Navigating Event Risk and Low Premiums

So far, the market environment has not been particularly favorable to option writers. Sideways or slightly declining markets provide the most fertile ground for collectingoption premiums. Patience is a virtue. In the meantime, I want to discuss my first trade as well as a follow-up trade. I will also discuss some of the reasons—other than the current bull market—why I haven’t traded much yet.

DSM-Firmenich Trade Review: A Narrow Margin of Safety

First of all, I want to update you on the DSM-Firmenich put option with a strike price of EUR 64 that expired last Friday. While the option did expire worthless, the margin of safety was thin; the stock closed at €65.28, just 2% above the strike price. I pocketed a premium of €44, which is still a long way from my monthly target of €800.

Earnings Season, a Double-Edged Sword

There are several reasons why I haven’t opened many positions yet. Two are seasonal, while the third relates to current market conditions:

  1. Earnings Season Volatility: Implied volatility reflects the uncertainty around earnings announcements. While premiums are high, writing put options on companies about to report adds significant “event risk.” Unless you are confident in the stock’s long-term prospects or don’t mind owning it regardless of the quarterly results, it is generally best to avoid options where the life of the contract overlaps with an earnings date.
  2. The “January Effect” & Pre-announcements: January is trickier than other months. Certain sectors, like retail, often issue unscheduled sales updates following the holiday season. These “pre-announcements” can move a stock against us even if we’ve carefully chosen an expiry date that avoids the official earnings call.
  3. Low VIX and Strong Market Starts: Markets have had a very strong start to 2026. The Russell 2000, for example, outperformed the S&P 500 in each of the first 14 sessions of the year. This strong performance, coupled with a very low VIX, means option premiums are limited. Selling insurance when there is no storm in sight doesn’t result in large premiums.

New Position: Defensive Put Writing on DSFIR

Still, I didn’t want to remain on the sidelines entirely. I wrote a new put option on DSM-Firmenich (DSFIR) with a strike price of €59 expiring February 20th. It is currently far out of the money, and I received €42. With an option delta of 0.16, there is roughly a 16% likelihood of it ending up in the money.

DSM-Firmenich is expected to report on February 12th, so the success of this position will depend largely on those results. As of January 27th, the stock can decline nearly 10% before the option is in the money. I may sell a second option depending on how the price evolves; as mentioned previously, I allow a maximum of two options per company.

I will keep you posted as I spot new opportunities. With plenty of earnings expected next week, the market’s resiliency will certainly be tested.

Happy trading!

Disclaimer

The information provided in this blog post is for informational and educational purposes only and is not intended as investment advice. Options trading involves a high degree of risk and is not suitable for all investors. The hypothetical targets, strategies, and examples discussed do not guarantee future results.

Readers should be aware that past performance is not indicative of future results. It is essential to conduct your own research and due diligence, or consult with a qualified financial professional, before making any investment decisions. The author is not a registered financial advisor.