021) were filled, and our positions were closed.
These two positions were initiated, along with the subject of my most recent post (an APPL put option position), on January 29th – one of the most volatile days since October 2020. The market has had a remarkable run since October closed. Our portfolio is up 21% since the first trading day in November 2020. Over the same period, the S&P 500 is up 16% and the NASDAQ Composite Index has advanced almost 25%. On Friday, January 29th, the S&P 500 fell as much as 2.2% and closed down 1.9%. That day the NASDAQ’s fall was more severe, down as much as 2.6% and closing down 2.0%.
As you can see from the below graphs, the downward volatility did not last long. To prepare myself to take advantage of quick reversals such as this one, I set aggressive limit orders to repurchase and close the position. The NEE order netted just $48.61, but only $7,250 was required as collateral and we earned a 0.7% or 61.2% annually. The DIS trade netted a similar yield (0.8% over the four days and 74% on an annualized basis) but with almost twice as much collateral at risk we netted $113.61.
Source: MarketWatch.com
Source: MarketWatch.com
Both DIS and NEE are companies I sold to take realize a loss in mid-2020 with the intent to reestablish positions. DIS has not sold off further despite parks and cruises operating at minimal capacity, if at all, but actually, as a result of the company’s focus on streaming video content, the market now values DIS as it values Netflix – much, much higher relative to earnings. I sold 57.5 shares of DIS for $102.99 on May 7th and shares have only gone up since – trading around $177 today.
Expectations for NEE have acerated since the Biden Administration was elected in November. I sold 25 shares of NEE, before the 4 for 1 split, on 16MAR2020 for $199.88 per share ($49.97 adjusting for the split). Today NEE is trading around $83 per share; 66% higher than our exit price. Before calculating the tax benefit, the deft realization of the $1,900 capital loss and subsequent failure to reassume the position cost us $3,300. Combined with the DIS blunder, these transactions cost us roughly $7,600.
As I manage our cash position to prepare for higher interest rates and potential market corrections I will continue to write put option contracts to generate income and force my way into a lower cost basis for companies like DIS and NEE. Since March I have made $355 from selling put option contracts on DIS (four days has been the longest holding period of the four positions) and $335.83 from short positions in NEE put option contracts (three positions 37, 46, and 4 days in duration).