Thursday, May 25, 2017

Options for Income Week of May 15th

dividend growth investing, option strategy, call option, put option, income investing
Option Activity for the Week of May 15th
As part of running this blog that chronicles my journey to financial independence I like to be open and honest with all of my transactions.  Typically that revolves around buying shares of high quality companies that I deem to be at fair value or less.  And occasionally there's a sale of a company like when I closed one of my positions earlier this month.  Being open about the moves I make allows for better discussion with all of you and helps spread ideas around.  If it creates my own "investment journal" to detail why I made the move and my expectations, well that's even better.  


Last week saw plenty of action in terms of closing options positions with another 20+ week in the books and over $500 of net profits.  Considering there were some big losers in there as well I'm happy with how things turned out for the week.  

*Affiliate Link Incoming*

TastyWorks is really geared toward options traders with $1 per contract commissions and $0 to close; however, even for just long term dividend growth investors it's an intriguing choice.  For stock purchases commissions are $5 to open and $0 to close which is still much lower than just about every brokerage out there.  If you're interested in opening an account with TastyWorks I'd appreciate it if you do so through this link.  

Closed/Expired Positions:

Union Pacific (UNP) - Put Option

This put option worked out wonderfully since I was able to take in nearly 50% of the maximum profit potential in less than a weeks' time.  When you're active in the options market you just love the two sided action.
dividend growth investing, income investing, option strategy, put option
Union Pacific (UNP) Jun 2017 Put Option - Closed
This put option generated net profits of $53.91.  Based on the $10,500 of capital securing the contract that's a 0.51% return in just 5 days.  The annualized return works out to a solid 45.4%.  I was able to capture 46% of the maximum potential profit in 14% of the days until expiration.

SPDR Gold Trust (GLD) - Put Credit Spread

Sometimes the markets go against you and sometimes they work for you.  My thought behind putting this trade on was that gold was due for a move higher, hence my bullish thesis on gold.  I didn't think this one would work out quite as quickly as it did, but I'll take what the markets give me.
dividend growth investing, income investing, option strategy, put option
SPDR Gold Trust (GLD) Jun 23 2017 Put Credit Spread - Closed
This position produced net profits of $17.42.  Since there was just $153.29 of capital at risk on this trade that's a solid 9% return.  I was able to capture 37% of the maximum profit in 12% of the days until expiration.

SPDR S&P 500 ETF (SPY) - Call Credit Spread

I was a bit too aggressive with closing this position, but I can't complain if it leads to profits.  Normally when I open a position I'll set a good til cancelled limit order at whatever profit target I have for that position.  Sometimes though I happen to forget to adjust it since I tend to set orders with small profit targets if they come in quickly.  But profits are profits.
dividend growth investing, income investing, option strategy, put option
SPDR S&P 500 ETF (SPY) Jun 2017 Call Credit Spread - Closed
This trade generated net profits of $16.42.  With just $149.29 of capital at risk on this trade that works out to an 11% return on capital.  I was able to capture 32% of the max profit in 40% of the days until expiration.

SPDR S&P 500 ETF (SPY) - Iron Fly

Sometimes patience works for you and other times it works against you.  This position hadn't been looking too good for pretty much the entire life of the trade.  The S&P 500 had pulled back slightly nearing expiration which gave me the opportunity to close it out for  a profit which isn't too bad considering it had been sitting at near max loss since early May.  

Unfortunately had I waited another day when the markets happened to sell off over 1% I could have realized net profits somewhere around $200 on this trade.  
dividend growth investing, income investing, option strategy, put option
SPDR S&P 500 ETF (SPY) May 2017 Iron Fly - Closed
Despite the lost potential profits this trade still generated $17.64 in net profits.  With $97.18 at risk on this trade that's a solid 18% return on capital.  I was only able to capture 4% of the maximum potential profit in 95% of the days until expiration.

V.F. Corporation (VFC) - Covered Call

Since acquiring shares of V.F. Corporation back in January I've tried to keep a covered strangle position on against the shares.  Thus far that's worked out wonderfully as I've been able to reduce my cost basis by $4.65 per share including this closed call.
dividend growth investing, income investing, option strategy, put option
V.F. Corporation (VFC) Jun 2017 Covered Call - Closed
This position generated net profits of $39.91.  Based on the $57.50 strike price that's a 0.69% return that equates to an annualized return of 37.1%.  I was able to capture 89% of the credit received in just 21% of the days until expiration.

