October Options Expiration Update

By Jim Pearce • October 10, 2018

Normally, I’d wait until next Friday to issue this month’s options update since that is the day our three open put positions will expire. However, I am concerned that this week’s increasing volatility may trigger a “flash crash” next week. For that reason, I am going to close them out now rather than wait for them to expire and risk having the shares put to us.

The good news is that all three of our short put positions are comfortably out-of-the-money (which is a good thing, since we are the seller and not the owner of them). That means we can buy them back for considerably less than for what we sold them, locking in our gains and freeing up capital to use later on for new trades.

In June, we sold a put on H&R Block at a $23 strike for a minimum price of $1.50. We can buy that same option today for only a nickel, generating an ROI (return on investment) of 97%.

The following month, we sold a put on Xerox at a strike price of $25 at a limit price of $1.50. As of this afternoon, that same option could be bought for 24 cents resulting in an ROI of 86%.

On the last day of August, we sold a put on General Electric at a $13 strike for 60 cents, which we can buy now for 16 cents. That works out to an ROI of 73% over six weeks.

I do not suggest using limit orders on these trades; buy them at the asking price to be sure you get an immediate execution.

I realize that by buying back these options we are reducing the level of income generated by the premiums, but in this case I feel discretion is the better part of valor.

If the stock market does go in the tank next week, then put premiums will escalate. That means we should be able to write put options at lower strike prices and receive higher option premiums, which is exactly what we want.

If you decide to ignore this alert and hold on to your puts through next Friday’s options expiration, I suggest you keep a very close on the stock market and have an exit strategy in place.

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Annalee

10/10/18 ‐ 3:17pm ET October 10, 2018 at 3:17pm ET

GE filled at 0.18 (midpoint)

Annalee

10/10/18 ‐ 3:24pm ET October 10, 2018 at 3:24pm ET

65% profit

Martin Walsh

10/10/18 ‐ 5:12pm ET October 10, 2018 at 5:12pm ET

can you explain – 08-31-18 I Sold the GE 10-19 18 put $13.00
However for some reason the following happened
09/28/2018 ASSIGNED as of 09/27/2018 -PUT (GE) GENERAL ELECTRIC CO OCT
I don’t understand why that happened
Thank you

Jim Pearce

10/10/18 ‐ 5:24pm ET October 10, 2018 at 5:24pm ET

In your case, the put contract was assigned against you by someone who owned the same contract (options contracts are randomly assigned by your broker, and in this case you are one of the put sellers that got assigned). That means you had to buy the stock at $13 (on the day the put was assigned, GE was trading below $12). So, you have several choices as to what to do. If you don’t want to own the stock, you can sell it for a small profit (GE closed today at $13.28). Or, you can sell a covered call against it if you want to generate additional option premium income.

Richard Fremer

10/10/18 ‐ 5:52pm ET October 10, 2018 at 5:52pm ET

Mr. Pearce, How exactly do I buy back the GE options contract?
Forgive my lack of knowledge, I have not done this type of transaction before. Thanks

MarkS

10/10/18 ‐ 11:30pm ET October 10, 2018 at 11:30pm ET

Richard, you enter a ‘Buy to Close’ order for the number of GE options contracts you own. When you sold the GE puts initially you had to enter a ‘Sell to Open’ order. Now you do the reverse to close out the position.

Richard Fremer

10/11/18 ‐ 9:26am ET October 11, 2018 at 9:26am ET

Thanks Mark. Appreciate it.

Maria R

10/11/18 ‐ 11:13am ET October 11, 2018 at 11:13am ET

Thanks for the update, Jim. Was able to close all 3 positions today for a profit. May I make a suggestion? Can you please post these as alerts? Did not see the post until after market close yesterday when I would review all the posts in wealth society.
Thanks again.

Jim Pearce

10/11/18 ‐ 1:27pm ET October 11, 2018 at 1:27pm ET

Hi Maria. I’m glad to hear you were able to close them all out at a profit. I did classify this update as an ‘alert’ in our system so it should have been treated as such with regard to how it was communicated to our subscribers. If you are not receiving email alerts from us, you can do so by going into your account settings and checking that box. Thanks.

Maria R

10/11/18 ‐ 2:10pm ET October 11, 2018 at 2:10pm ET

Thanks, Jim for your prompt reply. I did get an email alert. What I was referring to was a SMS or text alert which is not available when I went to the account settings. Is it possible to get a text alert?
Thanks

Jim Pearce

10/12/18 ‐ 2:20pm ET October 12, 2018 at 2:20pm ET

https://www.investingdaily.com/income-millionaire/forum/43608/text-alerts/#comment-139456

ETKTRIDE

10/11/18 ‐ 12:15pm ET October 11, 2018 at 12:15pm ET

Jim,

Looks like XRX is running away from us today… midpoint is $.63

Should I sell or hold on hoping for a rally between now and next Friday?

