To Roll or Accept Shares? That Is the Question.

Last Week's Income Report: August 8th, 2022

In the latest Options Income Weekly, I discuss last week’s results, recent market action, and what goes into the decision of whether to roll a put versus accepting shares.

Last week, the S&P 500 rose 0.4% to log its third straight week of gains. Yet, at Friday’s close, the index was still down 13% for the year.

A surprisingly strong July jobs report didn’t exactly paint a picture of a slowing economy. So, it has investors questioning whether the Federal Reserve will stop raising interest rates anytime soon.

Whether stocks will continue their recent ascent is anyone’s guess. So far, 87% of S&P 500 companies have reported results, according to FactSet. Three-quarters have beat estimates, which is only slightly below the five-year average of 77%.

While earnings have exceeded estimates by 3.4%, below the five-year average of 8.8%, stocks have delivered larger-than-average upside moves following positive earnings surprises.

However, we are seeing analysts cut earnings estimates at a faster-than-usual pace, which makes stocks more expensive. And of the 72 companies that have issued EPS guidance for the third quarter, 58% have issued negative guidance.

I don’t write any of this to scare you into thinking the sky is falling (i.e., we are headed for a definitive recession and prolonged bear market). Rather, I write it to warn against the dangers of becoming complacent in the current market environment.

It’s important to actively manage your positions, which includes deciding how to proceed if a stock moves against you.

To that end, I hope today’s video, in which I discuss my decision about whether to roll our Devon Energy (DVN) put or accept shares, helps you understand what goes into the decision-making process.

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John Hutchinson

On September 21, 2022

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