My second month of trading options
In May I received $820 in premiums from trading options. That’s $100 more than what I made in April. Yay. 🙂
Here are some key points from my options trading this month.
- I sold 10 options – 8 Puts and 2 Calls.
- I bought 1 option to close my previously sold TD Call at $90 strike.
- My total trading commission was $14.48.
- It took around 5 hours total to research and execute all the trades.
- I kept the expiration dates between 2 to 6 weeks out.
- I started to perform the wheel strategy. More on this below.
- 6 options expired in May. All 6 expired worthless. 🙂
Here are the transaction details. The $2700 Amazon Put was my most profitable trade with a $215 premium.
Proceeds – commissions = $820.03
Rolling with the wheel
In the previous month I didn’t really have a plan. I just wanted to sell Puts and make some quick money. That worked out okay. But I can probably do better with an actual strategy.
So this month I started to implement a trading tactic called The Wheel. It contains 3 parts.
- You start by selling Put options to generate income. Most of these should expire worthless.
- If any options are assigned you sell Call options above the cost basis on the assigned stocks.
- If those stocks get called away, you make a profit from buying the stock low and selling high. 🙂
Since you can make money in 3 different ways this is also known as the triple income strategy.
Where I learned about the wheel
I recently came across this thread on the WSB subreddit. The internet is a great place to find investment ideas. This particular reddit post received 3,800 upvotes so it must be a legit strategy, right? 😉
Apparently the wheel is an improved buy and hold strategy that will outperform the S&P 500 index. At least that’s what the post claims. This sounds interesting to me as I’m all about making higher investment returns.
I’m at the stage of my investment journey where a little active management can have a meaningful financial impact. Soon I will have $1 million of liquid assets. If I can give my portfolio some TLC and add an extra 1% to my returns, that’s an additional $10,000 of value!
Instead of using the wheel on index funds only, I plan to use it on individual stocks as well. Looking ahead at next month (June) I expect to earn another $800 or so in option premiums.
I will continue to sell Puts using strike prices at 2 standard deviations out of the money. That basically means my options will have a 95% probability to expire worthless, which is the ideal situation for me.
Here are some stocks/funds I’m currently looking at for potential option trades. I haven’t decides which ones I’ll go with yet as I’m still weighing my options, haha. 😀
- Autodesk (IV = 35)
- QQQ (IV = 18)
- ARKK (IV = 37)
- Mastercard (IV = 22)
- Visa (IV = 19)
IV stands for Implied Volatility, which describes how volatile the stock is. A high IV means the stock price is expected to fluctuate a lot. This translates into higher premiums for option sellers like myself.
That’s all for now. 🙂 In a future post I’ll explain how I screen my trades and demonstrate with some examples.
Random Useless Fact: