Our IB Account had a good week increasing by 4.23% to $358,143 a new high. MTD Dec is up 9.5%.
Account positions are in the table below. On Friday the monthly and weekly options expired. In the column below under Options we show the trade/position we moved into for next week/month. ATEC, BCRX, DXCM and STE are monthly options so the diagonal trades changed our positions from Dec 18 expiry to Jan 15 expiry. The positions are carrying an unrealized gain of $101,089.
Last week we opened a new position on BMY. We are bullish on the stock and looking to capture the upcoming $.49 dividend. We were aggressive in setting up the initial position. We purchased the stock at $61.52, and sold Dec 24 $65 Calls for $.11 to establish the covered call. We also bought a Dec 24 $63/$65 Bull Call Spread (looking to make a profit on the stock rising and closing at $63+ at expiry on Dec 24) and sold a Dec 24 $62 Put (looking to generate profit by capturing $1.08 premium if the stock stays above $62….with the risk of having to purchase more BMY shares if the stock were to go below $62).
On Friday we closed the Bull Call Spread selling the Dec 24 $63 Calls and buying back the Dec 24 $65 Calls making a small profit on the position. Goldman Sachs had upgraded BMY and increased the target price from $82 to $86 which made us comfortable with the bull call spread strategy anticipating the stock would run up. When the run up seemed to stall on Friday we closed the bull call spread.
If the three days the position has been open we generated a mostly unrealized profit of $734, a return of 4% or 484% annualized so far.
Over the past 155 days we have been developing our PTON covered call strategy by rolling weekly options (see table below for the weekly rolls). On Friday our order to roll did not get executed and the shares got called away. We didn’t want the shares to get called as it creates a tax liability (short term capital gains). Our plan was to keep rolling until we had held the shares for 12 months and taxes would be at the long term capital gain rate. However, a realized gain is better than a loss so happy with the outcome.
Highlighted in the green …..We attempted to buy Puts for downside protection….and lost over $10,000 of “insurance” money. I don’t plan on purchasing Puts as insurance going forward. I am looking for a way to “hedge” the volatility. Considering selling deeper “in the money” calls as one option.
We do plan on establishing a new position this week selling “at the money” puts and looking to be assigned (collect the premium to discount acquisition price).
Account gained 1.39% last week increasing the account by $4,649. Still not back to all time high ($347,541) but we are getting close.
YTD the account is up 77.59%.
We carry 9 positions forward into next week. The tickers with the P at the end were positions where we added a long put to the covered call strategy. We exited most of the Puts on Friday as the cost of the “insurance” was exceeding the benefit (may regret it one day when the market has a significant drop). Adding complexity (Puts) to the CC positions made it difficult to track and monitor the profitability. Selling calls that are more “in the money” may be a more effective insurance (it will reduce potential return as a trade off).
8 of the 9 positions are profitable. We are carrying unrealized profits of $82,776. ATEC CC was a new addition last week. Dec 18 will be a big trade day as all of the positions have calls expiring.
Last week BCRX received FDA approval for a drug. The market has been anticipating the approval and driving the price up as you can see by the increasing profits in the stock (blue line in the chart below). In response to the good news and jump in stock price we rolled our Dec 18 $4 Calls that we were short to Jan 15 $6 Calls. We purchased the Dec calls for $1.72 and sold the Jan Calls for $1.13 for a debit of $.59. We invested an additional $.59 to increase our short strike price by $1.50. When we do a diagonal roll up to an ATM strike it usually costs $.70 per dollar of roll. The stock was trading above $6 when we did the roll so it should have cost us $1.05 vs $.59 so we are happy with the trade.
The stock is likely to decline “post news” and we might be overly aggressive with the roll to $6 but we do plan on continuing to hold the stock and writing options. Post approval the volatility is likely to decline resulting in smaller premiums when we sell the options in the future.
The covered call strategy on NIO has been an interesting one to manage due to the volatility on the stock. Our return would be higher if we bought and held the stock (+$32,361). On 11/23 (see green section in table below) we added a new element to the strategy with the purchase of a Put hoping we can mitigate the impact of the price swings. In hindsight we overpaid for the “protection” of the put. So far the Put is doing what was intended as it gained value with the recent pull back in price.
Managing the covered call strategy on such a volatile stock is a wild ride. Time will tell if adding the Put element enhances the profitability. It does make us more comfortable to have the additional downside protection and protect the gains we have.
On Jun 1/20 we established a covered call with 200 shares of STE and sale of 2 Jun 19 $155 Call options. Since that time we have developed the position by adding additional shares (performance was good so we added more shares) and rolling the calls 7 times. Overall the performance has been similar to just owning the shares. We also collected three dividends.
We are pleased with the performance of the STE covered call strategy and plan on continuing to roll the options and keep the shares for at least 12 months so we reach long term capital gains status.
Aided by a good market our account continued to bounce back from the dip in late October. Account is up $38,015 or 15.3% with one day left in the month. YTD it is up $128,240 or 65.5%. In November we started experimenting with a method of protecting against big dips.
In three of the positions (NIO, PYPL and SDC) we added purchasing an ITM Put with a longer DTE (Days to Expire) than the Call we are short. The strike price of the long Put is determined by taking the strike price of the call we short – premium received *.98. This is “insurance” to cap our downside on a couple of the more volatile stocks in the portfolio. It will take several months of tracking to evaluate if the cost of “insurance” improves our performance (the short put will generate profit if the stock dips below the strike price). The idea comes from a contributor on Optionsbistro.com. As much as I like the 13.5% increase in November I didn’t like the huge hit in October. Hopefully the long Put will help cushion any quick drops.
We have eight “positions” or strategies open in the account. Seven of the eight are making money. Overall the open positions are generating profits of $67,118. Our short calls and puts are not contributing to overall profitability as only two of the eight option strategies are positive contributors. Not sure how the addition of the Long Put strategy will impact Option Profitability over time.
On 11/16 we took a different approach to establishing a new covered call position on Smile Direct Club (SDC). The stock was beaten down after a good earnings call. Rather than buy the shares and sell call options we wrote Nov 20 $9.50 Puts for a credit of $.49. The stock went up and on 11/18 we purchased the Puts back for $.03 and sold Nov 27 $11 Puts for a credit of $.27.
On 11/20 we were assigned the 2,000 shares at $11. Out net price for the shares was $11 – $.46 – $.27 or $10.27 per share.
Following assignment we established the covered call by writing Nov 27 $12 Call options for a credit of $.45.
As of 11/14 we had a profit of $2,060 on the shares, profit of $1,798 on the options and a combined profit of $3,858 in 8 days, ROI of 17.5% or 800% annualized.
This is the first time I have used naked puts and assignment as a strategy to establishing a stock position then selling call options against the newly acquired shares. In this instance it seems to have worked out well…..but selling naked puts creates a temporary position with unlimited loss so you really need to be committed to owning the stock no matter what happens.
Over the past month our IB account has reflected the market volatility. The account dropped from a high just of $347,000 to under $287,000 then bounced back to $315,000. In the charts below you can see the impact of the individual stocks. DXCM, SDC and PTON have had a rough couple of weeks. I will continue to hold the stocks and sell options against as I believe in their long term prospects. PTON was hit hard with the news about the vaccine…..so I did purchase more shares on the drop. PYPL is a wild ride. I like the stock, liked the quarterly results but it moves around so much it is difficult to make money with.