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- When the Time Comes: Navigating Expiring Options Contracts
When the Time Comes: Navigating Expiring Options Contracts
Weekly Edition: April 23rd, 2025
Market Movements
Weekly Return | Current Level | |
|---|---|---|
S&P 500 | -0.899% | 5,287.76 |
NASDAQ | -1.208% | 16,300.42 |
DJIA | -2.470% | 39,186.98 |
VIX | -6.342% | 30.57 |
Russell 2000 | 0.936% | 1,890.28 |
*Weekly Return is calculated as market open of the previous Wednesday, to market close this Tuesday (yesterday); Current Level is Tuesday’s (yesterday’s) close.
News Snapshot
Wall Street Regains Ground as Earnings Season Takes the Spotlight.
Call Options Surge as Traders Bet on Market Upside.
Is the Shine Fading on U.S. Financial Markets?
An Idea for a Spicy Chipotle Play.
Trump Says Fed Chair Powell’s Job Is Safe—for Now
TL;DR
Stocks bounced back Tuesday, shaking off Monday’s losses as investors turned their focus to earnings reports, fueling optimism across the board. The options market followed suit, with calls outnumbering puts, signaling that traders are leaning bullish ahead of big corporate reveals.
However, the glow surrounding U.S. markets may not be as bright as it once was. While traders are riding high, some analysts are questioning if U.S. assets still shine as brightly in the face of global competition and lofty valuations. Amidst all this, former President Trump stirred the pot by reaffirming that Fed Chair Jerome Powell's job is safe for now, offering a momentary breather for markets that have been closely watching the central bank’s every move.
“Good-To-Know’s”
Early Assignment Risk - Early assignment happens when the buyer of an option exercises their right before the expiration date. This applies to American-style options (Most options you would actually trade), which allow early exercise at any time. Common triggers could include deep in-the-money options and upcoming ex-dividend dates, where the buyer wants to capture the dividend.
But here’s the nuance: early assignment isn’t always a bad thing. It can just be the next phase of your strategy—especially if you’ve already collected most of the premium. That said, being caught off-guard can disrupt your plan. Monitor DTE, IV, and moneyness, and if you’re nearing expiration or a key dividend date, it might be time to roll or close the position early to stay in control.
Quote(s) I Like
“Letting your emotions override your plan or system is the biggest cause of failure.”
“There is always plenty of capital for those who can create practical plans for using it.”
Thought Throttle
Cash Secured Puts (CSPs) and Covered Calls (CCs)—staples for every option selling son of a b*tch. If you’ve spent any substantial amount of time with these classics, you’ve come across a situation where you’ve had to decide how to adapt. Whether it be rolling, taking assignment, or getting out of the trade entirely, these situations will arise and are important to face with a plan.
If you ask an investor or trader the specifics of how they decide whether or not to roll, you'll get countless different answers. Some are ‘roll-happy,’ while some just want to let their trades be.
Your ‘rule’ around this aspect of trading should be personal, tailored to your needs, beliefs, etc. But there are key factors to consider when establishing it. Generic best practices and rules of thumb on what to consider.
OTM options don’t require as much brain power to determine next steps. You typically just weigh the time left to expiration against the premium left on the option. Investors still have differing rules, but they are typically more in agreement.
For example, let’s say you sold a 30-day-to-expiration (DTE) put option for a credit of $2.00. Then, over the next couple of days, the premium falls to $.50, or even $1.00. You would likely buy to close this contract (as you would capture 75% or 50% of your profit, respectively). Then, depending on your strategy, you could sell another option closer to the underlying’s new price. (Yes, this can be done in one go, just split for simplicity's sake).
The decision becomes more nuanced when dealing with ITM options, however, since your standing will change if no action is taken. With ITM Options, there are really three alternatives/outcomes that you can allow: Exit, Assignment, or Deferment (Rolling). Let’s look at what to consider, specifically in relation to Cash-Secured Puts (CSPs).
GTFO?
When to close entirely? This is the simplest answer—When the fundamentals of the underlying deteriorate.
If things take a turn for the worse and you have absolutely lost all confidence in the company in an objective and analytical sense, you are doing yourself a disservice continuing down the path of selling cash-secured puts, or maintaining the CSP.
We are only interested in selling cash-secured puts if we enjoy the thought of having to—getting to—buy the underlying at the strike price. Do not keep a ticking time bomb in your portfolio. It will only end poorly.
Roll?
You like the details and fundamentals of the underlying—you just don’t like the timing.
Maybe there’s short-term noise—earnings volatility, macro headlines, or you simply want more room or more time. Rolling lets you stay in the game while adjusting your risk/reward. Roll out to a later expiration, down to a lower strike, or both—and ideally collect more premium while you’re at it.
Rolling is a strategic delay, not an escape. You’re not giving up on the trade—you’re just repositioning it to better align with your conviction and the market's current setup.
Rolling Tip: Ask yourself—if not in my current situation, would I still willingly enter this trade?
The answer to this question is very revealing and should be taken seriously.
Assignment?
