Oct IB Account Performance

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%.

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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!

Update on IB Account +16% YTD

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.

Covered Call Strategy with SDC (Smile Direct Club) after 422 Days, $144,230 Unrealized Profit, 123% Return or 107% Annualized Return

We have been managing a covered call strategy on SDC for well over a year now. The excellent option premiums received when we roll the calls on a weekly basis have resulted in the options generating a profit of $53,309 in addition to the $90,921 generated by the stock..

The graph below illustrates the daily profit of the stock and options. It covers the period starting Jan 24 when we started with a new tracking system. The blue line on the graph shows the drop in stock profit from over $200,000 in January to under $100,00. Covered calls have offset some of this decline. The red line shows the increase in option profits from a loss to a profit of $60,000. Considering the stock has dropped from over $14 to $11 we are pleased with result (we initially purchased the stock at under $5). It is challenging to find a covered call strategy where both the stock and options are generating profits.

The approach has allowed us to build up a nice long term capital gain we can sell to “titrate” against short term losses generated by rolling up options on other covered call positions.

IB Account Update – Performing much better than larger Schwab accounts where I invest far more time to manage!

YTD IB account is up 13.3% vs the S&P up 5.7%. The account is within $1000 of all time high. My Schwab accounts are down 5% from all time highs…..despite much more effort managing those accounts. Maybe too much effort!

In the Schwab accounts I have been experimenting with Iron Condors, Bull Puts spreads, SPY, dividend capture strategies and the TastyTrade guidelines (set up positions with 45 “Days to Expire” and exiting at 50% of max profit or 21 DTE. Too early to tell but so far the IB approach of setting up weekly or monthly covered calls and letting them run their course seems to be performing better. The Schwab accounts are much larger requiring more positions for diversity.

When is too much management too much…..

WMB Covered Call Dividend Capture – Assigned day before ex-div, Return on Capital 2.6% in 2 days or 476% annualized…..but no dividend

On Mar 9 we established a covered call on WMB by purchasing 500 shares of WMB at $24.16 and selling a Mar 12 $23.50 Call. Share price appreciated after the purchase. On 3/10 we bought back the Mar 12 $23.50 covered call and sold the Mar 12 $24 covered call to avoid the shares getting called away before the ex-div date of 3/11. The stock closed at $23.99 on 3/10. Last night the shares got called away as the dividend of $.41 was too attractive to the holder of the short call. Unfortunately we don’t get to collect the 500 shares x $.41 dividend but the transaction generated a good return for a 2 day investment. To avoid assignment we could have bought back the Mar 12 $24 Call and sold the Mar 12 $25….but we didn’t check the position prior to market closing and thought the earlier roll from $23.50 to $24 had protected the dividend.

A $385 profit in an account of any size isn’t very significant on a “one off” basis. If the practice of “capturing dividends” works over we will increase the number of shares/options in the position. Main concern is a “bad” week when the market/stock drops more than the protection offered by the dividend and we incur a large loss that wipes out the cumulative gains from the past weeks.

The trade ideas are coming from a screen on Optionsamurai.com (paid subscription). The screen identifies candidates for the strategy and recommends a strike price. The strike prices are mostly “at the money”. Writing “in the money” options would increase the downside protection but it would also reduce the return. Plan is to identify 5 to 10 candidates for the strategy each week. For tax purposes I would prefer to capture the dividend versus getting the shares assigned and generating a short term capital gain (although any “gain” is preferred versus a loss!).

Trying to protect versus making more….

It is much easier (and fun) to manage your investments in a flat or up market. Down markets take knowledge and skills that I am improving but still have lots to learn.

Market has been tough the past six days. Doing my best to protect the gains from the past year…and have cash available if we see some bargains. In the past week I have reduced the number (tried to keep the less volatile stocks) and size of the positions. In the chart on the right the green line is the swing in cash (from carrying margin of $150,000 to cash of $100,000).

Hopefully we can continue to protect the capital and have either the patience to wait or be successful in testing some bearish strategies.

Unfortunately my Schwab accounts have been hit harder as the positions are much larger and more complicated to get in and out of. The iron condors are holding up…so far…but if the market keeps falling they will create some challenges.

