Options Expiring in Stock Portfolio July 26, 2024
This article is crafted with the help of ChatGPT while I’m waiting for my 6-year-old kiddo during her jiu jitsu training in Tbilisi.
As an active trader and investor, managing options contracts is a crucial aspect of my stock portfolio strategy.
Today, July 26, 2024, marks the expiration date for several options I hold, specifically in Morgan Stanley (MS), Teva Pharmaceutical Industries (TEVA), Philip Morris International (PM), and Intel Corporation (INTC). Here’s a detailed look at how these positions have played out and my strategic adjustments.
Options Expiring Worthless
Morgan Stanley (MS)
I was holding a short put with a strike price of $98 on Morgan Stanley, which expired worthless today. This means MS's stock price stayed above the $98 strike price, and I get to keep the premium received when selling this put. It's a favorable outcome as it adds to my overall return without requiring me to purchase the stock.
Teva Pharmaceutical Industries (TEVA)
Similarly, the short put on Teva Pharmaceutical Industries expired worthless. The stock price remained above the strike price, allowing me to retain the premium collected. This consistent outcome emphasizes the effectiveness of selling puts on stocks I wouldn't mind owning at lower prices.
Philip Morris International (PM)
For Philip Morris International, I was holding a put credit spread, which also expired worthless. A put credit spread involves selling a put at a higher strike price and buying another put at a lower strike price. Both options expired out of the money, so I get to keep the net credit received from the spread. This strategy limits potential losses while providing a steady income stream when the stock remains stable or increases slightly.
Rolling Forward Intel Corporation (INTC)
Initial Position
The options I held on Intel Corporation (INTC) were set to expire today, but the stock dropped below my strike price of $32. To manage this, I took a proactive approach.
Rolling Out and Forward
I rolled the short put options out and forward to a new expiration date of August 30, 2024, with a lower strike price of $30. Rolling an option involves closing the existing position and opening a new one with a different expiration date and/or strike price. This strategy allows me more time for the stock to recover and reach the new strike price while potentially collecting additional premiums.
Opening New Position in Morgan Stanley (MS)
New Put Position
With the expiration of my previous MS put options, I decided to open a new short put position with a strike price of $100 and an expiration date targeting next week's expiry. This decision reflects my continued confidence in Morgan Stanley's stability and my strategy to generate additional income through option premiums. By choosing a short-term expiry, I can take advantage of the time decay of the option premium, aiming to collect another round of premium income if the stock remains above the strike price.
Reinvesting Premiums
From the premium received from selling the new short put on MS, I bought 0.16 fractional shares of Morgan Stanley itself. This reinvestment strategy allows me to compound my returns by using the income generated from options trading to accumulate more shares of a stock I believe in.
Managing expiring options is a critical aspect of maintaining a balanced and profitable portfolio.
Here are a few strategic takeaways from today's expirations:
1. **Premium Collection**: Expiring options that remain out of the money result in the retention of the premiums collected. This approach provides a steady stream of income, even when the underlying stock does not perform as expected.
2. **Risk Management**: Rolling options forward, as I did with INTC, helps manage risk and maintain positions without immediate losses. It allows flexibility and time for the underlying stock to recover or reach a more favorable price.
3. **Diversification**: Holding a mix of short puts and put credit spreads across different stocks ensures diversification and spreads risk. Each position's outcome contributes to the overall strategy without overexposure to a single stock or market movement.
4. **Active Management**: Opening new positions, like the new short put on MS, shows the importance of continuously managing and adjusting my portfolio based on market conditions and stock performance.
5. **Reinvestment Strategy**: Using the premiums from options to purchase fractional shares enhances my long-term investment goals. This reinvestment compounding effect can significantly boost my portfolio value over time.
### Conclusion
The premiums collected from MS, TEVA, and PM options contribute positively to my overall investment strategy, while the rolled INTC position allows for continued potential gains in the future.