It is much easier (and fun) to manage your investments in a flat or up market. Down markets take knowledge and skills that I am improving but still have lots to learn.
Market has been tough the past six days. Doing my best to protect the gains from the past year…and have cash available if we see some bargains. In the past week I have reduced the number (tried to keep the less volatile stocks) and size of the positions. In the chart on the right the green line is the swing in cash (from carrying margin of $150,000 to cash of $100,000).
Hopefully we can continue to protect the capital and have either the patience to wait or be successful in testing some bearish strategies.
Unfortunately my Schwab accounts have been hit harder as the positions are much larger and more complicated to get in and out of. The iron condors are holding up…so far…but if the market keeps falling they will create some challenges.
Table below is tracking the open Iron Condors (IC), Bull Put Spreads (BuPS) and Diagonal Bull Put Spreads (DiagBuPS). So far the combination of put strategies is generating a profit of $5,231. We have $135,300 of capital “reserved” against the positions. Return on Capital is 3.87% in less than a month. The Diagonal Put Spreads are showing a loss…not unexpected as the goal is to write additional Put options against the base position over the next several months. Not included are a couple of adjustments. The initial IC on ABT was too “tight” (difference between the strike price of the short put and short call). We closed the position and established a new one with more width. We also reduced the size if the position from 30 contracts to 10…..we don’t have enough experience for IC with 30 contracts. The position was closed for a $1,200 profit that is not included. We made similar adjustments to the DXCM and SPY positions (wider width) at minimal cost.
It has been challenging to achieve the “tasty trade” recommendation of generating premium = 1/3 of the width between the strike prices (example long put at $110 and short put at $115 …..$5 spread x 1/3).
Unfortunately it is very time consuming to track the strategies. The download from Schwab does not include the “strategy” information even though Schwab do include it in the online account summary information. Downloaded historical and current information needs to be put in a table and queried. Over time I hope to figure out a more efficient way to track the individual strategies. Recommendations are welcome!
AMZN CC strategy continues to perform well. Tables below show the continued progress. In late January I switched the tracking software so the graph starts with the historical profit on the stock, option and net as of Jan 25. In the tables below it shows our all time profits on AMZN as well as the Current Position Profit. On the right is the current position in our portfolio.
The table below shows the importance of the call premiums. On 1/25/21 we had a profit on the stock of $90,011 and a loss on the options of $5,700 for net gain of $84,311. In the next 25 days the net price of AMZN declined and our profit on the stock dropped from $90,011 to $85,601. The option premiums collected during the 25 days (we rolled the options 14 times….to mostly ATM strike prices) improved the profitability on the options from ($5,700) to $7,019. Despite the drop in stock profit our overall net profit on the position increased from $84,311 to $92,620. Historically we have been challenged to create profit on the short options as the stock price continually increased. In the past 25 days the covered call strategy is performing the way we would hope.
This is not investment advice. I am sharing a position that has worked out well for me. No guarantee that it will work out in the future. Individual investor….not a licensed professional.
This morning we initiated a new CC in RTX. Purchased 1000 shares and sold 10 Feb 26 $74.50 Call options. Net price was $72.33. In addition to capturing the call premium we are looking to capture the dividend of $.475 that goes ex-div 2/25. Stock is up $.93 since we bought the position. Max profit if the stock reaches and stays above $74.50 is $2.17 ($74.50 strike price – net price of $72.33) + dividend ($.475) = $2.645 (3.7% in 7 days). Our break even is $72.33 (net price) – $.475 (dividend) = $71.855. Our intent is to capture the dividend and exit the position next Friday.
Our IC on ABT lost money this week as ABT stock increased in value. The table below shows the current status (ignore the -15 ABT 02/19/2021 $127 Calls as they are part of a covered call).
The “wings” of our IC include a call spread of $125/$135 (10 point spread) on the upper side and put spread $110/$120 (10 point spread) on the lower side. When we established the IC we received $13,255 in premium for selling the two spreads.
Max Profit = Premium Received.
Max Loss = Spread between the wings (10) * #contracts (30) * 100 shares per contract – Premium Received = $16,745.
Current stock price of $128.23 is above the lower strike on our call spread.
To realize max profit we need ABT to be between $120 and $125. When we set up the IC it seemed like a reasonable assumption. In hindsight I should have used a wider range. A wider range would have reduced the premium received (Max Profit) but increased the probability of the stock remaining inside the range. Position is currently losing $1,225.
The position has a lot of time left (expires March 19) and ABT may drop back. If the price goes above $135 we will incur the maximum loss. We do have an option of rolling up the Put from $120 to $125 which would generate additional premium and reduce the maximum loss.
Yesterday I established a new IC on DXCM following the earnings announcement. Took the lesson learned about wider range. The options in the table below with the quantity 20 and -20 make up the IC. The spread between the put spread ($360) and call spread ($460) is much wider than what we did on ABT IC. The stock has a $100 range to move and allow us to make maximum profit. Our Max profit is the sum of the premiums received ($15,680). Max Loss is the spread of the wings (20) x number of contracts (20) x 100 shares per contract – Premium Received = $24,320. Current profit is $1,340…….
We currently have 10 positions (9 different stocks, tracking two SDC positions entered differently). 8 of the 9 positions are profitable generating unrealized profit of $143,975. The stocks have performed very well generating most of the profits.
Below are graphs of each position over time. In addition to selling calls against the stock we have selectively started using put options. If one of our stocks has a drop and we feel it will rebound we will sell a Bull Put Spread looking to profit from the rebound in stock price. We have also sold some naked puts if we are interested in acquiring more shares in the company (did this to acquire more SDC…..by selling a naked put you bring in premium but sign up to purchase the stock if the stock drops below the strike price….downside is large potential loss if the stock were drop significantly so very selective on where to use this (used in on ATEC and stock went up).
We established the covered call position on NIO on Aug 20, 2020. It has been a wild ride with the stock driving profit of $87,917 and the options generating ($31,047) for a net profit of $56,870. We have been rolling the options on a weekly basis trying to maintain “at the money” options. Despite the excellent option premiums it has been a challenge to write profitable options which is typical with stocks that show substantial appreciation in a short period of time. Intent is to keep NIO for the long term as it has excellent upside….but we need to modify our option approach as we are not optimizing the potential.
DXCM announced earnings today after the market closed. We decided to sell our shares and buy back the options to avoid the wild swing that follow the announcements. History was projecting the stock would move +/- 8% ($32).
We established the position on July 20/2020. We rolled the position 18 times. All of the profit was generated by selling the options. The stock was purchased for $432, dropped as low as $360 then recovered to $400.
DXCM has been a core holding in my investments for the past 10 years. When the dust “settles” I will likely start a new position.
On Jan 12 we opened up a Bull Put Spread on PINS (Pinterest). Today we closed out the position after 27 days as minimal upside was available up to the Feb 19 expiration date. Position generated a nice profit and high return on capital.