Assignment of the Week · Puzzle #2
Would you take this assignment? #2: Earnings inside the trade
The scenario
- Stock at $105
- 45-day $100 put pays $2.50
- Earnings in 20 days
Stock at $105. A 45-day $100 put pays $2.50, but earnings land in 20 days. What's the return on capital and the breakeven? Would you sell it?
Work it out first (the wheel calculator helps), then open the answer.
Show the answer and the math
Short answer: 2.5% on $10,000 (about 20.3% annualized), breakeven $97.50, and an earnings gap sits inside the trade.
Worked math
- Collateral: $100 strike × 100 = $10,000.
- Return on capital: $250 ÷ $10,000 = 2.5% for 45 days.
- Annualized: 2.5% × (365 ÷ 45) ≈ 20.3%. That figure assumes you could repeat the same trade all year, which you usually can't.
- Breakeven: $100 − $2.50 = $97.50, about 7.1% below the $105 price.
The takeaway
The premium is partly high because of the earnings date. A bad report can gap a stock 10–20% overnight, straight through a 7% cushion. Only sell it if you'd be glad to own 100 shares at $97.50 after an ugly report. Otherwise, pick an expiry that ends before earnings, or wait until after.
Run your own numbers, then read the full cycle
Plug any put or call into the free, no-signup wheel calculator to see return on capital, annualized return and breakeven side by side.
The whole cycle (cash-secured put, assignment, covered call, and what to do when it goes wrong) is laid out step by step in Spin the Wheel, Cash the Checks by Logan Sterling (Kindle, $6.99, or free on Kindle Unlimited).
Hypothetical numbers for teaching, not a trade recommendation. Educational only, not financial advice. Options involve risk. Selling options can result in substantial losses, and no particular result or income is guaranteed. See the full disclaimer.