IB Account – 2021 Year End

The IB account generated a return of 17.5% (blue line) in 2021….within the goal of 1-2% per month but below the return of the SPX (500 stocks). Disappointed in performing below the SPX. My portfolio is overweighted on healthcare stocks. Omicron surge and the negative reaction was much higher in my account than the general market. At the end of October I was outperforming the SPX and looking at annualized returns in excess of 25%. Last couple of months were challenging.

No funds were added or removed from the account in 2021 .

The IB account was started with a $25,000 investment in 2012. No funds have been added or removed. The returns over the past 9 years have exceeded expectations especially in the past three years when I spent considerably more time on investing.

In the 4th quarter I added naked put writing to my strategy. Most of the open positions are comprised of a covered call + naked put. The naked puts are usually less than 50% of the number of covered calls. This strategy works well in a flat and up market. In a down market the naked puts amplify the losses on the stock.

A strategic decision that definitely impacted the return in 2021 was following the tax guidelines that do not cause the holding period on a stock to be reset (short calls have to be greater than 30 days before expiration and at least one strike price higher than the stock). Rethinking that decision for 2022 as a lot can happen in 30 days…..and any type of roll has to be out 30+ days.

Here is the portfolio leaving 2021……

Good week for IB account despite the distraction of building a shed

For the past week I have been “holed up” in Albert Canyon on a remote piece of property in the Rocky mountains. Maybe the distraction of building a shed, different time zone and slow wifi have limited my “reactionary trading” resulting in the IB account hitting a record high on Friday. For the week our profits were a little over $6,000.

My recent posts about building the shed have generated more than 10x the site visits! Guess that is much more exciting than updating about stocks and options.

Blue line is the account performance. Green is SPY. On Friday the account managed to create a nice positive variance vs the SPY.

Smile Direct Club continued a strong bounce from earlier losses. The stock profit is finally back into positive territory. With rapid stock movement the options lost money this week resulting in the overall position just about getting back to break even. I am currently short Oct 1 $6 Calls with the stock approaching $7 so we will have to roll the calls up and out this week.

DGX stock is continuing to push up and contributing to the performance.

Confluent stock has also been on a nice run following the IPO in July. I keep selling “out of the money” calls but the stock pushes past the strike prices so I have to roll the options at a loss. The IPO lock up is expiring in the not too distant future….so it will be interesting to see what happens with the stock. I don’t plan on rolling to strikes too far out of the money until the impact of the lock up gets “digested”.

Abbott has made a nice contribution since mid August. In addition to selling calls I also sold naked puts (okay to buy more of the stock if I got assigned on the puts). The addition of the naked put helped the overall performance of the options. Without the naked put the short call options would have offset some of the stock gains. With the naked put the combined stock/option position is much more profitable than just holding the stock. This is the graph visual I try. to achieve in all the positions…..with mixed results

As of the close on Friday the account has 14 open positions that are in the table below. We had a few short options expire on Friday. New calls on the expired positions will be written next week. We are profitable on 12 of the 14 stocks. (86%). Our option strategies have not fared as well with 6 being positive contributors (43%). The result on the options is not surprising given the recent strong performance by a few of the stocks. Overall we are profitable in 86% of the positions. I believe SDC will become positive in the near future. NIO remains a puzzle….not sure what the best strategy is…might be to exit the position.

YTD Performance of IB Account

Little background before discussing the account. I am helping my oldest son, Ryan, build a shed on his newly acquired property in Albert Canyon, British Columbia.. The property is about 15 miles west of Rodgers Pass National Park in the Rocky Mountains. It receives up to 40 feet of snow a year….a good thing if you love back country ski touring. Building a shed isn’t that tough an assignment…..unless you decide to do it in the Rocky Mountains on a property with no hydro or water. Battery powered skil saw works okay…..but the charge doesn’t very long when you are cutting “rough lumber” (when a 2 x 6 is really 2 inches by 6 inches). The wood is sourced from a local sawmill in Revelstoke. Some of it Douglas fir…..not a lot of fun to nail as the 3 1/2 nails bend about 50% of the time. Cutting the wood with hand saws….another whole experience. Great for conditioning…not so great for productivity.

YTD the IB Account is generating a return of $76,711 or 22.3%. The performance is similar to what the SPY has generated. No complaints….but it would be nice to outperform the SPY as it would be much easier to just buy the index and hold it!

Current positions and profitability of the stock/options and dividends. Overall the current positions are generating a profit of $156,710. The stocks have been held for different time periods.

NIO remains a hard one to figure out. It looks like a good idea…until I establish a position. CFLT has been a nice recent add.

Assigned on NIO on 5/29/21, Profit of $24,073 in 258 days, Return on Capital of 84.9% or 120% annualized

On Friday I was assigned on a covered call strategy for NIO. We opened the position 9/16/20 and have been rolling the short calls since then. I had an order in to roll the options but the order did not get filled and I was not able to check and adjust the order…..so I end up with a short term capital gain instead of holding on for another 107 days to get to long term capital gains.

We did not maximize the profit of the position. In early February before NIO stock started trending down the position had a profit of over $32,000 (black line in the graph below).

Overall NIO has been a good stock for a covered call strategy due to the excellent option premiums. Both the stock and options contributed to the overall profit…..a difficult combination to achieve. I will reopen a new CC strategy in NIO in the near future.

Graph shows the daily progress of the profitability of the position over the 258 days. How could I have improved the profitability….in October of 20 the stock went on a nice run. Profits could have been increased by either selling more “out of the money” strikes or just sitting on the stock. I did become more aggressive with strikes in December. When the stock started declining the contribution from the options became positive.

