I continue to think IBM will be a big winner over time. However, since we sold a January 2014 $190 put last April, it hasn’t lived up to my expectations.

IBM was trading for $190.47 on April 19, 2013 when we sold that at-the-money 9-month put for $13.80 per share.  The shares were trading for just $177.67 in early afternoon today. With just five and a half weeks left until expiration we have rolled out our 2014 contract to the same strike a year later.

Realistic prices for the Buy to Close (BTC) and Sell to Open (STO) transactions were $13.10 and $23.45 respectively on this actively traded underlying security. We thus pocketed an additional $10.35 per share net for the two-sided roll out.

This illustrates once again the beauty of being option sellers. We were wrong on the direction IBM took from the trade inception date through today. IBM declined by $12.80 per share over those eight months.

Even though we got the price movement wrong, time decay in the $13.80 premium we received up front allowed us to buy back the original put for a small profit ($70 per contract).

Not only did we capture a small gain, we’ve reduced our new ‘if put’ price to $166.55. That is figured by taking $190 (the strike price)  - $23.45 (the Jan. 2015 put premium received) = $166.55 per share.

Nothing in life is guaranteed. But… IBM has not spent one day during the past two years in a position that would have hurt us at the new ‘if exercised’ level.

Think about the frustration of the trader who bought the Jan. 2014 IBM put from us last April. They were right on both the direction and timing of the coming move in the underlying shares. Despite that, they are currently underwater on their investment after eight months.

Paying time premium when buying options makes it one of the most difficult ways to make money. You need to be right on all counts while also catching a large enough move to over the ‘stagger’ just to get even.

Why even try to fight odds like that?