Each of the charts below represents a covered call position in the IB account (with the exception of PINS which is a bull put spread). Total Profit/Loss is in the top section. Return on the position and annualized return is in the second table. Graphs show where the profit/loss is coming from (stock or option). In an ideal covered call the net profit would be higher than either the individual stock profit or option profit components (see ATEC at the bottom). With ATEC I added additional option elements at different times which seems to have helped with option profits. The bull market over the past eight months has pushed stock prices up making it difficult not to “lose” money when we buy back the short call options. Each time we “lose” money on an option roll up it creates a short term capital loss we can use for tax purposes. Once we establish a position we rarely sell the stock until we have held the position for 12 months so we only pay long term capital gains.
On 12/11 we opened a CC position on ATEC by purchasing 500 shares and selling 5 Jan 15 $10 Call options. In we also sold 5 naked Jan 15 $10 Puts as we were bullish on the stock and prepared to buy an additional 500 shares if assigned.
In subsequent trades we rolled the Jan 15 $10 Calls to $12.50 and then to $15. We also rolled the Jan 15 $10 Puts to $12.50.
Table below is a summary of the transactions.
The year is off to a good start with the first week generating a return over 4% versus S&P 500 at 1.83%.
Open positions and changes are in the table below. Lots of Diagonal and Vertical Rolls on Friday as the market was moving up. Carrying unrealized gains of $123,627.
On 7/13 we established a CC on PYPL. Stock fell over the next couple of days. On Friday we opened a second CC purchasing the stock at a lower price and writing a lower priced option ($175). We also did a calendar roll on the $177.50 call options for a net credit of $2.04. PYPL has performed well during the COVID recovery as more people are seeking non cash payment methods (Venmo).
April was a great month for investors despite uncertainty created by Covid-19 and oil. The account hit a record high late in the month. Option “premiums” are related to volatility. High volatility = high premiums. Options premiums in April were attractive (good for covered call writing). Weekly options are generating % premiums one would expect for a month option.
As we exit the month the we have covered calls on 10 stocks:
Stock = Ticker, G/L Stock = gain or loss on the stock. G/L = gain or loss on the cumulative option trades (roll up, down and out). Net = are we making money on the individual stock strategies and overall. We are making money on 8 of 10 positions. DXCM, EW and SDC are driving performance and represent a significant % of the account capital. Surprisingly two medical supply companies (Cardinal Health CAH, Steris STE) are losing money despite the shortfall in PPE. Might have been too late into the stocks. I know nothing about oil stocks so positions in Chevron (CVX) and Haliburton (HAL) are limited and educational.
#coveredcall #investing #options
DXCM is the largest holding with 400 shares @$322. Calls written against the shares are May 15 $280. Very conservative as shares are protected by $42 (difference between stock and strike price). DXCM earnings call on May 5 will create volatility. I have been burned by earnings calls in the past. Writing deep “in the money” reduces upside but sometimes it is better to protect gains (note – the options were not as “deep in money” when written – DXCM has appreciated significantly since the calls were written). My goal is to keep the DXCM shares for a minimum of 12 months so capital gains will be taxed as “long term” at 15%. Deep in the money calls increase the risk of being “called away” which would make the gains “short term”. After the earnings call and volatility is reduced I will “roll up” the calls close to where the stock price settles. IRS tax guidelines require covered calls to be “minimally in the money”, “at the money” or “out of the money” or they could rule “capital gain avoidance” and classify the gain as short term. With market (Covid, oil) and stock (earnings) volatility I am comfortable with the strike price but rolling to “at the money” after the earnings call is important.