Happy mid-October! Before getting started, I recently put together a video comparing all my income streams in 2023 vs 2022 (including options). Click the thumbnail below to check it out, and I would love it if you could support me by subscribing while you're there! Thank you!
On the options front, we got a little break from volatility early in the week, which was great for closing positions. I closed 6 positions this week alone for over $300 in profits, inclduding the trade in Best Buy I'll talk about below.
To be transparent, it's not all smooth sailing as there was also an assignment in Realty Income from a couple of weeks ago. I'll share how I'm thinking about dealing with this today as well.
This week:
$32 profit in Best Buy (BBY)
Dealing with assignment in Realty Income (O)
$32 profit in BBY
I shared the opening trade a few weeks ago, selling the $67.50 cash-secured put expiring Oct 20 for $62. The position actually went briefly ITM, but not by much, so my strategy was to give it time to turn around and wait for the extrinsic value to fall so that it could be bought back for a profit.
On Tuesday, the market provided the movement I needed and I closed the trade for $30. This locks in a realised profit of $32, or just about 51% of max profit. By virtue of this trade being ITM, it would have been showing an unrealised loss for a week or so of its lifespan. There's a time for letting a trade come around, and there's a time for making proactive adjustments to a trade. As you can see in the screenshot above, it's important not to panic and stick to the plan and remember the basics of option selling, to decide what the appropriate action is. You can read about the original trade entry into this BBY position at the link below.
Dealing with assignment in O
It's finally time to update you on what happened with O. Back in August, I sold a $57.50 put expiring on Sep 15 for $70, and rolled it once to Oct 20 for $45 - which is a total premium of $115. With a few weeks left to go, O was quite deep in the money and the put option got assigned early, meaning I had to buy 100 shares at $57.50. After discounting the initial premium, that's a cost basis of $56.35 per share. No worries. When it comes to option trading, the key is to always have a plan for every plot twist.
If you remember the JNJ saga from a few months ago, typically the strategy is to sell covered calls and/or strangles against an assigned position to slowly work my way out of it - gradually collecting more and more premium to offset my cost basis over time. Unfortunately, with O's current stock price () so far away from our cost basis of $56.35, there's no covered call that I can sell currently that would bring in enough premium to be worth it. So, it becomes a waiting game. O does have earnings on Nov 6, which may provide the needed movement to initiate the covered call or strangle. What I really enjoyed was people in my private community looking forward to using this as an opportunity to sell covered calls. Even though I talk about the dollar value of being in the community, I also think knowing there is a community (and myself) to trade our way out of this position together is also a big plus!
At the end of the day, this is why stock selection is so important. I have 100 shares of a stock that pays me a monthly dividend that I can either take as cash or reinvest into more shares, while I sit and wait to sell more options to generate more cashflow and get out of the position at a profit. That's not too scary for a "worst case" assignment position is it? As always, if you're somewhat familiar with options and would like real time access to trade updates within my portfolio as well as my thought process when it comes to dealing with difficult positions, you can sign up for my Bread Crumb subscription below.
Closing thoughts & useful links
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This article is for educational purposes only. This is my own portfolio which is being managed according to my goals and risk tolerance. Your situation is likely different and you should do your own due diligence before investing in stocks or options.