August options expiration, naked puts on Citigroup, SFL & more
This was August options expiration and as usual with an options expiration I was short a number of expiring naked put options positions. In this case all of the short put options expired well out-of-the-money (OTM) – in fact I could have taken the bulk of the profits many weeks ago but I elected to “run out the clock” with them – and I was able to “close the books” on another profitable month of collecting option premiums (see below).
Despite the market’s downdraft over the last couple of weeks volatility remained somewhat restrained, and as a result none of my limit orders to sell new put options triggered during that time. I did however opportunistically elect to close out an existing short naked LEAPS put option position on a major money center bank after finding a “preferred” alternative trade in the same company:
Closed/Adjusted positions:
Citigroup [[C]] – On 8/18/10 I bought to close the January 2012 4-strike LEAPS put options I sold against C on 4/27/10 for about breakeven (I originally sold the options at $0.85 and bought them back at $0.83). I had originally entered this short put option position as a kind of alternative to being unable to buy preferred shares on C yielding 10%+.
However, the financial reform bill that passed in the meantime created conditions that made achieving such effective total returns (yield plus appreciation to call price) likely with many trust preferred stocks (TRUPS), including those from Citigroup. I managed to buy a variety of these securities in C and other banks in recent weeks at reasonable levels and no longer felt the need to hold this particular long-term options position.
Options expiration results:
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Olin Corp. [[OLN]] – The August 15-strike put options I sold against OLN on 1/6/10 expired OTM for a 7-1/2-month net return of about 7.5%.*
Plains All American Pipeline L.P. [[PAA]] – The August 45-strike put options I sold against PAA on 1/29/10 expired OTM for a 6-1/2-month net return of about 2.7%.*
Ship Finance International [[SFL]] – The August 15-strike put options I sold against SFL on 3/19/10 expired OTM for a 5-month net return of about 3.7%.*
Sunoco Logistics Partners L.P. [[SXL]] – The August 60-strike put options I sold against SXL on 2/4/10 expired OTM for a 6-1/2-month net return of about 3.7%.*
* As always, the return on sales of cash secured or naked put options was calculated based on the premium received from the sale of the options (minus commissions) against the unmargined capital set aside to pay for their possible assignment (i.e., my being put the shares of the stock).
