22 Option Moves to Boost My Investment Income
|Option Activity for the Week of April 28th|
Going into last week I didn't expect to make a whole lot of option moves; however, there was one thing going for me that I had forgotten about: earnings season. Earnings releases means higher implied volatility which means richer option premiums. The successful earnings plays really helped to boost up the profits for the month.
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There's plenty of moves to recap for last week so without further ado let's get into the trades.
Bank of America (BAC) - Covered Call
During April's monthly option expiration my put option on Bank of America ended up in the money. That meant I now owned 100 shares of Bank of America at my strike price, $23, less the premium received, $44.95, or $22.55. Since I already have a decent amount of exposure to Bank of America within my other accounts that mean it was time to start selling call options against these shares.
|Bank of America (BAC) May 26 2017 Covered Call - Opened|
If Bank of America's share price is below $24 at expiration then I'll get to keep my shares and the option premium would be profit. The $45.95 in option premium would be a 1.91% return based on the $24 strike price which would be a 24% annualized return. My cost basis on these shares would effectively be reduced to $22.09.
Pfizer (PFE) - Covered Call
Much like my new Bank of America position I was assigned shares of Pfizer via an in the money put option that expired on April 21st. That meant I now owned 100 shares of Pfizer at an adjusted cost basis of $33.78. While I don't mind owning Pfizer, I would love to own it at a much lower price point so I decided to sell calls against these shares to reduce my basis and if they are called away then so be it.
|Pfizer, Inc. (PFE) May 12 2017 Covered Call - Opened|
If Pfizer's share price is below $34 at expiration then the option premium would be profits and I would get to then sell additional call options to keep lowering my cost basis. The $28.95 option premium would represent a 0.85% return based on the $34 strike price or 19% annualized. My adjusted cost basis on my Pfizer shares would be reduced to $33.49.
Cisco Systems (CSCO) - Covered Call
Noticing a trend here? These shares were acquired on March 31st via, you guessed it, a put option that ended up in the money. My adjusted cost basis on these shares is $33.62.
|Cisco Systems (CSCO) May 2017 Covered Call - Opened|
If Cisco's share price is below $34 at expiration then I'll get to keep my shares as well as the premium. The $42.95 in option premium would represent a 1.26% return based on the $34 strike price. The premium would then go towards reducing the cost basis on my shares to $33.19.
Gold Miners ETF (GDX) - Put Option
I've been using the gold miner ETFs quite frequently in order to try and generate option premium because they typically have fairly high implied volatility which means rich option prices.
|Gold Miners ETF (GDX) May 2017 Put Option - Opened|
If GDX's share price is below $21 at expiration then I'll have to buy 100 shares of GDX at an effective purchase price of $20.38. I didn't note where the share price was trading at around the time the contract was executed but currently GDX is at $21.10. From yesterday's closing price I would purchase shares for a 3.4% discount.
Junior Gold Miners ETF (GDXJ) - Put Option
I just can't stay away from the gold miners, especially the junior, when it comes to option plays. Although based on the action from the past week or so my positions are hurting dearly.
|Junior Gold Miners ETF (GDXJ) June 2017 Put Option - Opened|
If GDXJ's share price is below $31 at expiration then I'll have to purchase shares at an adjusted cost basis of $29.51. Once again I didn't note the share price GDXJ was trading at so I don't have the discount that would represent.
Junior Gold Miners ETF (GDXJ) - Put Credit Spread
This was a trade in my new TastyWorks account and yet another play on the junior gold miners. With limited capital to work with that meant defined risk trades only so I went to the put credit spread which is a bullish to neutral strategy.
|Junior Gold Miners ETF (GDXJ) June 2 2017 Put Credit Spread - Opened|
If GDXJ's share price is above the $31 strike of the short put then both options will be OTM and I'll reach the maximum profit. The $62.71 would be a 31% return on the $200 ($2.00) width of the spread.
If GDXJ's share price is below the $29 strike of the long put then both options would be in the money and I will realize the maximum loss of $137.29.
At order entry the probability of profit for this trade was around 68%. Although if you've followed GDXJ's price movement over the last week it's not looking too good.
Visa, Inc. (V) - Put Credit Spread
I'd love to build up my position in Visa, but at much lower price levels than where it's currently trading. Since it seems like Visa's share price can only go up I decided to put on a limited risk put credit spread to try and ride that trend higher.
|Visa, Inc. (V) June 2 2017 Put Credit Spread - Opened|
If Visa's share price is above $91.50 at expiration then I'll realize the maximum profit. The $34.71 credit would be a hefty 34% return based on the $1.00 width of the spread.
If Visa's share price is below $90.50 at expiration then I'll realize the maximum loss of $65.29.
At order entry the probability of profit for this trade was around 63%.
SPDR S&P 500 ETF (SPY) - Call Credit Spread
Defined risk trades are nice because you know the most you can make and lose on the position when it's opened as opposed to the undefined risk trades which are inherently undefined. These are ideal for accounts such as my Roth IRA that have limited capital.
The call credit spread is the same thing as the put credit spread; however, with call credit spreads the position is bearish to neutral.
|SPDR S&P 500 ETF (SPY) June 2017 Call Credit Spread - Opened|
If SPY is below $243 at expiration then I'll realize the maximum profit. The $50.71 credit would be a 25% return on the $2.00 width of the spread.
If SPY is above $245 at expiration then I'll realize the maximum loss of $149.29.