This is the most natural outcome of a CSP—because, if strategizing properly, you planned for it. You sold a put on a company you were happy to own, and now the stock dipped below your strike. That’s not a failure; that’s fulfillment. The contract did what it was meant to do.
Assignment makes sense when the fundamentals are intact and the timing is right. You’ve done your homework, and you’re comfortable owning 100 shares at your effective cost basis. The premium you received just gave you a discount.
Depending on your implemented strategy, it may now be time to pivot and look at selling covered calls—letting ‘the wheel’ keep on turning, for example. Or you may just want to hold it for a while.
Summarized
Yes, this is a simplified version of the decisions made when faced with ITM options, but it is meant to serve as something to pique your interest, enabling you to find a system that works for your strategy, outlook and style.
A future newsletter (or several) could be dedicated to analyzing the ‘rolling’ of options contracts, as there are different strategies to consider. But, be sure to do your own analysis and research. For more help with your specific financial needs, consider talking to a financial professional.
What Might This Look Like?
The Sitch
Let’s say you sell a $50 strike cash-secured put on stock ABC with 30 (DTE), collecting a $2.00 premium. That means you’re obligating yourself to potentially buy 100 shares of ABC at $50, with an effective cost basis of $48 if assigned. You chose ABC because the company is solid: stable revenue, a healthy balance sheet, and long-term upside. You’re happy to own it at $50.
Now, let’s fast-forward a few weeks and explore three very different outcomes. Each one leads to a different decision: roll, accept assignment, or exit.
Outcome 1: The Stock Drops to $47—but You Still Like It
With about a week left until expiration, the stock has dipped below your strike and is trading around $47. It’s now in-the-money, and assignment is on the table. But nothing has changed in your conviction—the fundamentals are still strong. Maybe the dip was due to a short-term earnings miss or a general market pullback.
In this case, the best move may be to roll.
You can roll the put out another 30 days and potentially even down to the $47.50 strike, collecting more premium and lowering your effective cost basis. You still want to own the company—just not right now. Rolling gives you more time for the trade to work while keeping your capital productive.
Outcome 2: The Stock Lands at $48 at Expiration
At expiration, ABC is trading just under your strike at $48, and your put is now ITM. You're super bullish on the stock in the short-term, medium-term, and long-term. You like the technicals, and the timing seems right.
Here, the best move is to allow assignment. You’re assigned 100 shares at $50, but thanks to the $2 premium you collected, your effective cost basis is $48. From here, you now own a stock with which you have conviction. Congratulations and best of luck.
Outcome 3: The Stock Crashes to $41—And the Story Changes
ABC releases a disastrous earnings report. Not just a short-term miss, but long-term warning signs: guidance is slashed, margins are shrinking, leadership changes are announced, and competitors are taking market share. The stock tumbles to $41, and suddenly this isn’t the company you signed up for.
In this case, the smartest move may be to exit the trade entirely—Even if it means taking a loss, closing the CSP (or the shares post-assignment) frees up your capital. This trade is no longer aligned with your strategy—and that’s your cue to walk away. Bite the bullet and get out.
Don’t chase bad money with good money.
To Consider: Not all crashes are a ‘get out’ sign. For example, in this case, if the company's fundamentals were still intact and the market was overreacting in your opinion, you can certainly press on. We exit when the fundamentals crash, not necessarily just the share price.
The Takeaway
Every trade has a lifecycle. Sometimes you roll to reposition, sometimes you get assigned and pivot to the next phase, and sometimes—when the story changes—you just need to close it down. Having a plan that removes emotions separates outsized returns from good returns.
Practice staying objective, making a decision, and sticking with it. This will pay you dividends (perhaps literally) when you are investing.
Throttle Q&A
Can I exit a CSP early even if it's still OTM?
You absolutely can, especially if you've captured most of the premium (e.g., 80%, 90%, or whatever you determine works for you) and there's minimal time left. The remaining reward often isn’t worth the risk. Many traders will close trades once the majority of the premium has been realized to free up capital.
What if I get assigned and the stock keeps dropping—should I sell right away?
Not always. If the fundamentals are still intact, the drop might be temporary noise. But if the drop is part of a bigger trend or the business is showing real signs of weakness, it may be better to cut the position early and protect your capital. You’re not locked in—assignment just means you now have to make a new decision.
But remember, deteriorating fundamentals are a sign to exit. The same can not necessarily be said for just a deteriorating share price.
Is it bad to take assignment?
Not at all. Assignment is the contract doing what it was written to do. If you sold a put on a stock you want to own and it drops below your strike, assignment means you now own the stock at a discount (thanks to the premium). Now you can sell covered calls or simply hold long-term. It’s just the next step in your plan.
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Disclaimer
The information provided in this newsletter is sourced from reliable channels; however, we cannot guarantee its accuracy. The opinions expressed in this newsletter are solely those of the editorial team, contributors, or third-party sources and may change without prior notice. These views do not necessarily reflect those of the firm as a whole. The content may become outdated, and there is no obligation to update it.
We strongly advise you to consult with a financial advisor before making any investment decisions, including determining whether any proposed investment aligns with your personal financial needs.
