Options trading update – July 2021 – How I trade

July options trading review

This month I received $1,068 in premiums from trading options. This is a new record for me!

In today’s post I’ll break down my trades for July. And I’ll explain how I make option trading decisions to maximize income without blowing up my portfolio. 🙂

Here are some key points from this month.

  • I sold 8 options, 6 Puts and 2 Calls.
  • My largest trade was selling a put option on the S&P 500 (SPY), expiring in a year, worth over $500.
  • My total trading commission was $8 for the month.
  • 11 options from previous months expired in July. All 11 expired worthless. 🙂

Below is a table detailing my transaction details.

Thanks to reader feedback I have added a few new columns for clearer trading insights!

  • Initial underlying price – The market price of the underlying stock/ETF when I made the options trade.
  • Price difference % – How much the underlying will have to rise or fall to be in-the-money (ITM).
  • Initial days to expiry – How many days remain until the option expires, from the day that I traded it.
  • Initial DeltaDelta measures the probability of an option expiring ITM. For example, if a put option has a Delta of -10%, it means there is a 10% chance it will get exercised, and a 90% chance it’ll expire worthless.

Raw data from IB statement here.

 

Taking a LEAP of faith

A LEAP, or “Long Term Equity Anticipation” is a longer term options strategy where the expiration date is more than one year away. Due to this longer term contract, LEAPs generally offer very attractive premiums.

As mentioned on Twitter I sold a LEAP this month (my first ever) on the SPDR S&P 500 ETF.
I chose this fund because it’s well diversified with a lot of liquidity.
The strike price I chose was $290, which is a 33% discount. The average market correction historically is 33%.

The expiration date is in June 2022. It’s not quite 1 year away, but close enough.
After commission I earned US $517.36 from this one LEAP options trade. 🙂

The Delta for this trade was -7.4%. So there’s basically a 93% chance this will expire worthless.

 

Other options sold

I sold 2 AMC puts with a $15 strike. This was a calculated gamble on a meme stock. The high implied volatility means the premiums are too good to ignore. But to limit my risk I kept the expiration date short (15 days.) I also chose a strike price that’s deep out-of-the-money so that AMC would have to fall 65% to trigger an assignment. This option had a 98% chance of expiring worthless. It expired just last week, worthless. 🙂

I sold a $40 covered call for Summit Materials (SUM.) This is a construction materials company that makes cement. I originally bought this stock in 2017 because I thought Donald Trump was going to build a wall at the US/Mexico border. Alas, that didn’t happen, lol.

The stock is still up a decent 34% since my purchase. But it’s overvalued now. And its return on capital is a measly 5%. There’s little reason for me to keep this stock. This is why I don’t mind the Delta being a little higher for this trade at 17%.

 

How I make my options trading decisions

If you want to know how I choose my options and strike prices, take a look at my recent video.

I break down my thought process to earn the most premiums without taking on excessive risk. 🙂

You can watch the video here, or see below.

It’s probably easier to follow my thoughts in a recorded demonstration than to read a blog post about it.

 

 

Options trading at a glance

Since I started in April I’ve traded over 30 options that have already expired. Surprisingly none expired ITM.
I like to play it safe and choose trades with conservatively low Delta values. 🙂

So far I have earned $3,564 from option premiums. This is before capital gains tax.

 

Thanks for joining me on my options trading adventure. I hope to continue trading options in August and keep doing my “Wheel” strategy, as well as sell covered calls on stocks that I no longer want to keep.

 

______________________________________
Random Useless Fact:

Not everyone can afford healthy food all the time.

 

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maplethrift
07/26/2021 9:34 am

that’s good to hear liquid you’re expanding your money making repertoire lol one thing, I’m curious on is that are you trading in non-reg? and how easy is it for the trading platform to let you access your gains? let’s just say if you were trading to buy some McDonald’s, how easy is it to get that money out for some Big Macs lol

DreamingOfDividends
07/26/2021 11:44 am

Great job. Not bad for 4 months of options trading. Do you find that you spend more time monitoring your options trades?

David @ Filled With Money
07/26/2021 4:03 pm

I can’t imagine generating an extra $1,000 a month in additional income just as a side project. I want to have enough money one day to actually do things like this and experiment with my portfolios.

MyFinancialShape
07/28/2021 7:52 am

These is strong income, congrats. Very interesting your option strategy, it works really well which is inspiring to see. So far I had a strong focus on passive income mainly in form of dividends. But I also like investing and spend time with that topic out of interest, as a hobby. So it could make sense to give option trading a try. Your posts are a good resource as you document clearly your approach.
Keep it up and all the best.
Cheers

MyFinancialShape
07/29/2021 3:19 am

😊👍

Yeah, dividends are the most passive income source. The more we put into Dividend paying businesses, the stronger our compounding machines work for us.
Happy investing!
Cheers

Sridhar
Sridhar
07/29/2021 1:49 pm

Interesting article illustrating option trading strategy in practice. Good work. Looking at this it seems most of the gains ($517) is from SPY. I have a couple of questions where Im trying to understand how this works.
1) Does this indicate that SPY index options have higher premium compared to the stocks (i.e. just the stocks discussed above). Would selecting other stocks provide scope for higher premium?
2) Is it safer to do index options because you are trying to write/sell insurance on a basket (not single stock) ? But given that diversity of safety the premium on index option should be lower than premium on individual stock theoretically. Just curious to know how it works practically.

Sridhar
Sridhar
07/30/2021 7:11 am

Amazing! Appreciate your detailed answer and explanation.
I agree with your point that some stocks can be less volatile than the index. Also I can gather from above that LEAP being longer term (1 year) option so higher implied volatility and higher premium, which makes sense.
Index options seem a relatively safer bet than individual stock.
More Questions
: From the statement I see brokerage is very nominal (less than $2 most cases).
1) I assume you are using Interactive Brokers. Can you confirm the brokerage fee structure (%age or flat or how they charge)
2) Is this open to Canadians?
3) If you can share the IB website link I can check more info. myself reg. requirements to open account, paper work, funds, etc.

I’m thinking of exploring Options in future. Before that I’m just trying to research and understand the mechanics, costs involved, etc.
Thanks a lot for the insights!

Sridhar
Sridhar
08/01/2021 5:36 pm

Thank you for sharing this. I will go through and do further research on this.

Martin
Martin
08/19/2021 11:13 am

Thanks for all the information! Just to let you know LEAP are actually LEAPS the S is for security. You say in your article that the profits are before capital gains taxes. I might be wrong but I was on the impression that we pay revenu taxe on option premium. Last but not least, just want to make sure that you understand that one put on Amazon you could be call for a 270,00$ stock investment. Beware of the risk my friend, and keep up the good job! 🤟🏻

Martin
Martin
08/20/2021 3:59 am

Last night I did a bit of research on tax treatment for selling option for premium. Unfortunately it could be interpreted different ways by the CRA. Here’s the best article I’ve found https://www.taxtips.ca/personaltax/investing/taxtreatment/options.htm