Update on SPY Ladder

Today we closed our remaining June SPY Iron Condor (it has 21 DTE) and opened a Jul 30 IC. We currently have 9 open IC’s in the month of July. Profitability of the ladder has been improving and reached a new high today of $4,686. This is a 9% return on capital or 26% annualized. Capital required to carry the positions is $53,463 (equivalent to max loss of all the positions). The 26% annualized return has been steadily improving over since the low in late April. Although max loss is rarely incurred the risk/reward ratio needs to be monitored.

SPY volatility has reduced during the recent run up, decreasing the premium received when we open positions.

Open positions are in the table below. Colors break out the individual IC’s.

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.

Amazon Covered Call Strategy….One Year….Profit of $97,760…44% Annualized

Over the past year I have “managed” a covered call position on Amazon. During the year the short call options have been rolled 123 times. The rolls have been to keep the short strikes “at the money”. Both the stock ($83,839) and short options ($13,921) have both contributed to the profit.

The stock has dropped recently but gains from the options have offset some of the losses.

Reaching 365 days is a key part of the position strategy. The gains on the stock will now be taxed at the long term capital gains rate of 15% (assuming we hold on to the gain) versus short term capital gains.

Chart above shows the daily profit/loss for the stock/option and net starting January 24th.

VIAC CC Recovering ….slowly becoming profitable

Patience with the VIAC CC is starting to pay off. On April 1 when we established the CC and bought the stock at $45.12 we thought VIAC had hit bottom….but the stock continued to decline (blue line showing profit/loss on the stock). Despite the drop in the stock we resisted the temptation to roll the May 21 $45 Call down. As the stock recovers the short option has remained profitable. Had we rolled down we would have offset some of the gain from the stock recovery. Plans are to keep the position and roll the calls as we approach 21 days to expiry.

The position has become profitable….we can almost buy a case of beer!

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.

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.

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.

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”.

Update on SPY Iron Condor Strategy – Losing $175 despite a lot of effort and trading……Schwab might be winning on commission……

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.