It’s time to review my options results as part of my Dividend Growth Journey. I try to boost my income and portfolio value by trading options.
My main strategy of trading options is to sell puts options on companies I have on my radar but may be above the price I am willing to pay. Selling put options allows me to set the price I’m willing to pay. As a result, I get paid while waiting for the share price to drop!
Additionally, I sell covered calls on stock for which I hold the shares in my portfolio to boost my income. Not only do I collect dividends but also option premiums. The underlying thought is that if the share price increases above the strike price I am not too concerned of selling the shares.
Last but not least, I use options for a more speculative approach. I sell puts on stock which have a high implied volatility at far out of the money strike prices or I buy 100 shares of a stock and directly sell a covered call option.
So, let’s look at the results from options for March 2021.
Assigned Options
If the option holder decides to exercise the option I’d sold, I am obliged to sell (call option) or buy (put option) at the option’s strike price.
-1 MDP 19MAR21 15.0 C @ $259.66
-1 MDP 19MAR21 20.0 C @ $194.91
I had bought 200 shares of MDP quite a while back (June and November 2020) and sold covered calls against them. Both options expired deep in the money and the shares were called away. I had to sell the shares at the strike price $15 and $20 respectively, but keep the premium. I would have been better off not selling the options as the share price went to over $30, but this is the limitation when selling covered calls: you are limited on the upside.
I secured $454.57 in premiums and no change to my Projected Annual Dividend Income (PADI) as MDP does not pay a dividend.
Expired Options
If a contract expires out-of-the-money it is worthless for the buyer. For a sold put option I do not have any further obligation to purchase the shares at the strike price and the margin set aside for collateral gets released. For sold covered calls, my shares can no longer be called away. I secure the income in full.
In March, the following option expired:
-1 INTC 26MAR21 66.0 C @ $46.91
This secured me $46.91 in options premium income.
Intel (INTC) went a bit volatile in the last several weeks so I did not repeat the trade.
Sold Options
Selling options allows you to set a price (strike price) at which you are willing to buy (put option) or sell (call option) up to a set future date, the expiration date of the option. As a seller you collect a premium from the buyer in exchange for the option to be able to exercise when favorable for the buyer. In this section I only include sold options to open a position.
In March, in total I opened 13 new positions with a total of 39 contracts, eleven of which are puts and one a call option.
03-Mar-2021 -2 TTCF 18JUN21 17.5 P TTCF @ $490.22
03-Mar-2021 -1 NEE 18JUN21 65.0 P NEE @ $200.71
08-Mar-2021 -1 AAPL 19MAR21 110.0 P @ $109.92 (already closed)
15-Mar-2021 -1 INTC 26MAR21 66.0 C @$46.91 (already expired)
22-Mar-2021 -1 PLTR 16APR21 23.0 P PLTR @ $104.20
23-Mar-2021 -10 BNGO 21JAN22 8.0P @ $3,195.07
23-Mar-2021 -1 FREQ 16JUL21 15.0P @ $725.75
23-Mar-2021 -5 GNOG 21JAN21 12.5 P @ $1,775.53
23-Mar-2021 -5 NNDM 20AUG21 7.5 P @ $777.80
23-Mar-2021 -5 TTCF 21MAY21 17.5 P @ $646.31
24-Mar-2021 -2 GME 21JAN21 25.0 P GME @ $1,036.51
25-Mar-2021 -3 TTCF 18JUN21 17.5 P TTCF @ $600.03
29-Mar-2021 -2 PLTR 18JUN21 19.0 P PLTR @ $318.52
With these sold options I generated a cash flow of $10,027.48 during March.
Bought Options
Buying options gives you the right to buy (call option) or sell (put option) at a defined price (strike price) up to a set future date, the expiration date of the option. The expectation is that the share price moves in the right direction and you profit without actually holding the shares. If the stock price does not go over (call) or fall under (put) the strike price, the option expires worthless and the loss would be the total of the premium paid for the option. In this section I only include bought options to open a position.
I did not buy any options to open in March.
Rolled Options
Rolling forward options means buying back an option and selling another option with a later expiration date on the same underlying. You can do this to avoid options assignment for in-the-money options or to collect more options income for out-of-the-money options.