At order entry this position had a 74% probability of profit which is the probability of making at least $0.01 on the trade.
Starbucks Corporation (SBUX) - Put Option Earnings Play
With earnings season in full swing that means the implied volatility is elevated for the companies releasing their results. With that high implied volatility comes higher option prices and the chance to made good profits in a short time frame if things work out right.
|Starbucks Corporation (SBUX) Apr 28 2017 Put Option - Rolled|
I'm still happy with how this has worked out because the post earnings decline allowed me to collect a hefty $0.61 in additional option premium by rolling the put out in time by about 3 weeks. That brings the total credits received on this position to $1.16.
If Starbucks' share price is above $60 per share at expiration then I'll get to keep the full option premium as profit. The $116 would be a 1.93% return based on the $6,000 in capital securing the contract.
If Starbucks' share price is below $60 per share at expiration then I'll have to purchase 100 shares at an adjusted cost basis of $58.84. That's not ideal, but it's still a 1.0% improvement over the $59.45 cost basis of the original position.
SPDR Gold Trust (GLD) - Put Credit Spread
The low commission/fee schedule at TastyWorks makes spreads much easier to trade and generate profits from. With most brokers this exactly trade would have cost me somewhere around $10 in commissions/fees which comes straight out of the profits; however, at TastyWorks the total cost for this trade was just $2.58. That's more like it.
|SPDR Gold Trust (GLD) May 2017 Put Credit Spread - Closed|
SPDR S&P 500 ETF (SPY) - Put Credit Spread
I wanted to experiment with some different spread types. So I went with a wider spread that was further out of the money at order entry.
|SPDR S&P 500 ETF (SPY) May 2017 Put Credit Spread - Closed|
Pfizer (PFE) - Put Option
I was a bit on the fence with whether to roll this contract out in time or to take the shares, but ultimately decided to just close it out. Even with earnings due out the following week there just wasn't much premium to be had via call options or much credit for rolling out in time.
|Pfizer (PFE) Apr 28 2017 Put Option - Closed|
Apple (AAPL) - Put Credit Spread
My thought process behind putting this trade on in early April was that Apple's share price would continue to trend higher leading up to earnings the earnings release in early May. Luckily for me that's exactly what happened which allowed me to close out the position for a decent profit.
|Apple (AAPL) Apr 28 2017 Put Credit Spread - Closed|
AT&T (T) - Put Option Earnings Play
With earnings season in play that means there's the possibility of making quick profits which is exactly how this one played out.
|AT&T (T) Apr 28 2017 Put Option - Closed|
Cisco Systems (CSCO) - Put Option
I originally opened this put option as more of a defensive play against the shares that were going to be assigned to me. Cisco's share price had dipped down so I wanted a chance to reduce my cost basis with shares purchased at a lower price or to generate more option premium.
|Cisco Systems (CSCO) Apr 28 2017 Put Option - Closed|
Union Pacific (UNP) - Put Option Earnings Play
This was another earnings play where I was looking to generate some quick profits after earnings were released. I left some profits on the table since I went conservative with just the $107 strike put option; however, that was a tradeoff I was willing to make because I wanted the higher downside protection that this contract offered.
|Union Pacific (UNP) Apr 28 2017 Put Option - Closed|
Qualcomm (QCOM) - Put Option
This put option was originally opened as a quasi-hedge/earnings play with my other Qualcomm put option that has since been rolled out in time.
|Qualcomm (QCOM) Apr 28 2017 Put Option - Closed|
Colgate Palmolive (CL) - Call Option
Things haven't worked out with Colgate Palmolive as I had planned; however, I can't really complain about the results either. Since Colgate's share price was below my strike price this contract just expired out of the money.
|Colgate Palmolive (CL) Apr 28 2017 Call Option - Closed|
Microsoft Corporation (MSFT) - Put Option Earnings Play
I have to say I'm liking earnings season and the possibility to make solid profits in a short amount of time.
|Microsoft Corporation (MSFT) Apr 28 2017 Put Option - Closed|
Microsoft Corporation (MSFT) - Put Credit Spread Earnings Play
Since I put on 2 different earnings plays that had the same underlying thesis, bullish to neutral, you can really tell the difference between undefined and defined risk strategies. The put credit spread provided a much higher return on capital while the put above put option produced much higher profits. That's the tradeoff between the two.
|Microsoft Corporation (MSFT) Apr 28 2017 Put Credit Spread - Closed|
Health Care SPDR ETF (XLV) - Iron Fly
This trade hasn't exactly been going as planned and since I had two positions on, user input error, I figured it was best to take one off at a small profit and use the capital elsewhere.
|Health Care SPDR (XLV) May 2017 Iron Fly - Closed|
Currency Shares Euro Trust (FXE) - Iron Butterfly
This is another trade where things weren't really going as planned and I honestly kind of messed things up on order entry. The implied volatility in FXE, the USD:EUR exchange, was quite high leading up to the French run-off election last week. However, where I messed up was the fact that should things go as expected with the run-off the FXE was likely to increase. On order entry I centered my iron fly, but in retrospect I should have skewed it a bit to the upside for the expected scenario to play out. I can't complain about making a profit though.
|Currency Shares Euro Trust (FXE) May 2017 Iron Fly - Closed|
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.
April was by far my best month ever for options trading although a good chunk of that came from successful earnings plays. I don't really care though how the profits come as long as they keep doing so. In April I generated net profits of $2,071.79 via options trades. Year to date my realized profits are $6,864.94.
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?
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