We continued with our SPY ladder. As IC’s approached 21 DTE we rolled them out or up and out. . Where possible we did a vertical roll on a few of the IC’s using the credit from the Put side to roll up the Call side (want to minimize any incremental investment so limited the ability to roll) . In most situations we could only roll up the calls a few dollars.
In the graph below you can see an improvement in the return when the SPY fell for a few days…..followed by a decline when the SPY started to rise again.
Little hesitant going into June based on the upcoming dividend. Rolling calls that remain “in the money” will create a risk of assignment and I want to understand the risk associated with assignment.
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 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.
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).
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”.
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.
Our SPY experiment is hitting full stride. Our first four SPY’s are Closed and we have five open positions (green background in the table). The rise in the SPY last week created pressure on our positions. With SPY closing above $400 we have short calls at $400 and $403. We rolled up our Put spreads to increase our premiums and reduce maximum potential loss. All five of the open positions are currently losing money. We will look to close the positions as they hit 21 days before expiration (or hit 50% of maximum profit). If SPY continues to rise we will roll our Put spreads up until the short Put strike reaches the short Call strike. (Iron Condor becomes an Iron Fly at that point).
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.
On 3/19 we set up an earnings trade on RH. We established a Covered Call (Bought 100 shares at $515.77 and sold a deep in the money $470 Call option. Volatility was extremely high so we received excellent premiums of $58.10 per share. With the shares trading at $515 and expected earnings move of +/- 14% we thought we were being conservative with a $470 strike price. In addition to the CC we set up a deep out of the money Bull Put Spread to capture more premium. We sold the $470 Put and bought $450 Put…..with the expectation we had minimal risk of getting Put the shares (they were $50 out of the money and we didn’t want to have to buy 300 shares @$470). Much to our surprise in the two days before earnings RH stock fell from $515 to $480…..and we were now well within the expected earnings move range. We bought back the Bull Put Spread at a loss of $655. We sold a new Bull Put Spread at lower strikes ($440/$420).
Turned out RH earnings were good and after a quick dip the stock rose back up over $500….so we left money on the table. On the Covered Call we lost $4,577 on the stock, made a profit of $5,809 on the short call option for an overall profit of $1,232. The 2 Bull Put Spreads made a combined profit of $197 (would have been $1,400 if we had just sat on the initial spread).
I don’t usually do “earning trades” due to the volatility and uncertainty….so we made a bit of money and got a little stressed!
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.