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Ask Alan #138 – “Disappearing Options, Gap-Downs and Contract Adjustments”

Alan answers a question posed by Hai, who asks:

Alan, I bought 100 shares of SINA on 5-22-17 for $104.70 and then sold the $105 call for $5.85. Last week (June 5th), the price was down and I bought back the option for 20%. I tried to roll down but the order did not go through. I spoke with my broker who said it had something to do with changes in the number of shares and options were not available that day. Can you explain this situation?
Thanks a lot.
Hai

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It’s the 2nd Wednesday of the month. Time for another original episode of Ask Alan. AA#138, “Disappearing Options, Gap-Downs and Contract Adjustments”

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About Alan Ellman

Alan Ellman loves options trading so much he has written four top selling books on the topic of selling covered calls, one about put-selling and a sixth book about long-term investing. Alan is a national speaker for The Money Show, The Stock Traders Expo and the American Association of Individual Investors. He also writes financial columns for both US and International publications along with his own award-winning blog.. He is a retired dentist, a personal fitness trainer, successful real estate investor, but he is known mostly for his practical and successful stock option strategies.

7 Responses to “Ask Alan #138 – “Disappearing Options, Gap-Downs and Contract Adjustments””

  1. Alan Ellman September 13, 2017 5:40 pm #

    Premium members:

    This week’s 8-page report of top-performing ETFs and analysis of ALL Select Sector Components has been uploaded to your premium site. The report also lists Top-performing ETFs with Weekly options as well as the implied volatility of all eligible candidates. For your convenience, here is the link to login to the premium site:

    http://www.thebluecollarinvestor.com/member/login.php

    NOT A PREMIUM MEMBER? Check out this link:

    http://www.thebluecollarinvestor.com/membership.shtml

    Alan and the BCI team

  2. Alex September 14, 2017 12:24 am #

    Alan,

    I know you meddled with fundamental analysis and reading earnings reports in the past, what is it about IBD’s fundamental screener that makes it so good at picking good stocks?

    Alex

    • Alan Ellman September 14, 2017 6:40 am #

      Alex,

      I’ve been a fan of IBD since the 1990s. My interest in math and calculations make this publication perfect for me. The IBD 50 (formerly the IBD 100) caught my attention years ago because the success of this group of stocks when compared to the S&P 500. Most of the screens are fundamental in nature:

      IBD 50 stocks and the fundamentals evaluated:

      • Return on Equity
      • Earnings per Share rating
      • Annual EPS % change
      • Last Quarter EPS % change
      • Next Quarter EPS % change
      • Last Quarter Sales % change

      In addition, we run the stocks through the SmartSelect (Green Alert) ratings, another IBD screen. The “EPS Rating” compares a company’s earnings per share growth on both a current and annual basis with other publicly traded companies. It compares the company’s most recent two quarters of EPS growth with its 3-5-year annual growth rate.

      Keep in mind that fundamental analysis is 1/3 of the BCI screening process. We also screen from technical (reading a price chart) and common sense (minimum trading volume, avoiding earnings reports) perspectives.

      Our premium stock reports include all 3 of these screens for our premium members.

      Alan

  3. Alan Ellman September 14, 2017 7:22 am #

    DD is now DWDP: DuPont from our Blue Chip Report:

    Shares of DuPont and Dow ceased trading at the close of the New York Stock Exchange (NYSE) on Aug. 31, 2017. DowDuPont will start trading on the New York Stock Exchange under the stock ticker symbol “DWDP.” Pursuant to the merger agreement, Dow shareholders received a fixed exchange ratio of 1.00 share of DowDuPont for each Dow share, and DuPont shareholders received a fixed exchange ratio of 1.282 shares of DowDuPont for each DuPont share.

    Alan

  4. Jay September 14, 2017 8:08 pm #

    There is a wonderful old saying about investing: “a portfolio is like a bar of soap – the more you handle it the smaller it gets”.

    I suspect it was coined before the advent of on line trading. These days the soap can grow if you handle it selling options :).

    I hope everyone is enjoying a successful week. – Jay

  5. Justin P. September 14, 2017 9:49 pm #

    Alan,

    A quick question (thanks for your latest response!) – I managed to close my EDU trade early on Wednesday, and am now looking to plug in the correct numbers after their special dividend of 45c. The original Strike Price was $85 which was altered to 84.57 (you mentioned that 2c was kept by the bank as their fee.) Do I also just need to reduce my Stock Purchase Price by 43c to account for the dividend and get my numbers correct?

    Justin

    • Alan Ellman September 15, 2017 6:14 am #

      Justin,

      I would not change the purchase price because the sale price is not impacted by the dividend. On the ex-date, share price declines by the dividend amount (less the bank fee) and so strikes are reduced. The amount of share price reduction is compensated for by the eventual capture of the $0.43 dividend distribution…it’s a wash.

      Alan

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