On the weekend we were assigned on our 3,000 shares of SDC. We were short 30 Mar 26 $10.50 Call options.
On Friday as the market was closing SDC was hovering right around $10.50. The market maker wanted us to pay up to $.05 to buy back the short calls. We did not think this was a “fair” price so we let the position play out. Ideally the stock would have closed at $10.49 and allowed us to keep the shares…..but it closed at $10.56 resulting in the shares getting called away.
The graph on the bottom right shows what happened over the course of holding the position. Immediately after opening the position the stock jumped up (blue line). Stock price deteriorated after that resulting in a loss of $1,680. We rolled the options each week. The premiums collected allowed us to make a profit on the options of $2,340. Net profit was $660. 56% annualized return on the capital required….so we are happy with the trade. We will open a new SDC position of similar size on Monday morning.
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.
Information below summarizes how our CC Strategy on LNC is performing after 267 days. We are generating profit of $23,009 (including $2,040 in dividends). The graph tracks the daily profit/loss for the stock and options over time. We started using a new tracking system in January so it does not have all for the history. From the graph it is clear we have left money on the table by writing call options that were too conservative (either “at the money” or slightly “in the money”). The stock profit (blue line) and option loss (red line) are basically offsetting leaving us with a net profit that has been flat since Feb 7. If we believe LNC will continue to perform well we should be more aggressive and sell out of the money options (which reduce our downside protection) or add out of the money bull put spreads.
The position has returned 32% or 43% annualized……but it could be doing much better if we had adjusted our approach.
From a taxable viewpoint the options have generated short term losses of $33,911 some of which we used in 2020 taxes. Holding the stock until 6/25/2021 will allow us to pay long term capital gains on the $54,880 gain.
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!
We closed our covered call on CFG today. When we opened the position on 1/26 our goal was to capture the $.39 x 500 shares dividend ( x-div on 2/20). We made a small profit on the covered call ($140). We pick up an additional $195 in profit when the dividend is paid for a total profit of $335. Our investment for the covered call was $19,600 (Cost of stock minus option premium received). ROI was 1.7% in 13 days or 47.8% annualized.
The graph below shows the daily profitability of the position. Share prices fell immediately after we established the position. As the stock recovered the net daily profit of the covered call (yellow line) improved. We started making money on the covered call on Feb.5.
We closed the position down to decrease our margin in the account. On Friday we “rolled up” a lot of stock which increased the margin to an uncomfortable level.
Established new CC on DHI. Bought 200 shares @$77.68 and sold 2 “in the money” Feb 19 $75 Calls for $3.94. Net price $73.74. If stock stays above $75 potential profit of $1.26 on the position + $.20 dividend (ex div 2/16) = 1.9% in 17 days, 43% annualized. Almost $4 of downside protection on the position.
Market had a good week which is reflected in the account performance. YTD the account is up over 6% versus 2.3% for the S&P 500 Index.
Current account positions are in the table below. 10 of 11 positions are profitable. Most of the positions had bullish rolls. BCRX, DXCM, INMD were vertical rolls (same expiration date, higher strike) and NIO and PYPL were diagonal rolls (next expiration and higher strike price). PTON was a calendar roll (next expiration and same strike price). SDC was a negative diagonal roll as the stock price dropped during the week. New calls were written on STE. No change to ATEC or PINS position.
December was a good month generating capping off a great year. I wish the account had a history of performing at that level but that would not be factual. Historically a return of 2% per month was the target. Some months we met the goal, some months we missed. In 2020 the combination Covid and politics created an environment that was very conducive to covered calls and high premiums. It is highly unlikely the return of 80%+ will be repeated in 2021….but one can always hope.
We outperformed the SPX by a wide margin (87% vs 16%). Key to the performance was selling most of our positions in early March as news of Covid created uncertainty. This gave us cash to fully invest in April after the crash and participate in the rally. As the say…….Good to be Lucky…..Lucky to be Good.
Covid created an environment that freed up much more time to spend on investing. In the past I would spend about 10 hours a week trading. Now I spend five or six times that…..and probably over trade. Optionsbistro.com has been a fantastic resource for both trade ideas and learning.
Hope some of my experiences and sharing of strategy/trades has helped you make a higher return in 2020. Look forward to the start of a new trading year on Monday!
On October 26 we established a covered call on EW. Over the next 63 days we rolled the calls on a weekly basis. We also tried buying buying “insurance puts” in late November. On Friday we were “rolling up” a lot of our covered call positions which requires incremental cash. To avoid increasing the margin in the account we decided to let the EW shares get called away. Not sure it is a good time to shut down the position as the graph shows the upward trend in net profitability over the past couple of weeks.
Table below shows the activity with the stock and the options over the past 63 days.
Happy with the return on the position…..I do believe EW is a medical device stock to hold for the long term……so might consider another position in the near future.