Junior Gold Miners ETF (GDXJ) - Put Option

My bullish thesis on gold and in turn the miners remains in tact.  I took advantage of the decline in the junior miners in April to sell an aggressive put option against GDXJ and it worked out about as well as I could have planned.
dividend growth investing, income investing, option strategy, put option
Junior Gold Miners ETF (GDXJ) Jun 2017 Put Option - Closed
I was able to realize net profits of $101.91 on this put option.  With $3,100 in capital securing the contract that works out to a solid 3.29% return in about 3 weeks time.  That equates to an annualized return of 75.5%.  I was able to capture 66% of the maximum profits in 41% of the days until expiration.

iShares Silver Trust (SLV) - Iron Fly

The problem with defined risk strategies is that whenever they go against you there isn't really much you can do.  Especially if the underlying's price blows threw the spread.
dividend growth investing, income investing, option strategy, put option
iShares Silver Trust (SLV) May 2017 Iron Fly - Closed
I realized nearly the max loss on this trade which is obviously a risk when dealing with defined risk option strategies.  With very little wiggle room to adjust the position you just have to take the loss.  This trade had a net loss of $71.01.

Bank of America (BAC) - Covered Call

The great thing about options, especially in a tax sheltered account, is that you can write options against the shares in order to reduce your cost basis which is exactly what happened with this trade.
dividend growth investing, income investing, option strategy, put option
Bank of America (BAC) Jun 2017 Covered Call - Closed
This covered call generated net profits of $41.91.  Based on the $24 strike of the call option that's a 1.75% return that equates to an annualized return of 31.6%.  I was able to capture 91% of the option premium in 72% of the days until expiration.

SPDR Dow Jones Industrial Average (DJIA) - Call Credit Spread

As far as the overall markets are concerned I still feel that the valuations are stretched especially when you consider that growth across the economy as a whole is still meager at best.
dividend growth investing, income investing, option strategy, put option
SPDR Dow Jones Industrial Average (DJIA) Jun 2017 Call Credit Spread - Closed
This spread produced net profits of $10.42.  With only $69.29 of capital at risk on this trade that's a solid 15% return on capital.  I was able to capture 34% of the maximum profit potential in 17% of the days until expiration.

iShares Russell 2000 ETF (IWM) - Call Credit Spread

Sticking with my bearish theme I went with a call credit spread against the broader Russell 2000 ETF, IWM.
dividend growth investing, income investing, option strategy, put option
iShares Russell 2000 ETF (IWM) Jun 2017 Call Credit Spread - Closed
This spread generated net profits of $15.42.  With $156.29 of capital at risk on this trade that's a solid 10% return on capital.  I was able to secure 35% of the maximum profit potential in 14% of the days until expiration.

Sector Select SPDR Technology (XLK) - Put Credit Spread

The technology sector has been leading the market higher over the last few months.  Despite my bearish leaning on the broader market I wanted to diversify my options portfolio a bit with a bullish position in technology.
dividend growth investing, income investing, option strategy, put option
Sector Select SPDR (XLK) Jun 2017 Put Credit Spread - Closed
This position provided net profits of $7.42.  With $72.29 of capital at risk on this trade that's still a solid 10% return on capital.  I was able to capture 27% of the maximum profits in 19% of the days until expiration.

iShares Russell 2000 ETF (IWM) - Iron Fly

This trade went about as poorly as a trade could have.  It originally started out as a call credit spread above the market.  After IWM moved higher through the long call of that spread I added on a put credit spread to bring in more capital and reduce my risk by converting the position into an iron fly.
dividend growth investing, income investing, option strategy, put option
iShares Russell 2000 ETF (IWM) May 2017 Iron Fly - Closed
This trade had net losses of $75.87.  That's a -92% return on capital.  Yikes!  

