As I thought, the option I sold on Realty Income (ticker: O) got called. Let me explain what that means. I was forced by contract to sell 100 shares of O at $77.50 per share, when the stock was trading much higher.
I’m not happy about getting called, but this gives me a chance to talk about another strategy to use if you have cash and want to buy shares. It’s called a “put.”
I could just buy the shares, or I can sell a put for them. Selling a put gives someone else the right to sell you a stock at a particular price within a window of time. Here’s what the two I sold yesterday look like in the portfolio:
Under “Symbol,” that string of letters and numbers on the first line lets the trader know that it’s an option for BEN (Franklin Resources), which expires on Mar 20, 2020, has a strike price of $22.5 and it’s a put. Read that left to right. The “-1” under “Quantity” shows that I sold 1 lot (for 100 shares) and the “Bid” and “Ask” show the current prices the option is selling for. The second line for EPD (Enterprise Partners) is the same. I sold 2 lots (or a put on 200 shares).
I received about $75 for selling the puts, which makes up some of the dividend I lost when I had to sell O. The tax treatments aren’t the same, but at least there isn’t a bunch of cash just sitting around in my account doing nothing (oh woe is me! Too much cash!!). If the price of either of these stocks falls, the put buyer will force me to buy them, but I want them anyway. It’s a good deal for me.
For more on the strategy of selling calls, check out The Options Playbook, by Brian Overby.