Time For Defensive Action?
Time For Defensive Action? Hello Smart Option Sellers! In addition to the general market sell-off (again!), we currently have a put-sell position in Big Lots (BIG) that might need attention next week. BIG released earnings this morning that were not friendly to the stock price at all. It's currently trading about $9 per share lower at $31, and has fallen below our strike price of $32.50. This large move in the wrong direction was not something that was foreseen. Now, we always enter a put-sell being happy to get the opportunity to buy our chosen stock at the strike price if the chance arises. Well, with BIG stock now sitting below our strike price, are we still happy with potentially buying it here? That's the thing you always have to remember when selling put options - will you be ok stepping up and buying the stock if it comes down to that? I have no doubt that BIG is a fine company, but this is how hard a stock can get punished if it lays an egg with an earnings report. Plus, the general bearish mood of the market isn't helping. In fact, I believe BIG has dropped more than it probably should have just due to the tone of the overall market. The question now comes down to - what do we do? Stay calm! Just because the stock has temporarily moved below the strike price is not an automatic signal that we will get assigned. Quite the contrary. The chance is extremely thin that we would be assigned at the end of today. Why? Well, 99.9% of the time, an in-the-money option (calls or puts) will not be exercised before expiration. It's just not in the best interest of the option-buyer to do so. If they did, they would be giving up potential money. I won't go into the specifics about it here, but just know, if you exercise an in-the-money option early, you will forfeit the time value that's still left in the option. And although I don't believe all option traders are smart enough to know that, I do know that we still have an extremely low chance of being assigned. A one-day big move is not a reason for it to happen to us. So, let's see how the rest of the day shakes out and re-assess on Monday. With BIG super oversold with today's move, the chance of a dead-cat bounce back up in the stock is strong, possibly moving back up above the $32.50 strike price. If it looks like there will be more selling on Monday, we will probably implement our first defensive strategy of "rolling" the trade. This will allow us to take a more conservative position in the stock with more downside cushion, while staving off any losses. I will be in touch on Monday with any follow-up action and look for a small Q&A alert later today or tonight. Ok, that's all for now. Continue to hold all other open positions as-is. Contact me here with fills, comments, questions or concerns. P.S. The Current Portfolio below is not updating correct prices at the moment. I apologize for the confusion Regards,
Lee Let's Grab That Cash!