Another month has come and gone……and it was a good month. Lots of travel, time with family, time with friends and a healthy market pushing to record highs. In the month our account increased over 7%….. above our monthly goal of 1-2%. YTD the account is now up almost 28% versus the S&P at 23%.
In July we started tracking the % of stocks, options and net positions that were profitable. The tracking provided some interesting and helpful insights. We are frustrated with not making more profit with the options (covered calls are not the best strategy in a rising market). In addition to selling calls we added naked puts to many of the positions. The naked puts have helped offset the losses on the calls as the stock rises. When we started the tracking under 70% of the net positions were profitable (black line). This has improved to 93%. The tracking highlighted a couple of positions we struggled to turn around….so we closed them and allocated more money to our winning positions.
The table shows the current stock holdings in the portfolio. Column on far right is the annualized return on the position (stock+option+dividend). We have one losing position with NIO. Considering adding short puts to the NIO strategy to try and improve performance. In addition to short calls we have short puts on ABT, ATEC, BCRX, DGX, DXCM, PBR and SDC. Overall the options are still negative with DXCM having have a big influence on the overall option number.
If you have any questions on any of the holdings or the tracking don’t hesitate to ask.
We are up at the cottage in Canada for about a month closing things down for the winter. Weather has been cooperating. Chilly but reasonable. Nice time of the year to be at the cottage…..very quiet and no flies. A better internet would be nice….but what we have is adequate. Hopefully the market stays strong through November…..but the new highs do make me nervous!
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 April 1 we purchased 100 shares of ABT and established a covered call. At the time we were following the bullish comments of CEO during the Q1 earnings call. Initially the stock increased in price (blue line is stock profit/loss). Unfortunately the optimistic comments from the CEO were premature and the company revised earnings and revenue projections causing the stock to drop. Following the drop we added short puts to the strategy as I didn’t mind buying more shares of the company if we got assigned. Profitability of the puts is represented by the orange line. The stock has slowly climbed back. The positions are currently generating a profit of $1,237 between the stock, options and dividends.
Current option position – naked on 3 short puts (Sep 17 $123).
We have also collected $90 in dividends. Overall return is 11.2% or 32% annualized.
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.
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.
It doesn’t happen often when a CC position is profitable on the stock, option premiums and dividends. Our position in CVS is currently positive with all three. Early on the stock dropped (blue line) so we were losing money on the stock and making money on the options (red line). Recently the stock has run up. In the table at the bottom you can see our option rolls as the stock increased in value. Our rolling could have been more aggressive (higher strikes) as the option profits have declined as the stock pushed higher. We remain bullish on CVS and like the dividend. Plans are to continue rolling the options and hold the stock. On Mar 15 we purchased 300 shares and sold 3 Apr 23 $74 Calls to start the position.
Lumber prices have gone crazy. Rather than complain about the prices we decided to establish a CC on one of the top lumber companies, WY. This “approach” has worked in the past with Peleton. We wanted to buy a Peleton so we set up a CC and paid for the bicycle 50x over. I don’t think WY has the same upside as PTON had but we might make some money and offset some of lumber costs on our porch expansion at the cottage.
On Friday we purchased 500 shares at $38.53 and sold 5 Jun 18 $39 Calls for $2.00. After one day we have made $191…..enough to buy a few boards!
We did look at the charts and liked the entry point. Company financials are in good shape and it pays a dividend that yields 1.75%. Based on the current housing shortage, lack of inventory at building outlets and consumers with lots of money for renovations we plan on holding the position and roll the calls. Q1 results were announced yesterday. We took advantage of the dip to establish our position.
On April 6 we established a CC on PBR when we bought the stock for $8.43 and Sold Apr 16 $8.50 Call for $.17.When we set up CC we were planning to collect the $.29 dividend (ex date Apr 15).
The stock dropped in value after we established the position (blue line in graph). Our $8.50 Call option expired and we wrote Apr 23 $8 Call which we rolled up and out to Jun 4 $8.50 as the stock price recovered.
The $145 in dividends we collected have made this position profitable (black line). Without the dividend we would be losing money. Dividends can make the difference between a winning or losing short term trade. We like the yield on PBR and plan on continuing to roll the options and hold the stock.
With CC’s the profit can come from the short option, stock appreciation up to strike price or from the dividend.
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.