IB Account Week Ending 12/18/20, New High, New Position on BMY

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.

Good Nov in IB account, but not back to high

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.

IB Account – Down from high, Up from Dip over past 30 days

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.

Tough Week…..and Oct month end

Last week was a tough week for my covered call positions. Price decline in many of the stocks exceeded the protection offered by the call premiums. Over the past two weeks I would have been far better off with some “collars” (use call option premium to purchase an OTM Put option to establish a floor on potential losses) to protect on the downside. Collars would prevented the loss of tens of thousands of dollars on DXCM, PTON, SDC across my accounts. I have used collars before…..and like most people it seemed like I was wasting my money on the “insurance”. When the stocks didn’t drop it felt like you just gave away the money…..but I would have gotten everything back in last few days.

YTD the IB account is outperforming the S&P by 50%. Good result…but it look much better at the end of Sep than Oct.

You can see the impact of the last week with the steep drop in the chart above and below. In October we lost $26,975 or 8.5%.
I didn’t sell options against PTON, PYPL, REGN, or SDC. I like the stocks and am prepared to balance the risk of further drop against price increases this week. I sold off 300 of my 700 shares in DXCM to raise some cash to protect against a margin call this week.

Hope the election results are conclusive one way or the other and we see more stability by the end of the week.

DXCM – Hard to Understand a $90 Drop and how we responded

Dexcom announced excellent quarterly results…..which resulted in a $90 drop in the stock price. I copied the earnings announcement at the bottom of the post.

How to react when one of our stock implodes …..

The “covered call” offered some protection (it was sold for $28.82 a share or $57,640 on 10/16) but the drop (2,000 shares x $90) resulted in losses far beyond what the call premium could offset.

Dexcom has a history of big swings around earnings so we expected some volatility but nothing this extreme. Based on the earnings announcement and content of the call we decided to purchase more shares as it dropped. We purchased shares at $349 when we started to see a bounce…..but we should have waited as the stock bounce was short lived and hit a bottom just over $330. The stock did bounce back from the bottom to $349 by the end of the day. We don’t anticipate hanging onto the incremental shares but selling if the shares continue the upward trend.

We also rolled our 20 Nov 20 $410 Call options to Dec 18 $370 Calls for a credit of $18.22. Things were happening very quickly when I did the roll down…..and the Schwab system defaulted the Dec 18 option into the Diagonal Roll template when I thought it was Nov 20 option. I didn’t notice the Dec date until the confirmation came in. I might roll this back to Nov 20 today as I feel the stock will come back over the next couple of weeks.

It is hard to watch a position devolve and see tens of thousands of dollars disappear from your account. Knowing how you will react helps…..but it is still tough emotionally….and makes you wonder what else you should have done to prevent the loss.

IB Account Wk Ending 10/16 – Trades and Positions – +$13,917 or 4.2% in the week

Good week for the account with a net gain of 4.2%. We didn’t add or eliminate any positions. Nice rebound by Dexcom (DXCM) helped with the performance.

Six of the seven positions are profitable. PYPL remains our only negative position. PYPL stock had a good week…but we were short $195 calls so didn’t get to benefit in the rally. It was another week when our cautious position of selling “in the money calls” left money on the table. The DXCM roll up on Friday from $400 to $420 was really surprising. Rolling up $20 we generated a credit premium of $17.51…..pretty amazing. Someone is optimistic about where DXCM stock will be by Nov 20 (has to be $420 +$17.51 = $437.51 for them to break even vs current $405). In my Schwab account I rolled to Dexcom $450’s.

Prior to making the trades on Friday I was expecting to exit positions with monthly options and wait until after the election before starting new ones….and then I saw the premiums and couldn’t resist rolling. I might regret the trades post election…..

Is Smile Direct Club (SDC) a good candidate for Covered Calls?

Visual of Position Profits

We have had success with SDC in a covered call strategy over the past 172 days. We had the good fortune of buying shares of SDC at $4.50 and $4.67 in late March/early April when the price had dropped in response to the Covid pandemic. The strategy has generated profits of $206,322 generating an ROI of 229% or 486% annualized. Position remains open with 34,700 stock as the basis for writing calls (write 347 calls a week).

Over the 172 days we have rolled the weekly options 29 times (rolls up, down, diagonal, and calendar).

On a weekly basis an “at the money” call option sells for between $.30 and $.40….great premium for a $12 stock (2.5 to 3.5%).

If you believe in the market opportunity Smile Direct Club is chasing the stock appears to be a good candidate for holding and writing calls against. Recent stock jump has created a higher return on just holding the stock versus writing the calls….but I like the 2-3% downside protection the options offer in these volatile times.

My adult son and 50+ sister-in-law have both used SDC with success. It is easier to invest in a product where you know satisfied customers.