For those of you have an option go against you on expiration day.
What were the repercussion?
I haven’t had this happen, as of yet.
I'd have to go dig back to find the specifics - this is going off of memory.
There was an expiration day - pretty sure it was in August - where the share price started off flat to slightly down first thing at the start of the trading day. I remember that because I tried to fill a close order that would have netted me an 80 or 90% profitable trade, and freed up the backing to start a new trade. I think the share price was around $1400 or $1450 and my position was a $1460 call.
I missed the fill and the shares moved against me. And I could have closed at a 50% profit, but missed that fill. I kept watching for the usual and inevitable reversal, and it just kept getting worse
. $20-40 moves in a flash, a 5 or 10 minute pause, and another big move. Over and over.
The shares peaked at around $1780 that day - a $300 move!?! I'm going off of memory, so maybe it wasn't quite that bad. About 20%.
Somewhere along the line, the position had moved far enough against me that I no longer had enough cash to close the position at a loss. That was also when I realized that emotionally, I wasn't really ready to sell those shares for $1460, and never had been - I was just trying to nick some small $ on short time, at a strike I considered unreachable. (Oops - that's a mistake I'm not making again - the covered calls will stay on the shelf if there isn't a strike price and duration I'm actually willing to be assigned at, even if I'd roll instead to avoid assignment).
I finally rolled up to the 1700 strike and out - I think it was a month out, and paid a net debit to make that roll. In retrospect, I would have (and have since, in a different situation) chosen a less dramatic increase in the strike and would have generated a net credit (period, full stop). I paid an $80 debit for that roll.
And when all was said and done, that particular trade went badly against me, and the rest of that month went well enough that it ended up being my best month so far. It was also a month that was bad enough part way through to be so bad as to offset all of my gains from a few months to that point. "It was the best of times - it was the worst of times". It worked out in the end, but it wasn't fun.
My learnings (which doesn't mean I actually learned what I should or could have
):
1) don't sell covered calls at any strike or duration, where I'm not actually willing to accept assignment (I think of covered calls as "pre-sales" of shares). This pushes the strikes really high (I have a 610 call open for December expiration for example, and 840s in 2 years). I'm more risk averse to the upside than the downside, due to my knowledge of the company.
2) I missed exiting that position by pennies and ended up paying an $80 debit to get out (via roll). I'm a lot less likely today to miss a fill trying to grab an extra nickel. I'm more likely to chase those pennies on the open of the position. When I decide that a position is done, then it's done. I don't haggle over pennies - the limit order that splits the bid/ask is usually a nearly immediate fill.
3) And I won't chase something that long again - I'll just do a market order a lot sooner to be done and out.
4) Did I mention that I don't open covered calls at a strike I'm really not ready to sell at? It's translated into not very many new covered call positions the last month or two. It's also translated into the put sales generating roughly 5x what the calls are generating.
I'm more worried about calls that are $200 OTM over puts that are (as of close Friday) $0 and $20 OTM.
5) Keep working on understanding how my own emotions work on these trades, and setup trades that work with instead of against those emotions. And also stay clear on my own financial situation, and desired outcomes.
It's important to understand that for my own situation, generating income / "dividends" is increasingly important, while a larger and larger portfolio is nice but not as much of a priority. Think of the 60/40 asset split in retirement - some growth, and some income generation, as a better mental model for me. That means I'm making choices that aren't optimal for even a year ago when I was still in growth mode so that I could retire.