Strategies for selling cash secured PUT options inside a retirement account

[Red Lion]

30 minutes ago, boilermaker75 said:

 

If they start heading ITM you can always buy them back so you don't have to go on margin. You could then either accept a small loss, or sell some Nov 26 puts. The Nov 26 puts could be at a lower strike and between the two plays you could still come out ahead.

 

I will be watching how this unfolds tomorrow. You can buy them back until the expiration day, or I'm assuming if they move ITM they might get assigned sooner than that? 

[boilermaker75]

11 minutes ago, RedLion said:

 

I will be watching how this unfolds tomorrow. You can buy them back until the expiration day, or I'm assuming if they move ITM they might get assigned sooner than that? 

 

You can get assigned at any time, but it is very rare to get assigned before expiration.

[Red Lion]

Well I'm paying my tuition on the ATVI puts. Bought them back at $1.90 and sold the 11/26 $61.50 strike price for $1.15. If this new option expires worthless I'm still out $0.35, but I guess I can make that back by writing the next week's option.  

 

If I get assigned then my cost basis is $61.85 after adjusting for the options trades, so at least my margin of safety on the stock is improving. 

[Red Lion]

I've been playing with rolling these losing ATVI put options per boilermaker75, just closed out my 11/26 $61.50 options for a loss and wrote 12/31/21 $60 options. So if these options are assigned my total price ends up coming to $59.27, if they expire worthless then I end up with a $0.73 profit for a 6 week hold for an initial $6,350 margin commitment. 

 

I obviously would be happier if my initial foray into these short term options had been wildly profitable on an IRR basis, but this is good experience catching a falling knife, and I plan to keep playing it out to its conclusion to see if I can learn something. If the price keeps dropping I will try to continue rolling my options lower and longer duration to stay in a net debit position. 

 

[Red Lion]

@boilermaker75 I think I should probably let these ATVI options get assigned as I wouldn't mind starting to pickup some shares at under $60. But I'm playing with the strategy here, and decided to roll over the options again to a lower strike. I wanted to stay in a net credit position, so I sold the February 18 expiry $57.50 ATVI PUTS and bought back my 12/31/21 $60 PUTS for a $0.35 credit. 

 

My concern with this type of strategy is that I'm opening myself up to an inability to keep rolling these options for a net credit if the stock keeps dropping since I'm locked up until mid February on this. On the other hand, if I end up getting assigned I'll end up owning ATVI at $56.42 which would be just fine for me. If the February puts end up expiring worthless I'm not earning a great IRR here, but since this is on margin and no interest is charged until assigned, I'm not sure that matters all that much. 

 

I'm curious, for tax purposes, I'm assuming I could deduct all of the short term losses I've suffered by rolling over the PUTs in 2021, and then would be taxed as a short term gain if/when the PUT expires worthless or I buy it back at a discount? 

[boilermaker75]

@RedLion If you buy a put back for a loss, you have a tax loss on that trade that you claim on your tax return. Your tax loss is not affected by any different puts you write on the same stock such as you are doing.

Edited December 3, 2021 by boilermaker75

[Red Lion]

I've been looking for opportunities to do some year end tax loss activity, and I'm fortunate not to have many good candidates. Anyway, I just repeated this process again by buying back my 1/20/23 $65 PUTs I'm short on margin, and sold $70 PUTS with the same expiration for a $2.25 credit. This should give me some short term losses for 2021 and increases my likelihood of picking up APO shares which I'm OK with. I'm reinvesting the credit spread into a few APO shares anyway.