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.

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.

Covered Call versus Covered Call + Bull Put Spread

The charts below show two investment strategies around Covered Calls. We had a similar outlook on both stocks when the positions were originally set up (bullish long term). Both stocks pay a good dividend.

The top example is Abbott (ABT) and the bottom one is Lincoln Financial (LNC). With ABT we established a covered call and added bull put spreads (BuPS) over time. With LNC we only used covered calls. In both scenarios we rolled the options. ABT allowing weekly rolls and LNC monthly. Key to understanding the impact of adding the BUPS is tracking the return on the options (red line).

By adding BuPS to the Abbott strategy the loss on the short call options as the stock increased in price was offset by the gains on BuPS. With LNC the loss on the short call options offset much of the gain on the stock. The gap between the blue line (stock profit) and yellow line (net profit) is key. With LNC the gap continued to widen as the stock increased in price. We realized very little from the recent stock appreciation. In hindsight we could have written more aggressive strike prices on LNC (usually write ATM so we have a reasonable level of downside protection).

Take away for me…..after opening or when opening a covered call if you continue to feel bullish on the stock adding BuPS can offset losses on the short calls as the stock appreciates. Return in both examples is acceptable….but we left money on the table with LNC. CC versus just BuPS allowed us to capture the dividends. In these examples the dividend isn’t playing a significant role due to stock appreciation…..but this is the exception. Collecting the dividend can represent a key contribution in some situations.

Charts are showing impact from Jan 24, 21. Positions have been open for 332 and 302 days. We are getting close to the stock gains becoming long term capital gains.

NIO Covered Call “hanging in” despite price drop, VIAC CC not working so well

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.

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.

Closed MOS Covered Call/Iron Condor Position – Loss of $80, would have been much larger loss without IC

Yesterday we closed the position on MOS for a small loss. We opened the position as a covered call on 2/18/21 when we purchased 2,000 shares of MOS @$28.88 and sold 20 Mar 5 $29 Call options @$1.73. Shares jumped in price (blue line) but quickly fell back. We sold the shares on 2/26 for a small gain. When the stock was appreciating we rolled the short options up (to $30, $31, $33) as the losses on the short options were offsetting the stock gain. When the stock quickly pulled back the option premiums on the higher strike price were not enough to offset the losses on the stock. When we shut down the covered call the position we had lost over $3,500 on the options. We established the Iron Condor on 2/24/21. 30 Contracts April 16 +27P/-$29P and -$37C/+$39C. The IC performed well getting the overall position back to a loss of $80 (yellow and red lines).

Closed MU Covered Call/Iron Condor for profit of $4,346 in 52 Days

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).

Update on Iron Condor Learning/Strategy, Shutdown IC on MU today

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.

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.