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……

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.

Covered Call Strategy on AMT after 102 days…..profit of 13.4% or 47.8% annualized.

We opened a covered call on AMT on Apr 1, 2021 (so far it hasn’t been an April Fool joke!). The strategy is working well. In addition to collecting the option premiums we have also received $251 in dividends. Stock appreciation is generating the bulk of the profit. The appreciation has forced us to “roll up” at losses resulting in a net loss on the options of $639. Pleased with the overall profit of the strategy……should sell higher strike calls. We have rolled the options 8 times and been assigned once. Position is with 100 shares of stock and selling 1 call.

Charts below shows the daily evolution of the stock, option, dividend and net profit.

We have rolled the options 8 times and been assigned once over the 102 days.

Update on IB Account +16% YTD

YTD the account is up almost 16%…..which is in line with the goal of 1-2% growth per month. The returns were much higher in 2020 but it was much easier to generate returns last year. We are more conservative this year with almost a third of the account in cash. Last week the account hit a new high for the first time since late April.

Table below is the current portfolio. All positions have/had call options written against the stock. ABT also has a short put option written as I would be okay with getting assigned and increasing the position. The put was written when the stock recently dipped (after reducing revenue and earnings guidance) and I was looking for a bounce back.

CFLT is a new position opened following their recent IPO. It should be an interesting stock to follow.

10 of the 12 positions are net profitable. Overall the options are generating negative returns in 6 of the 12 positions. I have been writing further “out of the money” strike prices to try and improve this.

Dexcom (DXCM) has been on a roll lately resulting in higher profits on the stock but forcing us to “roll up” at losses.

NIO remains a challenge as my timing never seems to match up. When the stock drops I say “why am I playing with such a volatile Chinese based stock and I sell….only to get pulled back in with all the hype and high premiums.

BCRX has been a great performer generating $86,137 in net profit so far. Option premiums are great and stock has performed well over the past year. PODD (Insulet) was also a new addition to the portfolio. Premiums are surprisingly high.

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.