So that happened.  I was selling puts on FIT & I got assigned aka, the price of the stock settled below the put I sold at expiration.  I was obligated to purchase 100 shares of FIT at the strike price I had sold.

Let’s recap my trading strategy.  I planned to sell FIT puts until I got assigned and then sell calls….so everything is going according to plan right??? Well not exactly…

I sold a 45 strike put back when FIT was trading up around $50.  Ugh.  That seems like soooo long ago.  Then I think we all know what happened to the market.  China started devaluing their currency.  The fed didn’t raise rates and the market got mad at Janet.  There’s been a lot of volatility.  When FIT dropped as low as $31.88, I started exploring the stock repair strategy.  This sitch is like I bought some really chic Gucci boots and wore them once and then they went on sale.  Of course I wish I had gotten in FIT on the dip.  I am learning right?

I still remain longish term bullish on FIT.  Apparently so do the analysts.  FIT got some positive coverage and popped on that coverage a few weeks back, which enabled me to sell a call.  Selling a call – what does that mean?  I will explain it, but you could also watch this video hosted by my one of my trading mentors & he will explain it with some visuals.  Funny thing is, now sometimes I mentor him. But that’s a story for another time…perhaps he will share it on the blog…Peter?

Anywho.  Like I said, I am the proud owner of 100 shares of FIT which I got long at $45 a share, so $4500. Stay cool Holly.  So I’ve sold a call.  The tricky thing here is with FIT trading in a $35 range, there’s not much premium in the 45 strike calls or even the strikes above.  There’s always that what-if right?  What if I sold 40 strike call and then FIT busted through $40?  Then I’d have to sell my 100 shares for $4000 and lose $500. Of course I look at the deltas to see what the probability is that the stock will move to that strike.  It didn’t make sense to me to risk $500 or so to maybe make $50.  So I have to wait for FIT & the market to have good days.  The day I sold the call, FIT was having a good day, but there wasn’t premium at a higher up strike until I got to the traditional Oct expiration – that’s today as I’m writing this. The next day the Fed was going to make a statement and I thought the market might sell off so I got pumped to put that position on.  Well the next day market & FIT rallied.  The call I sold was worth about $1.50 more the next day.  I was miserable about it. Also I sold a 44… I kept thinking, what if FIT busts through $44, then I am losing $100 when I could have made a profit on the sale of the stock.  I am learning right?

What’s my big plan?

I am not married to my long position.  I like to say, the stock is not my boyfriend, I am totally willing to dump this position for a better position.  I want to own it for less.   If FIT stays in this $37 range, I can sell 46 or 47 strike calls, that way, if FIT makes a big swing to the upside, I can exit the long position for a profit on the sale of the stock, plus the premium I’m collecting selling the calls. Then… I start selling puts again.  Important for me to note,  it’s earnings season.  I will trade cautiously around FITs earnings, as that’s when I got assigned…on FITs Q2 earnings.  Seller BEWARE!

The market just closed and I got to keep the premium from the 44 strike Oct call I sold.  Stay tuned as I keep selling calls!

Post written by Holly Goodhart, Director, CBOETV

  • Meredith Zidek

    So, you sold a 44 call and it expired worthless last Friday (the 16th) and you didn’t have to sell the stock, since FIT didn’t close at 44 or above that day? And you also received premium from selling the call? That’s pretty good stuff. Remember, you also took in premium from selling the put, so you could use the total you brought in through those premium sales to offset the cost of the stock, if you are thinking about your cost basis in the shares of stock. This is to your advantage when you calculate what calls you could sell without having your stock called away at a price that would put you at a loss for the total of these transactions.

    I like the way you think: Don’t love the stock, just love what it can do for your profit/loss! If trading options around it makes more money than owning the stock, then all the better – less risk for you (owning an asset that can depreciate is a big risk) and better money for the time and brainpower you put into it!

  • Mooseflstc

    Remember that you didn’t buy 100 shares of FIT at $45; you bought 100 shares of FIT at $45-premium received for selling the put. If you received $1, then you bought FIT at $44 and selling the $44 call (and having the stock called away) would actually be a winner instead of a loser.