It feels great to get back to sense of normalcy. I was off work for 2.5 weeks although originally it was just supposed to be 1. The first part of my time off was great since I got to hang out with some great buddies of mine and we went to Vegas for a bachelor party. However, all of the fun ended on Tuesday when I found out my grandfather had fallen and broken the head of his left femur and left humerus. Not good at all for a 93 year old. It's been a huge emotional roller coaster ever since he went into the hospital but they were finally able to do surgery on his left on Tuesday and we're all hoping for a great recovery. I've had very little sleep the last 1.5 weeks so I'm kind of glad to get back to work and back into a routine. Things are starting to get back to normal so it's time to catch all of you up on what's been going on with my portfolio, namely some options updates in this post and a new position in an upcoming post.
On May 7th, I bought to close the $39 put option I had sold on Coca-Cola (KO). I bought back the option for $0.54 which cost a total of $61.99 after commission and fees. When I sold the put option back in late January I received $260.25 in option premium. My total profit for this option came to $198.26 which amounted to a 5.08%. Not bad for a little over 3 months. That's equivalent to a 19.34% annualized return.
Later in the day on May 7th I also took the opportunity to close out my $82.50 strike put option on Phillip Morris (PM) which cost me $438.74 after commission and fees. When I opened the position in late January I received $941.24 in option premium so my profit on this transaction came to $502.50. That's a 6.09% return or a 23.17% annualized rate.
The returns above are calculated as if the put options were cash-secured. I prefer to use margin when I can to leverage up a bit although that does bring on added risk. However I feel the risk is mitigated by only selling put options on companies I want to own and prices that I'd be willing to purchase anyways. Margin allows you to have less cash required to secure the put option but the best part is that you aren't charged margin interest. When selling naked put options the margin acts more like a line of credit reducing the cash needed in your account. So my returns were actually much higher than reported based on the cash needed to satisfy the margin requirement but that changes every day so it's just easiest to calculate the returns as if it were a cash secured put.
I wanted to take the opportunity to de-leverage a bit because I continue to expect to see a pullback over the summer months. Well, maybe it's hoping for a pullback. By closing out these options I now have no margin requirements to keep some of my capital tied up and have full access to make outright purchases should the opportunities present themselves.
So far in 2014 I've received $1,161.33 in profit my option activity. That's 77% of the way towards my goal of $1,500 this year so I'm off to a great start so far.
I've updated my Option Summary page to reflect these changes.
Also, if you want real-time updates of purchases or option transactions make sure you follow me on Twitter @JC_PIP.