AMAZ Covered Call Strategy After 11 months and 100+ rolls

In May 20 we established a CC on AMAZ. Since that time we have rolled the short calls 100+ times. The goal has been to make the options “additive” to the profits. After 11 months the options are only contributing $2,543 to the position. When AMAZ price dropped the options helped offset some of the drop helping the account volatility; As AMAZ price bounced back the options gave up the gains. We have mostly sold and adjusted each week (and mid week) to “at the money” strikes. Position has generated good return but disappointed with the net from the options. I did get more aggressive with strike prices but not enough when the stock started to run. In one more month the gains on the stock will become long term provided I don’t get assigned in the next month.

I switched the tracking system 1/24/21 so the graph doesn’t show the early period. When the position was set up in May 20 everything was at $0.

IB Account Update….Conservative approach over past two months has slowed growth

Our IB account has been “stalled” since early February. To protect the gains from 2020 the account went from carrying margin of $150,000 to $200,000 in cash. We missed the opportunity with the recent rally but feel comfortable that we protected the gains. We have opened some new small CC positions primarily in stocks where we like the growth and dividend. Plans are to continue writing covered calls against the positions.

Current positions in the account are generating a net profit of $135,572. Six of the positions are more profitable due to contributions from the options. 8 of the 11 positions are profitable overall. Last Friday we had options on SDC and DGX expiring. We didn’t like the roll prices so we let them expire and have not sold new calls yet. ABT, DGX, MPLX, PBR and VIAC were all Dividend Capture Strategies (plus covered calls).

The account is 1.5% off all time high.

Update on ABT Covered Call….Earnings Announcement Today….Could be opportunity to add to position

Abbott is a good covered call candidate. In our IB account we purchased 100 shares on 4/1/21 and sold the May $120 Call option. We rolled the option to May $125 (if the stock drops today we might regret the roll up!).

Our unrealized return on capital for the position is 2.4% in 18 days or 49% annualized. We picked up the $.45 dividend on April 15.

Abbott missed revenue forecast for the quarter but exceeded EPS by $.05. If the stock experiences a dip we will likely add to our position as we like the long term prospects. We also own ABT in our Schwab accounts. It is a dividend aristocrat which is hard to find “on sale”.

Assigned on NUE Covered Call, Profit of $240 in 6 Days, 1% Return on Capital or 44% Annualized

On March 24 we established a Covered Call on NUE. The objective of the trade was to capture a dividend of $.405 (ex-div on March 30). We purchased 500 shares of the stock @$69.17 and wrote 5 “in the money” Apr 1 $67 Call options for a premium. of $2.64 per share . The call option premium provided 3.8% protection against a potential decline in stock value before we could collect the dividend.

The graph shows what happened after the CC was established. NUE stock had a run up in price (blue line) and closed yesterday at $78.75. At the close we were generating profits of $4,790 on the stock and a loss of $3,331 (red line) on the options.

The owner of the calls elected to call the shares away last night so they could collect the $.405 dividend. We sold the shares at $67 resulting in a loss of $1,,085 on the stock. Our short options became $0 and generated a profit of $1,394 resulting in net position profit of $240. Graphs shows the impact of the assignment with stock losing, option gaining and a small net profit.

$240 is not a lot of money in an account of any size…..but with market dynamics and volatility so hard to predict it was a reasonably “safe” trade that generated an annal return of 44%. They key is stringing a series of these “dividend capture” trades together on a weekly basis. In this situation the return on our investment was higher with the shares getting called away but the after tax gain would likely be higher collecting the dividend (taxed at a lower % than the gain on stock/option). We have five similar trades in play this week. My concern with the strategy is having one of the stocks experience a big decline that would offset the benefit of many smaller gains. If the strategy works over time we can easily scale the size of the trades to generate higher $ returns. If the stock falls below the short strike price we have an option of continuing to sell calls against the stock or selling the stock.

Assigned on SDC in 401K , Profit $660 in 14 Days, 2.1% Return or 55.8% Annualized

On the weekend we were assigned on our 3,000 shares of SDC. We were short 30 Mar 26 $10.50 Call options.

On Friday as the market was closing SDC was hovering right around $10.50. The market maker wanted us to pay up to $.05 to buy back the short calls. We did not think this was a “fair” price so we let the position play out. Ideally the stock would have closed at $10.49 and allowed us to keep the shares…..but it closed at $10.56 resulting in the shares getting called away.

The graph on the bottom right shows what happened over the course of holding the position. Immediately after opening the position the stock jumped up (blue line). Stock price deteriorated after that resulting in a loss of $1,680. We rolled the options each week. The premiums collected allowed us to make a profit on the options of $2,340. Net profit was $660. 56% annualized return on the capital required….so we are happy with the trade. We will open a new SDC position of similar size on Monday morning.

ABT (Abbott Laboratories) as a Covered Call Candidate

ABT had a very bullish article come out on Seeking Alpha (much better than I could write about the stock – look it up if you are interested). I have held shares in the company for over 30 years. The information below depicts my current position. Shares were purchased May 26, 2020. The tracking tool was updated in January and the history was lost so the data starts Jan 24. I have been writing weekly calls against the stock. Combination of stock, options and dividend are generating a profit of $28,686 for an annualized return of 23%. Not a “high flyer” but a solid medical device company with a long history of success.

The red line in the graph shows the profit/loss from the options. In the last month I started writing bullish put spreads along with the covered call. The goal is to generate more option premium. If the stock drops below the short put price I am okay with getting assigned more shares as I am bullish on the stock long term. Since adding short puts to the strategy I have reduced the losses on the options. Usually when the blue line (stock profit) goes up the red line goes in the opposite direction and offset some of the gain. The blue line has increased in the past couple of weeks but the red line held ….resulting in more profit. I sold another put spread this morning that isn’t reflected in the data yet.