4 Stocks' Puts Options In A $25,000 Watch List Expire Friday; What Next?

With puts options on four stocks in our $25,000 watch list due to expire Friday, it's time to decide about taking assignments or buying puts back to avert assignments.

By Donald E. L. Johnson

Cautious Speculator

Last month we wrote about how investors with at least $25,000 could sell cash secured puts on eight stocks. Traders sell puts to generate income. Doing so is a bullish trade.

When these trades were proposed, their technicals and fundamentals looked pretty bullish and attractive to traders who would have to buy them if they were assigned, unless the traders decided to buy back the puts before Friday’s close.

Four of those trades’ puts options expire after the close of trading on Friday, February 18. They are ME, NEM, SOFI and XLE. The other four will expire next week or next month. F and T look like they could be assigned.

ME, NEM, XLE and–tentatively–SOFI look like they won’t be assigned because the stocks’ prices are above their puts’ strike prices. Those puts will expire worthless and the traders who sold them will keep their premiums.

Take assignment?

If SOFI closes below its $12.50 strike on Friday, it will be assigned to traders who are short the puts at the market’s close. SOFI’s puts were sold at $0.75. They closed Tuesday at $0.38.

During the next three trading days, traders who are short SOFI’s February 18 puts will have to decide whether to take their current profits or hold on in the hopes that they’ll get to keep the full 75 cents of premiums. If the stock falls below the $12.50 strike price, traders will have to decide whether take assignment of the stock at $12.50 when the stock is trading at a lower price or buy back the puts at a loss before the puts expire.

Sometimes, if a trader is very familiar with a stock and is a nimble options trader, he might hold the stock until the last half hour or so before the close or until it is clear that the stock will be assigned if the puts aren’t bought back at a loss.

This week, however, uncertainty about how stock prices will react to whatever happens in Ukraine may make some traders take their options profits early. Then they can be out of the market over the weekend or until they are more comfortable doing new puts or covered calls trades.

For some experienced traders, sitting on the brink of either a loss or lucky win is routine. The suspense comes with the business. For those who want to get out of a trade while they can do so with even a small profit, there is nothing wrong with doing that.

Risk management

The key to successful trading, after all, is risk management.

Sometimes traders have to take smaller profits than they thought they would get when they did a trade, and sometimes you just have to cut your losses and move on.

As for the other three stocks and their puts, over the last three days before the puts expire, the puts options prices on stocks that are “safely” above their strike prices will shrink quickly.

ME puts are down to $0.05. NEM puts are at $0.11. XLE puts are $0.03 a share. When placing a trade, if the bid is $0.02 and the ask is $0.04, click the ask (buy) tab and bid $0.03. If you don’t get a fill quickly, up the bid a penny.

Traders often close out puts and calls trades at those prices just to make sure something that might cost them their premium profit doesn’t happen–like a Russian invasion of Ukraine or a Russian decision to back off its threats to invade Ukraine.

Managing covered calls trades as they near expiration works the same way as when puts are involved.

Trading the wheel

When puts are assigned, traders who work the “wheel” then sell covered calls on the stock until it is called. When it is called, they again sell puts until the stock is put. This keeps premium incomes flowing regardless of what the stock does, unless a trader decides to get out of the stock at a loss or a profit.

Question: Will you close any puts or calls early this week? We can discuss it in comments.

LINKs:

Home Page. See previous articles on other stocks.

Calls vs Puts Options: What’s the Difference?

A video on how to place options trades on Think or Swim.

Beware

Like all investing, trading stocks and options is risky. If you can’t sleep with market risks, you might want to let someone else do your trading. Consider an option trading ETF like XYLD, which I own. I also trade its calls and puts. I’m an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. The data presented looked accurate at publication time except for intra-day fluctuations, but I can’t guarantee the accuracy. Traders should do their due diligence. I reserve the right to trade any of the listed stocks and options at any time. I own and/or have options positions on ME, NEM and SOFI.

@realDonJohnson. I’m active on twitter where I tweet about trading and other things and link to tweets about stocks.