I did not roll forward any options in March.
Closed Options
When an out of the money option goes further out of the money, you can close the option early and secure most of the options income. In the case of covered calls, you must close the calls if you want to sell the underlying shares before expiration.
17-Feb-2020: -1 MRK 19MAR21 75.0 P @ $197.91
15-Mar-2021: +1 MRK 19MAR21 75.0 P @ $25.08
I closed this option a few days before expiration giving me a profit of $172.83 or 87% of the obtained premium.
08-Dec-2020: -1 FSLY 19MAR21 80.0 P @ $755.75
19-Mar-2021: +1 FSLY 19MAR21 80.0 P @ $830.73
I closed this option on expiration day because I did not want to get assigned. With this trade I took a loss of $75.03. During the months since selling the option the stock went up significantly and the option price dropped to just above $100, not enough for my limit order to buy back the option at the 90% profit mark. Then it turned against me and I ended up with a loss. Learning point here is to take profits at a lower level when dealing with more speculative trades.
17-Feb-2021: -2 DBX 16APR21 21.0 P@ $263.12
22-Mar-2021: +2 DBX 16APR21 21.0 P @ -$24.87
I closed this option a few weeks before expiration giving me a profit of $238.25 or 91% of the obtained premium.
08-Mar-2021: -1 AAPL 19MAR21 110.0 P@ $109.92
09-Mar-2021: +1 AAPL 19MAR21 110.0 P @ -$54.08
I closed this option one day after entering the trade because I was testing a dynamic stop loss order and the tracking limit was just too close so that it was executed right the next day. The trade gave me a profit of $55.84 or 51% of the obtained premium.
In total, in this section of Closed Options I secured $391.89 of income and had a negative cash flow of $934.81 for the premiums to buy back the options. My weighted average secured income level is 30% of the received premium.
Cash flow and secured income from options trading
When trading options there is a difference between the cash flow and secured income. The cash flow shows you the net effect of opening positions which means selling or buying options. When you sell an option you immediately receive the premium for said option – a positive cash flow. When you buy an option you pay immediately the premium – a negative cash flow.
Additionally, when you close positions before expiration you buy back sold options and sell bought options. Again, these are all transaction that generate cash flow, either positive or negative. Only when an option expires, you are called or assigned or you close an option before expiration you actually secure income or loss.
In the table above you see the impact on cash flow and secured income for the option trades in March. You can see that I had a net positive cash flow of $9,092.67! This result derives from options income of $10,027.48 for sold options and outflows of $934.81 for closing options to lock in profits or avoid assignment.
In the below chart you can see the evolution of my cash flow related to options.
The next chart shows the profit and loss evolution. The bars represent the monthly results and the black line the accumulated result. The outcome is quite different from the previous chart and the reason is having still open positions for which I collected premiums and as such not locked in any profit or loss.
I secured income with a total of $893.37 of which $46.91 are linked to expired options, $391.89 from closing options early and another $454.57 from assigned options.
March was a reasonable month with my secured options income of close to a thousand dollars which I have set myself as an average target for this year. However, accumulated I still carry a loss forward from February and March 2020. I hope I will run into positive net results by mid-year, latest after the summer.
Risk Management
You can see that the exposure value during March is well below the portfolio net asset value of one with $152k naked exposure, only secured by my stock holding and cash. Cash secured or covered calls have not impact.
The portfolio value multiple increased compared to last month from a factor of 0.68 to 0.77 of my overall net portfolio value (red line). Obviously, the portfolio value increase is also helping to lower the value. It is a great result and I plan to keep this metric below the factor one.
That’s it for March and I hope to continue this positive trend. I will see what I will do with the two sold call options on DFS which are deep in the money. They will have the biggest impact in April latest.
Disclaimer: I am not a professional investment or financial advisor. The information presented on this site represents my personal dividend growth journey and it is for informational purposes only. Opinions expressed are my own and should NOT be relied on or taken as investing advice. I have no knowledge about your personal situation and before you make any investment decision you should exercise due diligence and must do your own research. Always consider seeking advice from a professional financial and tax advisor.