Exxon Mobil (XOM) - Put Broken Wing Butterfly

Over the last few weeks I've been experimenting with some new defined risk positions namely the broken wing butterfly.  What I like about this trade is that if done for a credit you can turn a profit despite the underlying going against your thesis and if it cooperates then your profits jump to a much higher level.
dividend growth investing, income investing, option strategy, put option
Exxon Mobil (XOM) May 2017 Put Broken Wing Butterfly - Closed
This position produced net profits of $10.84.  With only $58.42 of capital at risk on this trade that's a solid 26.1% return on capital.  

Facebook (FB) - Put Broken Wing Butterfly 

Like I mentioned earlier the technology sector has been leading the charge over the last month or so.  I went with the put broken wing butterfly, which is actually a bearish position, that happens to have no risk should the underlying continue higher.
dividend growth investing, income investing, option strategy, put option
Facebook (FB) May 2017 Put Broken Wing Butterfly - Closed
When closing this position I was able to do so for an additional credit because Facebook's share price was trading between $149 and $150.  The realized profits on this position came to $33.84.  That works out to a 38.2% return on the $88.58 capital at risk on this trade.

Lowe's Companies (LOW) - Put Ratio Spread

Technically this was a put broken wing butterfly, but my plan going into the trade was to treat it more like a put ratio spread.
dividend growth investing, income investing, option strategy, put option
Lowe's Companies (LOW) May 2017 Put Ratio Spread - Closed
This position generated net profits of $40.63 since I was able to collect an additional credit when closing the position.  With $227.18 of capital at risk on this position that's a 14.7% return on capital.

Hormel Foods (HRL) - Covered Call

I was tempted to just let this one roll off since I closed it the day of expiration; however, I decided to roll the position forward a month because there was some hefty premium to be had in June's $35 strike call option.  
dividend growth investing, income investing, option strategy, put option
Hormel Foods (HRL) May 2017 Covered Call - Closed
This position generated net profits of $49.91.  Based on the $35 strike of the call option that's a 1.43% return.  The annualized return works out to 14.6%.  I was able to capture 96% of the credit received in 100% of the days until expiration.

Qualcomm (QCOM) - Put Option

This position started off as an earnings play gone bad that I then rolled out in time.  Unfortunately there wasn't a $55.50 strike in the May expiration cycle so I had to move it down to the $55 strike while paying to roll which I never want to do.
dividend growth investing, income investing, option strategy, put option
Qualcomm (QCOM) May 2017 Put Option - Expired OTM
This put option provided net profits of $46.86.  Based on the $55 strike of the put option that works out to a 0.85% return or 6.5% on an annualized basis.  

iShares Silver Trust (SLV) - Covered Call

This trade was originally part of a covered straddle I had written on the shares of SLV that I had previously acquired via a put option.  Since SLV was well below the $17 strike of the call option this call option expired OTM and I'm able to reduce my cost basis by the premium received.  That lowers my cost basis on my SLV shares from $17.18 to $16.74.
dividend growth investing, income investing, option strategy, put option
iShares Silver Trust (SLV) May 2017 Covered Call - Closed
This trade generated net profits of $43.95.  Based on the $17 strike of the call option that's a solid 2.59% return that works out to a 27.0% annualized return.

Cisco Systems (CSCO) - Covered Call

After acquiring 100 shares of Cisco at the end of March I've been selling call options against those shares in order to collect additional premium to lower my cost basis.  This is the first call option I wrote against those shares and with it expiring OTM this reduced my cost basis from $33.62 per share to $33.19.
dividend growth investing, income investing, option strategy, put option
Cisco Systems (CSCO) May 2017 Covered Call - Closed
This covered call generated net profits of $42.95.  Based on the $34 strike of the call option that's a 1.26% return.  The equivalent annualized return is 21.05%.

SPDR Gold Trust (GLD) - Put Credit Spread

No this isn't a typo I did put on the exact same trade with a different expiration.  Both of those are now closed for profits.
dividend growth investing, income investing, option strategy, put option
SPDR Gold Trust (GLD) Jun 2017 Put Credit Spread - Closed
This trade generated net profits of $21.42.  With $146.29 of capital at risk on this trade that works out to a 15% return on capital.  I was able to capture 40% of the maximum potential profits in 18% of the days until expiration.

