Short XON 7/22 expiration, $25.50 strike calls expired worthlessly
My short position of 1 contract of XON 7/22 expiration $25.50 strike calls expired worthlessly. This closes the position originally entered on 7/18 at 75¢. Total return after commission was $71.25. Return per share after commission was 71¢.
This trade was executed as entered, but not as intended. I wanted to cover my entire position of 500 shares of Intrexon, but wound up getting a partial fill. I have mentioned in the post about the entry the positive aspect of Fidelity’s pricing in this case. Now I must mention the negative aspect:
Fidelity does not allow penny increments on low priced option contracts. If I am not mistaken, the minimum increment is 5¢ for options priced under $3, and 10¢ for options priced above $3. In this specific case, let’s say the contract is bid at 20¢ with the ask at 30¢. As a seller, I can do one of three things:
- Enter a limit order with an ask of 25¢, which exposes me to the possibility of getting no fill, or a partial fill, as happened here.
- Enter my order as a limit order with ask of 20¢, which most likely will get filled at the ask, but I give up the entire spread. If the bid is for fewer contracts than I am looking to sell, I might again only get a partial fill.
- Enter the order as a market order. In my experience, options market orders have never received any price improvement. So, again, I’d give up the entire spread. I will get filled, which is an advantage, but if the bid is for fewer shares than I want to sell, I might receive less than the original bid on a portion of the fill. Unappealing as it is, this is probably the best way to go in this scenario.
The irritating issue here is that with the limit order options, one might find oneself without the yield enhancement/risk protection of a short option in a covered call/covered put scenario. Alternatively, if accepting the 20¢ bid, one gives up the 3¢ that would otherwise usually be achievable: If I were to enter a trade like this at TD Ameritrade, I would enter it with a limit of 23¢ and I would be quite confident in receiving a fill. 23¢ vs. 20¢ is a very meaningful 15% difference!