I recently wrote about how I will be undergoing a change in my work structure and will be getting a match with my 401(k). A lot of people refer to this as “free money” although you can easily make the argument that it truly is part of my compensation and has to be figured into the overall equation.
But just this weekend, I received some free money that was truly free and came from a source that I never would have suspected. Interestingly enough, this source involved my current 401(k).
Selling Covered Calls
Some of you know that I have been trading options for over a decade, not professionally but for my own retirement accounts. I am able to do this since I have a self-directed account with Fidelity which allows me to trade options. You can follow some of my trading in Silver Wheaton stock at OptionsDude.com.
Well it turns out that with this most recent options expiration day, I had sold some covered calls on SLW with a strike price of $40 per share. I figured that since SLW stock had closed well below that at $39.54, those calls would have expired worthless. Imagine my surprise when I logged on this weekend and found that they had been exercised! Someone had purchased Silver Wheaton from me at $40 per share when they could have purchased it in the open market for less.
Not Free Money Yet
But it really wasn’t going to be free money yet until I could buy back my stock at a price less than $40 per share. I figured it would be possible on Monday but not guaranteed. Typically the daily range of stock will encompass the previous day’s closing price so I felt that the odds of me getting back into my original position at $39.50 were pretty good unless there was a major gap upwards.
So Monday morning, I watched the action of the gold and silver prices as well as the futures for the stock market and the before market trading of SLW. I entered a limit order at $39.50 and ignored the market while at work. I was able to check periodically throughout the day and found that indeed my limit order was filled meaning that I had received a gift of 50 cents per share. Yippee! Free money!
But what would have happened if my limit order was never hit? The number of shares involved was only 22% of my total. I would have waited for SLW to decline in price since it is very likely that it would have sometime in the near future. I was happy with a 50 cent per share discount. I was also happy if the stock kept going up since I would benefit from the increase.
I was in a position to benefit no matter what the stock did. An increase meant additional profit on my existing shares. A decrease meant a discount on the purchase price to re-establish my original stock position. There was no reason to chase the stock.
Now I was in a different position with my ONXX trade. I will be updating that and how I handled the situation in the next week or so at the Options Dude blog. It was a totally different set of circumstances so I managed my trades quite differently.
Getting Started in Options Trading
I have been asked about options trading and will probably write my next post on the topic. It may end up being a long one or need to be split in two. I am also working on a fairly comprehensive website/blog that will cover the topic and would like to get an e-book together. But it seems like it may be some time before I can get that done since I am incredibly busy. I may have some more time during the winter months, but we all know how that typically goes. I wish I had 36 hours per day.
Readers: Have you ever gotten some money that was quite a surprise? Are you interested in learning more about options trading? Any other comments or questions? Anyone interested in guest posting so I can have more time at OptionsDudeAtoZ. Feel free to comment and thanks for reading.