I bought a put, it's up 80%, expires in 4 months...sell it or hold longer?

An option newcomer asked the question in the above title.  My answer:

In my strategy, I sellputsthencalls - I sell to open cash secured puts (occasionally naked puts) & then covered calls.  Recently, I uncharacteristically did buy a call to open.  And it did force me to consider your above question after you bought a put that quickly made you 80%.  I bought a call versus XLE, the energy ETF.  In my sellputsthencalls strategy versus XLE, I made 2 critical errors in which I lost money.  So I bought a long term XLE call to catch up, & importantly, to protect my sellputsthencalls strategy against strong XLE appreciation.  I was bullish on oil & the energy stocks.  The XLE call became profitable, but not enough to cover my earlier loss.  But time until expiration was running out.  So I sold the XLE call well before expiration to capture the available profit, even though I was bullish on XLE.  (You're never wrong to take a profit.)  Continuing with my bullishness, I then bought another XLE call with an expiration date that was 1 year longer.  About 10 months before that call's expiration, all of my loss from the 2 critical errors was covered, plus I was able to grab a few more dollars beyond my loss.  So I sold my call & put it behind me.  

SPY closed @ $412.20, but its $412 covered call was not assigned against me.

Yesterday, option expiration Friday, 4/21/23, my 100 shares of SPY closed @ $412.20.  I was pleased because I wanted my 4/21/23 SPY $412 covered call to be assigned, forcing me to sell my 100 SPY @ $412.  But today I saw that it wasn't assigned.  It expired worthless & I still own the 100 SPY @ $412.20 - actually, a 20 cent benefit to me.

When I worked in the industry, & this happened to my clients, they might protest, "My covered call closed in the money by 20 cents but I wasn't forced to sell my stock.  Did your broker/dealer (Fidelity, until my retirement) stiff me?" 

We often say with the above SPY covered call, "If SPY closes on expiration date above $412, your $412 covered call will be assigned, forcing you to sell your SPY @ exactly $412." That's a "pretty fair rule" of covered call selling.

But to be more accurate, for this $412 covered call to be assigned against a seller like me, a buyer of the 4/21/23 SPY $412 call has to exercise his right to buy SPY @ exactly $412.  Then, the Options Clearing Corporation randomly assigns this exercise to a broker/dealer like Fidelity that has this covered call among its clientele.  Then the broker/dealer like Fidelity randomly assigns it to a client that has sold this covered call, like me.  If any of these $412 calls were exercised yesterday by the owner of the call, I was never randomly picked for an assignment. 

Yesterday, SPY traded above & below $412 all day.  At 3:51pm ET, it was at $411.93, but then closed at $412.20.  During the day, a buyer of this $412 call might have asked himself, "Why would I exercise my call to buy SPY @ $412 when I can simply buy it in the market when it's trading at $411.50?"

When I sell a SPY $412 covered call, I'm creating a contract.  Because I received a premium, I accepted an obligation to sell my SPY @ $412 if the call option is exercised AND assigned to me. 

Is it worth it to use margin to sell naked puts?

Last year, I had a margin account with no outstanding loan.  It held $5K in CORE MMF & $28K in FCNTX (Fidelity's Contrafund).  In August, with SPY @ $428, I wanted to sell a SPY $393 put.  I couldn't sell a cash secured put with only $5K in CORE.  So I sold (only) ONE naked put, hoping it'd never be assigned.  In October, after a couple of put repairs (roll-outs) & SPY @ $369, I was assigned to buy 100 SPY @ $391 (my repaired strike price).  It created $34K in margin debt.  I then sold covered calls & also collected 1 dividend.  In February, '23, with SPY @ $407, my $401 covered call was assigned so I was forced to sell my 100 SPY @ $401.

Over the August to February investment period, I received $1.78/share in dividends, $22/share in put/call premiums, & $10/share in capital appreciation.  But, at an average margin rate of 11.5%, I paid $10/share in margin interest. 

Over the 6 month period, my credits were $33.78/share, or a $3,378 gain.  On a $33K start-up value, that's over 10%.  But my very expensive $10/share in margin interest ate up $1,000 of my gain, leaving a $2,378 net gain, or just over 7% in net gain.  Margin interest ate up about 30% of my credits. 

Margin risk?  I was assigned to buy SPY @ my $391 strike price when SPY traded at only $369.  Although I had a few dollars in SPY put premiums in my back pocket, I was getting crunched.  Still, at only $369 a share, my SPY shares (& FCNTX shares) were able to comfortably support my $34K in margin debt.  But if SPY dropped further (COVID brought it down to $253 in 2020), a margin call could have been presented to me, forcing me to sell some SPY shares at an awfully low price.