Thanks for your input..

Jim Pearce

10/11/18 ‐ 1:11pm ET October 11, 2018 at 1:11pm ET

That’s entirely up to you, provided you are okay with the possibility of having XRX put to you at the strike price ($25). If not, then I stand by my advice to close it out now to eliminate the risk of having it put to you. Even at $0.63 you should still double your money on this trade, and ithis is no time to be greedy. Next week could get ugly if the market can’t find a bottom by tomorrow.

Jz

10/11/18 ‐ 12:17pm ET October 11, 2018 at 12:17pm ET

Any idea what the return would have been if you bought a call instead of selling a put? I’m interested in getting in with as little capital as possible.

Jim Pearce

10/11/18 ‐ 1:05pm ET October 11, 2018 at 1:05pm ET

I am not able to calculate how a long call option would have performed since I do not have access to historical options prices (I know what those options are worth today, but I can’t pull up their past values). Although what you propose makes sense in that I only write short puts on stocks that I believe will not go down further in value, that does not necessarily mean that they will appreciate significantly, either. In this case, buying a call option on HRB would have been profitable but perhaps not for GE and XRX since they are trading only a little above their respective strike prices.

Daniel Long

10/11/18 ‐ 1:13pm ET October 11, 2018 at 1:13pm ET

GE: STO 13 P 0.59 credit
BTC 13 P 0.24 debit.
Net 0.35 profit or 59%.

HRB: STO 23 P 1.86 credit
BTC 23 P 0.05 debit
Net 1.81 profit or 97%.

XRX: STO 25 P 1.68 credit
BTC 25 P 0.31 debit
Net 1.37 profit 82% profit.

Thanks, Jim.
DL

Kevin Donnelly

10/11/18 ‐ 9:54pm ET October 11, 2018 at 9:54pm ET

Able to buy all 3 stocks.3 units HRB 39.24. 2 units GE 20.48.1 unit XRX 36.71 on Oct.10.What happens now?

Jim Pearce

10/12/18 ‐ 9:55am ET October 12, 2018 at 9:55am ET

Hi Kevin. I’m not sure I understand what you did. My instructions above were to buy back the put options to close out those positions, not the underlying stock. Did you buy back the put options or did you buy the underlying stock?

Maurice

10/12/18 ‐ 10:34am ET October 12, 2018 at 10:34am ET

I am confused as i am new here, I did the following as I understood :

Filled Buy to Open 2 GE OCT 19 2018 13.0 Put Limit0.56 — — 10:26:18 10/12/18

Filled Buy to Open 2 GE MAR 15 2019 12.0 Call Limit 1.50 — — 09:30:36 10/12/18

What did I do wrong and what should I do now?

Filled Buy 200 GE Limit 12.50 — — 09:30:37 10/12/18

Kevin Donnelly

10/12/18 ‐ 10:47am ET October 12, 2018 at 10:47am ET

Sorry about the lack of clarity.I bought back the put options.thanks.Just not sure what I do now.

Jim Pearce

10/12/18 ‐ 2:17pm ET October 12, 2018 at 2:17pm ET

You shouldn’t have to do anything now if those positions have been closed out. Your broker will debit your account for the cost of buying back those options. I suggest you check your ‘Positions’ in your brokerage account to confirm that you no longer have any options Systematic Wealth options positions expiring next week.

Jim Pearce

10/12/18 ‐ 2:12pm ET October 12, 2018 at 2:12pm ET

Looks like you combined this closing trade in Income Millionaire with an opening trade I did recently for Systematic Wealth. If you never bought the short put on GE in the first place then your put contract will expire at the end of next week. At the moment, you have a small gain so you may end up making a few bucks on it unless the stock market continues on its downward trend next week. The other two positions you have in GE – the long call and the stock – will move in the same direction over the months to come. Both are bets that GE will rise in value and will move pretty much in lockstep with one another.

George McMillion

10/12/18 ‐ 4:35pm ET October 12, 2018 at 4:35pm ET

BTC GE,HRB and XRX.

Thanks Jim

Chuan

10/24/18 ‐ 8:42am ET October 24, 2018 at 8:42am ET

Mr Pearce,
I did not close GE when the alert came about early as I thought I have to wait till 10/19/2018 to do so. This is the first time I did a sell to open Put trade. Now GE was put to me and I owned 200 shares of GE. Should I write covered call with it and how to do so or wait for its price to rise and sell?
Chuan

Jim Pearce

10/24/18 ‐ 9:47am ET October 24, 2018 at 9:47am ET

Hi Chuan. As a publisher, we are prohibited from giving personalized advice so I cannot tell you what to do. What I can say is I believe GE is likely to appreciate in the months to come, and I have an open long call option position on GE in my other trading service, Systematic Wealth. GE is scheduled to release Q3 results next week (October 30, before the open), so if the stock rises on that news then that might be a good time to write a covered call against it.

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