Update on Put Strategies

Table below is tracking the open Iron Condors (IC), Bull Put Spreads (BuPS) and Diagonal Bull Put Spreads (DiagBuPS). So far the combination of put strategies is generating a profit of $5,231. We have $135,300 of capital “reserved” against the positions. Return on Capital is 3.87% in less than a month. The Diagonal Put Spreads are showing a loss…not unexpected as the goal is to write additional Put options against the base position over the next several months. Not included are a couple of adjustments. The initial IC on ABT was too “tight” (difference between the strike price of the short put and short call). We closed the position and established a new one with more width. We also reduced the size if the position from 30 contracts to 10…..we don’t have enough experience for IC with 30 contracts. The position was closed for a $1,200 profit that is not included. We made similar adjustments to the DXCM and SPY positions (wider width) at minimal cost.

It has been challenging to achieve the “tasty trade” recommendation of generating premium = 1/3 of the width between the strike prices (example long put at $110 and short put at $115 …..$5 spread x 1/3).

Unfortunately it is very time consuming to track the strategies. The download from Schwab does not include the “strategy” information even though Schwab do include it in the online account summary information. Downloaded historical and current information needs to be put in a table and queried. Over time I hope to figure out a more efficient way to track the individual strategies. Recommendations are welcome!

Update on AMZN Covered Call Strategy after 277 Days, +$92,620, ROI 81% or 107% Annualized

AMZN CC strategy continues to perform well. Tables below show the continued progress. In late January I switched the tracking software so the graph starts with the historical profit on the stock, option and net as of Jan 25. In the tables below it shows our all time profits on AMZN as well as the Current Position Profit. On the right is the current position in our portfolio.

The table below shows the importance of the call premiums. On 1/25/21 we had a profit on the stock of $90,011 and a loss on the options of $5,700 for net gain of $84,311. In the next 25 days the net price of AMZN declined and our profit on the stock dropped from $90,011 to $85,601. The option premiums collected during the 25 days (we rolled the options 14 times….to mostly ATM strike prices) improved the profitability on the options from ($5,700) to $7,019. Despite the drop in stock profit our overall net profit on the position increased from $84,311 to $92,620. Historically we have been challenged to create profit on the short options as the stock price continually increased. In the past 25 days the covered call strategy is performing the way we would hope.

This is not investment advice. I am sharing a position that has worked out well for me. No guarantee that it will work out in the future. Individual investor….not a licensed professional.

Iron Condor (IC) on ABT, DXCM

Our IC on ABT lost money this week as ABT stock increased in value. The table below shows the current status (ignore the -15 ABT 02/19/2021 $127 Calls as they are part of a covered call).

The “wings” of our IC include a call spread of $125/$135 (10 point spread) on the upper side and put spread $110/$120 (10 point spread) on the lower side. When we established the IC we received $13,255 in premium for selling the two spreads.

Max Profit = Premium Received.

Max Loss = Spread between the wings (10) * #contracts (30) * 100 shares per contract – Premium Received = $16,745.

Current stock price of $128.23 is above the lower strike on our call spread.

To realize max profit we need ABT to be between $120 and $125. When we set up the IC it seemed like a reasonable assumption. In hindsight I should have used a wider range. A wider range would have reduced the premium received (Max Profit) but increased the probability of the stock remaining inside the range. Position is currently losing $1,225.

The position has a lot of time left (expires March 19) and ABT may drop back. If the price goes above $135 we will incur the maximum loss. We do have an option of rolling up the Put from $120 to $125 which would generate additional premium and reduce the maximum loss.

Yesterday I established a new IC on DXCM following the earnings announcement. Took the lesson learned about wider range. The options in the table below with the quantity 20 and -20 make up the IC. The spread between the put spread ($360) and call spread ($460) is much wider than what we did on ABT IC. The stock has a $100 range to move and allow us to make maximum profit. Our Max profit is the sum of the premiums received ($15,680). Max Loss is the spread of the wings (20) x number of contracts (20) x 100 shares per contract – Premium Received = $24,320. Current profit is $1,340…….

CHWY Iron Condor Mar 19 $75/$95, $125/$145 Net credit $5.29

Executed a trade today based on a Tastytrade.com recommendation. If you are not familiar with Tastytrade.com I highly recommend you visit the site. I think it is the best web site for learning about options and trading strategies. Today they had a recommendation for an Iron Condor on CHWY. We followed the recommendation but modified the “wings” a bit. Stock was trading at $109 when our trade executed (table below).

Our goal is for the price of CHWY to remain between the strike price of the short put $95 and the strike price of the short call ($125) on Mar 19. Maximum potential profit is $2,646.72 in 31 days (credit received when we established the position). Tastytrade recommend exiting if you hit 50% of max profit or $1,323. Maximum potential loss is $7,353 ($20 spread on put/call strike prices x 500 shares – premium received).

I am looking to gain experience with Iron Condors so this will be ” hands on” learning.