Options expiration (May) and adjusted positions: HPQ, ABT, BAC, ADM & more
I only had two options positions expiring this options expiration (see below). Both of these naked put option positions were well out of the money going into expiration, and in fact I could have taken profits weeks ago but decided to save on commissions and let them “run out the clock.”
I have also recently initiated several new short put option positions and adjusted/closed out others, including a covered call option position that was assigned. The adjusted/closed positions are also listed below. I’ll itemize all the new short put option (and a covered call) positions in a separate post.
Options expiration results:
Abbott Laboratories [[ABT]] – The May 48-strike put options I sold against ABT on 11/18/10 as part of a risk reduction trade that involved rolling an earlier position down and out expired out of the money (OTM) for a total 13-1/2-month net return of about 7%.*
Bank of America [[BAC]] – The May 9-strike put options I sold against BAC on 10/15/10 expired OTM for a 7-month net return of about 6%.*
Closed/Adjusted positions:
Archer Daniels Midland [[ADM]] – On 4/26/11 I bought back (at $0.50 each) the January 2012 25-strike LEAPS put options I sold against ADM on 4/6/10 for $3.10, for a 12-1/2-month net return of 10.4%.*
Enterprise Products Partners L.P. [[EPD]] – On 4/27/11 I was assigned the June 40-strike covered call options I had sold against part of my long position in EPD, and this portion of my long position in this Master Limited Partnership was called away.
While I’ll miss the distribution income, I feel this was appropriate as a prudent risk balancing move since the strong performance of these units over the last year or so had resulted in this holding exceeding the usual 2-3% maximum size that I allocate for any single position in my portfolio. My return on the position over the 2-3 years that I held it is about 38%, not including distributions.
Hewlett Packard [[HPQ]] – On 5/17/11, in a risk reduction move in reaction to significant weakness in the stock, I bought back (at $4.20) the August 40-strike put option I originally sold against HPQ on 2/23/11 (for $2.05) and then sold a November 37-strike put option at $3.10, for a net credit of about $0.95.
Since this position is/was a “starter” position with room to add to it, I debated simply selling another, lower-strike put option against HPQ to average down, but decided to play it more cautiously for now and roll the initial position down. At this point however, the stock seems so cheap on a valuation basis I’ll probably sell an additional lower strike and/or longer-dated put option against it on any further significant weakness.
* 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).
