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.
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.
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!
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.
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.
NIO CC Strategy established 9/16/20 has been able to hold onto most of the profits (black line) despite the erosion in stock profits (blue line). NIO call premiums have remained at a reasonable level due to the volatility. As the stock profits declined the option profits (orange line) has been offsetting. Overall the position is generating a profit of $23,184 a return on capital of 77% or 130% annualized. We would like to hold the shares until 9/16/21 so we pay long term capital gains on the stock.
Our VIAC CC strategy has not worked out very well so far. We bought the stock after the steep decline thinking it was a good entry point. Unfortunately the stock has continued to decline (blue line) and the profits from the short calls are not able to offset the stock decline. We will continue to hold the strategy and roll the calls as they expire as VIAC pays a good dividend and we feel confident the stock will eventually bounce back.
Difficult week for the IC strategy. The continued rise of the SPY over the past 12 days has created challenges. We have had to roll up Puts and use some of the incremental premium to roll up the Calls (only investing incremental premium received or the maximum risk associated with the strategy will be increased).
We also rolled a couple of IC’s ‘up and out’ as the ‘days to expiration’ were approaching 21 days (Tastytrade.com mechanics on when to roll/close options). The IC’s we closed have generated a profit of $2,289. Unfortunately the open IC’s are generating a loss of $2,464. Overall the strategy is losing $175. For $175 it has been good entertainment…..except the purpose is to make money not just keep me busy.
We need a pullback in the SPY ….or at least for it to stop rising for the strategy to return to profitability.
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.
Yesterday (3/24) we closed our position in MU. We opened it on 2/1/21 as a covered call (Bought 200 shares @$79.71 and sold 2 Feb 12 $80 calls @$2.53. On February 23 we closed the covered call (Blue line goes flat) and opened an Iron Condor (Sold 20 Contracts April 16 +$65P/-$75P and -$105C/+$115C. Our goal was for the stock to remain between $75 and $105 so we could keep the premium collected. We closed the position yesterday as we were exceeding 50% of the max profit potential. The combination of CC and IC generated profits of $4,346 ($1,754 with the stock and $2,592 with the options).
One bright spot on a tough market day was closing the Iron Condor on MU. Details on the transaction are below. Profit of $3,360, a Return on Capital of 22% in 27 days, 83% Annualized. This is a much better return than I have been achieving trying to capture dividends over the past couple of weeks!
We followed the Tastytrade.com recommendations when we set up (51 Days to Expiration) and closed the trade (21 Days to Expiration or 50% of max profit….we closed it based on exceeding profit goal). We have a series of IC’s coming due over the next week…..but this will likely be the most successful. This is one of the few IC’s where we were able to get a credit equal to 1/3 of the width between the strikes ($10 width, $3.36 credit). The volume on MU options is high which helped with both the entry and exit. Other IC’s I have are more challenging to exit due to the wide spread between the bid and ask prices. The IC’s are above the 50% profit target but I can’t get filled and remain above the target. I may have to hold them through expiration.
We have been managing a covered call strategy on SDC for well over a year now. The excellent option premiums received when we roll the calls on a weekly basis have resulted in the options generating a profit of $53,309 in addition to the $90,921 generated by the stock..
The graph below illustrates the daily profit of the stock and options. It covers the period starting Jan 24 when we started with a new tracking system. The blue line on the graph shows the drop in stock profit from over $200,000 in January to under $100,00. Covered calls have offset some of this decline. The red line shows the increase in option profits from a loss to a profit of $60,000. Considering the stock has dropped from over $14 to $11 we are pleased with result (we initially purchased the stock at under $5). It is challenging to find a covered call strategy where both the stock and options are generating profits.
The approach has allowed us to build up a nice long term capital gain we can sell to “titrate” against short term losses generated by rolling up options on other covered call positions.
Information below summarizes how our CC Strategy on LNC is performing after 267 days. We are generating profit of $23,009 (including $2,040 in dividends). The graph tracks the daily profit/loss for the stock and options over time. We started using a new tracking system in January so it does not have all for the history. From the graph it is clear we have left money on the table by writing call options that were too conservative (either “at the money” or slightly “in the money”). The stock profit (blue line) and option loss (red line) are basically offsetting leaving us with a net profit that has been flat since Feb 7. If we believe LNC will continue to perform well we should be more aggressive and sell out of the money options (which reduce our downside protection) or add out of the money bull put spreads.
The position has returned 32% or 43% annualized……but it could be doing much better if we had adjusted our approach.
From a taxable viewpoint the options have generated short term losses of $33,911 some of which we used in 2020 taxes. Holding the stock until 6/25/2021 will allow us to pay long term capital gains on the $54,880 gain.