Today was a little more exciting than Friday’s expirations. Several of my option positions expired OTM (out of the money) meaning I got to keep all of the money I had received from selling covered call positions 30 – 60 days ago. I highlighted Arch Coal covered calls that expired on Friday. Well, today the market opened up and I was able to resell the Arch covered calls at a new and higher strike price of 26 and an October expiration; receiving another $295 for the 5 contracts. So that is a total of $475 over the past two months. Will see where ACI ends up at October expiration. more comments at slwmoney.com
Looking for another trade in my portfolio, I noticed Nucor Steel which also had developed a band pattern trading between highs of 48 and lows of 38, however has trended lower over the last three months and appears banded between 36 and 41. Not great price action but I am getting a nice little (.36) or 3.72% dividend for my patience (goes ex-dividend 9/28). Once again beating my 0.2% money market return. NUE closed up a few pennies today at $38.76 – no participation in broad market rally. This represents essentially a mid-point in the 36-41 band. US Steel was downgraded today, and the industry is languishing in general. My guess is the broad market will pull back from the recent rally and NUE will sell off approaching the $36.50 August lows. I set an alert to be notified when NUE drops under 37.50. Selling a 41-42 covered call as it approaches lows will not yield significant option premiums, but selling an Oct or Nov 35 put* should be handsomely rewarded. I am guessing the Nov35 may be worth $1 or more under that scenario. 5 put contracts would net greater than $500. If NUE closes greater than $35 at expiration, then the put would expire worthless, and I get to keep the $500. If it closes under $35 (strike price) at expiration (or any time during the term of the contract), the buyer has the right to “put” that stock to the option seller (me) at $35, regardless of prevailing, underlying stock price. That is my risk; owning the stock at $35, for which I was paid the $500.
Of course I can always buy back the option at the prevailing option value (probably greater than the initial $500) and take a loss, or sell it again forward to December or January at same or lower strike price and recoup the $500 and probably pick up an additional premium as well. This is termed “rolling the position forward”.
*put option – an option strategy where the put option owner/buyer may “put” or sell the underlying asset or equity to the option seller at a specific strike price during the term of the contract. The buyer pays a specific premium to the seller for this option “right”, ending on the expiration date of the contract.
Disclaimer: Content, research, tools, and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, are not guaranteed for accuracy or completeness, may not reflect actual investment results (unless otherwise indicated), do not take in consideration commissions, margin interest and other costs, and are not guarantees of future results.
At the time of publication the author owns shares in the underlying equity or asset and has sold option positions in the underlying equities.
Disclosure: long NUE, long ACI