November options expiration went about as expected, given that the market continued to either tread water or go higher since last month’s expiration. Most of my naked put option positions expired out-of-the-money (OTM), enabling me to capture the full profits on the positions (see below).
I did end up being assigned on a couple of the positions. In one case it was intentional, to establish a long position in the underlying stock as an investment. In the other case – a gold equity closed-end fund – I had actually rolled the position out to next May, but was assigned the May-expiring put options just 10 days later (see below).
Looking ahead, I have a handful of naked put positions expiring in December. Most are currently trading OTM, but a few are close, and one – another gold-related position – is well in the money. If the market continues to behave, I expect I will probably let most ride into expiration, with the exception of the gold-related position, which I will probably try to roll out, although I’m not overly concerned with a possible assignment as it’s a small position.
Linn Co, LLC (LNCO) – Some November 35-strike put options that I sold against LNCO on 5/6/13 for $3.10 were assigned to me, and I was put the shares for a net cost basis of about $32.00. This was intentional on my part, as I decided I was willing to initiate a position in this stock at these levels as a longer-term investment.
Newcastle Investment Corp. (NCT) – Some November 10-strike put options that I sold against NCT on 3/20/13 for $0.95 expired OTM for an 8-month net return of 9%.* (Note: These options (and the stock price of the underlying company) were adjusted in the interim to reflect a spin-off in the company.)
Closed and adjusted positions since last month’s expiration include buying to close (i.e., taking profits) in January-expiring naked put option positions in Freeport-McMoRan Copper & Gold (FCX), Franco-Nevada Corporation (FNV), and Rio Tinto (RIO), where the put option premiums had all shrunk to $0.10 or less, resulting in an average profit of about 8% in 5 months.* I also closed out my April-expiring naked put position in Weight Watchers International (WTW) after the company suspended its dividend and continued to disappoint fundamentally. Although this meant buying back the April naked put position at a modest loss, my net overall return from selling naked puts in WTW was still a positive 3% in 8 months despite a significant decline in the underlying stock price.*
In terms of adjusted positions, in a risk reduction move I rolled out and down my short November 22.50-strike naked put position in CVR Partners, LP (UAN) to some May 20-strike naked puts for about a net breakeven cost. Finally, I had rolled out a November-expiring naked put option position in ASA Gold and Precious Metals Limited (ASA) to a May-expiring position, but was assigned the May options on 11/21/13, and the shares of this closed-end fund were put to me at a net cost basis of about $13.10.
New positions since last month’s expiration include April-, June-, and July-expiring naked put option positions in Cisco Systems (CSCO), KKR Financial Holdings (KFN), The Macerich Company (MAC), and Equity Residential (EQR).
* As always, the return on sales of cash secured or naked put options was conservatively calculated based on the option premium received from the sale of the options (minus commissions) against the unmargined capital set aside to pay for the possible option assignment (i.e., my being put the shares of the underlying stock).