Well, two ways, technically. One expired in-the-money and two closed on limit orders but the first limit order was set yesterday, the day I sold the position to open it, and the other I set a limit order to buy on the closing date because of significant volatility of the Underlying stock.
Good news first – the early closure. Yesterday was a brutal day. We must have closed down more than two percent on the day. I did manage to sell three put option contracts as investors sought insurance to protect against further downside risk. Crowdstrike (CRWD) traded down more than 7% yesterday afternoon and I swooped in to sell a put (strike: $160; expiration: 16APR2021) for $224.30. Note I had just the prior day, 17MAR2021, closed a short position in different put contract with the same expiration but higher strike, $165, for $175.69 – netting $198.61 over five days.
Selecting another aggressive exit point, our limit order was filled at the open of today’s trading and we netted a quick $73.61. Our return on the $16,000 collateral required for the trade was about 0.5% but more than 167% on an annual basis. We skimmed some profit overnight and put the capital to work again today. Sixteen thousand dollars is more than two percent of our portfolio based on today’s opening value, and 32.8% of the premium for this contract was returned in less than 24 hours.
Source: Questrade.com; 19MAR2021
More happy news, the two Skillz (SKLZ) option contracts (strike: $20; expiration: 19MAR2021) were likely to expire out-of-the money by the end of today’s trading session. On Thursday, the business did announce a secondary equity offering yesterday and the market adjust the value of SKLZ shares because each outstanding share was now worth a smaller piece of the pie. This morning selling continued as the market opened today, falling from yesterday’s close ($26.30) to as low as $23.65, and I thought it best to close the position while the market would sell two expiring contracts for two cents each. Over 15 days we netted $163.25 on $4,000 in collateral for a 4.1% return (nearly 100% on an annual basis). I sold three more SKLZ put option contracts with April expirations at a $17.50 strike before this position closed.
AppHarvest (APPH) is a greenhouse tomato farming business in Appalachia that became public within the past few months and has had wild ride thus far. On 3FEB2021 APPH traded for $33.92, eight percent below its $36.77 peak (set the previous day), when I sold two put contracts (strike: $25; expiration: 19MAR2021) for $268.62. Six days later, APPH closed at a new high, $38.21 but eventually plunged to close at $16.87 on 5MAR2021. Perhaps I should have set a more aggressive limit order to repurchase the contracts, but I wanted to acquire APPH shares and did so through these put option contracts with a cost basis of $23.66 per share. These contracts allowed us to purchase APPH shares at a 25% discount to the closing price on the date we initiated the put position. I plan to write at least one covered-call option contract on the APPH shares but I’d like to honor the source of our capital by investing in a farming business.
Source: MarketWatch.com