Visa (V) - Put Credit Spread

I'm bullish on Visa and think it's one of the best companies to own for the next 20 years if you can purchase shares at a reasonable valuation.  Unfortunately that hasn't been the case recently and shares are quite expensive in my view.  However, I don't see any reason for the shares to pull back unless the markets take a dive so I'm riding the bull thesis on Visa with put credit spreads while waiting for better purchase opportunities.
dividend growth investing, income investing, option strategy, put option
Visa (V) Jun 2 2017 Put Credit Spread - Closed
This trade generated net profits of $15.42.  Since there was $65.29 of capital at risk on this position that's a 24% return on capital.  I was able to capture 44% of the maximum potential profit in 51% of the days until expiration.

Johnson & Johnson (JNJ) - Put Credit Spread

Johnson & Johnson is known for its stability and steady rise higher over time.  Similar to the Visa position I'd love to increase my stake just at a better valuation.  So until the markets turn for whatever reason I'll take small bullish bets on the companies that I want to own.
dividend growth investing, income investing, option strategy, put option
Johnson & Johnson (JNJ) Jun 9 2017 Put Credit Spread - Closed
This position produced net profits of $29.42.  With $138.29 of capital at risk on this trade that's a solid 21% return on capital.  I was able to capture 48% of the maximum potential profits in 36% of the days until expiration.

ProShares Trust Ultra Short VIX (UVXY) - Call Debit Spread

This was my first solo debit spread and I have to same I'm pleased with the results.  Of course the result doesn't really mean anything with just one occurrence to base it off of; however, profits are profits so this was a good trade.

If you recall volatility, via the VIX, had been noticeably absent from the markets and the index dipped below 10 a few weeks back which was nearly an all-time low.  At historically low volatility levels I had decided to put on a bullish play on rising volatility via the call debit spread on UVXY.
dividend growth investing, income investing, option strategy, put option
ProShares Trust Ultra Short VIX (UVXY) Jun 2017 Call Debit Spread - Closed
This trade worked out wonderfully with the market selling off last week meaning a spike in volatility which gave me a chance to close this position out for a solid profit.

This position generated net profits of $77.32.  Since the capital at risk was what I paid to enter the position, $206.34, that's a solid 37% return on capital in just over a week.  Not bad at all. 

Executed Options:

Cisco Systems (CSCO) - Put Option Earnings Play

This was an earnings play gone bad after Cisco gave weak guidance and the shares sold off on the news.  After Cisco reported I was trying to roll this position out in time in order buy some more time, but I couldn't do so for a credit.  Or at least not one that was worth doing as even going out until late June I could only pick up an additional $0.01 per share in option premium.  Since there wasn't much to be gained by rolling out I just let the option expire ITM and have the shares put to me.
dividend growth investing, income investing, option strategy, put option
Cisco Systems (CSCO) May 26 2017 Put Option Earnings Play - Executed
With Cisco's share price now down around $31.30 this doesn't look like that good of a trade.  However, I'm fine owning shares of Cisco at an average cost basis of $33.52.  The YOC is 3.46% and I think that Cisco is around fair value which is an okay place to pick up shares.

Conclusion
  
Even though I receive the option premium up front when selling options, I don't count the premium as profit until I close the position or it expires.

My option profits are churning along nicely through the first three trading weeks of May.  Thus far I've generated net profits of $1,624.97 in May.  Year to date my net profits are at $7,763.51.

I've updated my Option Summary page to reflect these changes.

Do you utilize an option strategy to generate investment income in addition to the dividends your positions provide?  

Please share your thoughts below!


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2 comments:

  1. I'm not bold enough yet to raise options plays on GLD or SLV. You must have an iron gut! I also don't count premium as earned until the associated liability is extinguished. It's only fair to the readers.

    ReplyDelete
    Replies
    1. FV,

      I've had some good success thus far with GLD not so much SLV. But I like them because they carry a fairly high baseline IV which means rich option prices. SLV is looking more attractive here in the $16.xx but I don't want to have too much exposure there so now I'm managing a strangle gone wrong.

      All the best.

      Delete