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!

Assigned on DVN, profit of $1,070 in 8 days, return on capital of 4.4% or 200% annualized.

Yesterday life was too busy and we didn’t roll up our expiring DVN short calls….so we got assigned. When we entered the position on 5/20 we were planning on collecting the dividend of $.34 (ex div 6/11). Unfortunately the stock got called away. Return on Capital is good so not complaining…but missing $340 of dividends. We will likely reopen a similar position on Tuesday morning to capture the dividend.

Graph below shows the daily profit/loss for the position since opening. The drop in the blue line (stock) and increase in orange line (option) reflects the assignment.

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…….

IB Account – Current Positions and Progress

We currently have 10 positions (9 different stocks, tracking two SDC positions entered differently). 8 of the 9 positions are profitable generating unrealized profit of $143,975. The stocks have performed very well generating most of the profits.

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Below are graphs of each position over time. In addition to selling calls against the stock we have selectively started using put options. If one of our stocks has a drop and we feel it will rebound we will sell a Bull Put Spread looking to profit from the rebound in stock price. We have also sold some naked puts if we are interested in acquiring more shares in the company (did this to acquire more SDC…..by selling a naked put you bring in premium but sign up to purchase the stock if the stock drops below the strike price….downside is large potential loss if the stock were drop significantly so very selective on where to use this (used in on ATEC and stock went up).

Covered Call on NIO, Unrealized profit of $56,870.

We established the covered call position on NIO on Aug 20, 2020. It has been a wild ride with the stock driving profit of $87,917 and the options generating ($31,047) for a net profit of $56,870. We have been rolling the options on a weekly basis trying to maintain “at the money” options. Despite the excellent option premiums it has been a challenge to write profitable options which is typical with stocks that show substantial appreciation in a short period of time. Intent is to keep NIO for the long term as it has excellent upside….but we need to modify our option approach as we are not optimizing the potential.