This is a strategy I’ve used previously. Basically when you roll an option forward you are replacing a short option with one expiring later.
I originally sold 1 TGT $60 July 19 ’13 Put back on 12/23/13 for 2.83. This put was coming up for expiration next month and I decided to close it out early to avoid getting assigned since it was in the money.
On 06/16 I was able to purchase back this put for 2.63 and then I simultaneously sold 1 TGT Jan 17 ’15 $57.50 Put @ 3.52.
I accomplished a couple things. I avoid getting shares assigned next month. I also set myself up for a much lower cost basis if this new put is assigned. I’ll get to buy 100 shares of TGT for $53.98 vs paying $57.17 next month. That’s a big difference. I’ll also get to collect more premiums if the put expires worthless.
The Trades:
I BTC 1 TGT July 19 ’14 $60.00 Put @ 2.63 which with commissions ended up being a wash.
I then Sold 1 TGT Jan 17 ’15 $57.50 Put @ 3.52
This trade could turn out a few ways:
1) I hold shares until expiration and shares are trading above $57.50. I will get to keep the $352 in options premiums.
2) I hold shares until expiration and shares are trading below $57.50. I will get assigned 100 shares of TGT at a cost of $53.98. Shares are currently at $58.74 so this is a nice discount.
3) Shares of TGT go on a run and I decide to buy back the put early for a profit less than $352.
I currently have 9 open options positions and a total options profit of $920 for 2014.
My options page has been updated accordingly.
Interesting strategy. Good idea to keep rolling them. Alway get nervous when things are in the money cause they could get called any time. I have not used this strategy yet but def worth lookin into , thanx.
Good Day and Grind On!
Asset Grinder recently posted…New Buy $AGU Agrium. Yeah you never heard of them!
Hi Asset Grinder,
Yeah, I only do this when I don’t want shares assigned and I didn’t make out with a profit. The extra time involved gives me a shot of collecting more premiums and a getting the stock at a better price.
Thanks for stopping by!
I really need to read up on options trading as I barely understood most of your post. lol The one thing I did gather, which was enough for me to know your post was a good thing and not bad thing, was that you are getting TGT for $53.98. Whatever your doing, keep it up! I’d do it too if I only knew how. 🙂
Wishing you continued success in your journey! AFFJ
A Frugal Family’s Journey recently posted…2-YEAR Collection of Stock Analyses!
AFFJ,
If you go to my options page. I worth an introduction to selling puts. It should help. There’s also a plethora of information available online just by googling a few keywords.
Yes, that’s the wonderful thing about selling puts. You get to own the stock of your choice at a better price if the put gets assigned. The key is to make sure you are selling puts on companies you WANT to own.
Cheers!
Interesting stuff these option strategies…It seems like there are no real downsides or they are very rare (of course you might ie. miss a huge gain if buy offer gets done while you have sold call). Does all US brokers provide option trading? and is it possible to use credit limit with options if you have your portfolio as collateral? Which broker do you use?
Best of luck!
– Leveraged DGI
Leveraged DGI recently posted…Transactions in June
Leveraged DGI,
When selling puts against a company you’d like to own, there aren’t many downsides. This and selling covered calls are probably the “safest” strategies. Almost all US brokers offer options trading. At least 3/4 of the ones I have do.
That’s a great question and one that I haven’t mentioned before. I use E*Trade and I do keep some stock in my options account as collateral. After approved for a marginable account, you only need a percentage of the total cost of the options trade. This let’s you leverage your options account very well using either cash or stock.
Thanks for stopping by!
Great move. I do this all the time as well. When rolling a put option which is in the money I always try to roll it also down in price and away in time to always have the trade as credit trade. Sometimes it is a hard thing to do. Like my last trade against TASR I had 1 option at 18 strike and had to roll it several times down to 13 strike. I had really a hard time doing it. And I learned a lesson – never use all your cash, so you have money for these rolls, because in some occastions you will not be able to roll down and away and be a credit trade without buying back one old put and selling out new TWO puts (or sometimes more). But overall, I love this strategy!
Martin recently posted…A weird day of trading
Hi Martin,
With a rising market, I haven’t had to roll many put options. I just had another one expire over the weekend actually. When I do, that’s the strategy I like to use. It makes sense but I lost big doing this on a speculative position, TWGP. Since then, I’ve only been trading position I want to own anyways.
Thanks for sharing!