Friday, February 17, 2017, was the expiration date for standard monthly options. For anyone who has a position that is about to expire, they need to make some decisions. They must let positions expire worthlessly, take a position in the underlying security by exercising their in-the-money options, close them out or roll their trade into a new one. Since we are closing the loop on expiring trades, we use this time to review our ideas. The following table is a summary of how we have done since the beginning of the year.
Since January we discussed 16 trades. Anyone who did their homework and then made those trades made an average annualized gain of 21.3% on the capital they placed at risk. It is also useful to take a look at individual positions. The following summarized the 3 trades that were closed at options expiration.
The first trade was a buy-write on IBM. We thought IBM was a bit cheap, paid a nice dividend and that the price would work itself slowly higher. Turns out the stock rallied aggressively after the election and traded through the strike of the call option sold. As a result, the stock was called away, as we are happy to have earned $905 on the trade.
The Norfolk Southern trade did not work out so well. We wrote a call spread as we thought the price ran ahead of the fundamentals. Yes, we believe that they would be a beneficiary of the growth in infrastructure spending and the resurgence of manufacturing in the US, but we believed that those benefits would not show up for a year or more. Our assessment was premature and investors who made that trade lost $315.
The United Rentals Trade was an idea built on the back of the infrastructure theme. We liked the idea as the stock price lagged other industrial companies and we thought it would be a more immediate beneficiary. Since we were looking for a bigger move, we suggested risk-reversal as a stock replacement strategy. Turns out the market agreed and pushed the share price sharply higher. We think the big move is over for the time being and we think the market overall is vulnerable to a pullback. As a result, we decided to close this position out at Friday night’s close.
The list and performance analysis of open trades is reserved for paying members. These trades have not hit our objective yet. We remain patient and confident that they will eventually do so. A table summarizing the open position can be found under “History” on the menu above or by clicking the following link. Open Trades Click Here
