September options trading review
This month I received $1,346 in premiums from selling options.
Altogether I have made over $6,000 selling call and put options in my non-registered margin account.
The more options I trade the easier it becomes to manage larger positions. 🙂
September trading breakdown
Here are some key points from this month.
- I sold 14 options. 4 Calls and 10 Puts.
- My total trading commission was $24. Higher than usual.
- All options that expired in September were out of the money. Nothing was assigned. 🙂
Below is a table summarizing my transactions. (Source data from IB here.)
- 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 Delta – Measures the initial probability of an option expiring ITM. eg: if a put option has a Delta of -10%, there is a 10% chance it will be exercised, and a 90% chance it will expire worthless.
As you can see in the right-most column, most of my options have a low chance of being assigned.
To my pleasant surprise none of my options have ever expired in the money before. *knocks on wood*
However, ContextLogic (WISH) currently trades at $6.02/share. That’s just barely above my $6.00 strike price.
So there’s a fairly good chance I will own WISH stocks when my put option expires 18 days from now. 😅
Call options – A thorough explainer
As you likely know by now my primary options strategy is selling naked Puts. 😉
That’s why I enjoyed watching the stock market fall last Monday, posting its worst daily decline in months.
But I also earn money from selling covered calls.
I uploaded a new video yesterday breaking down how that works.
And I used some of the call options I traded this month as real world examples.
I sold a call option on TD Bank to reduce my concentration risk.
TD.TO is currently worth 11% of my portfolio with Interactive Brokers.
My goal is to trim this down to below 10%. But rather than sell some TD shares at today’s price, I can potentially sell them at a higher price in the future via a call option. 🙂
I sold call options on Canadian Natural Resources (CNQ.TO) to take advantage of its cyclical movement.
Yes. This is considered “market timing.” I know that’s a big no-no in the personal finance community.
But since when do I follow rules? 😂
I explain each trade in more detail, and demonstrate how I earned $142 in premiums that day.
You can watch the video here, or see below.
Don’t want to spread myself too thin
Last month I experimented with a put spread. Both related contracts have expired worthless as expected. 🙂
Spreads limit the downside risk in case a stock drops sharply. But they also reduce the premiums earned.
After some consideration I have decided it is more important to maximize my premiums than to have the downside protection. I don’t mind being assigned a stock at a higher price than the open market. I trust my due diligence process. If I decide on a $100 strike price, it means I believe the stock is intrinsically worth at least $100 even if the short term market conditions don’t reflect that value.
Experimentation + reflection = progress
If I try something new and think it’s useful, I will incorporate it into my larger financial plan.
And if I don’t think it’s a good fit, I will drop the idea but maybe revisit it in the future.
Keep what works, and discard the rest. Put spreads is an example of something that doesn’t work for me.
My investment process constantly improves by making small, intentional tweaks over time.
I always want to be learning, and trying new things, while maintaining control over my portfolio.
Next month I’m excited to experiment with the short strangle. It sounds like a quickly executed wrestling move. But it’s really just a way to profit from little to no movement in the underlying stock. I look forward to share how that goes in October. 🙂
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Random Useless Fact:
According to Greek mythology there were a total of 12 Olympian gods.
I’m certainly not trying to criticize you as clearly you are making money in the market. Just trying to understand better your overall strategy with this. It seems like you put up a lot of potential margin if all your options got assigned vs your gain. In your usd account, you would need over $100k usd in margin or cash while getting about 0.7% return.
That’s a fair point. It seems like I’m taking on a lot of risk to make a relatively small return. Here’s an explanation of my current strategy. I don’t know if it will work, or if it’s flawed. But it seems sensible to me for now so I’m going with it. 😂 Short version: The cost of cash or margin is cheap. I make enough dividend income to cover any extra debt from assigned options. I believe central banks won’t allow stocks to be depressed for long. If my put option gets exercised I will write a call option to potentially sell it. There is no risk for me to hold the underlying in the meantime. Long version: I view my trades in the context of these questions: 1. How large is the impact of my options being exercised? 2. If assigned, will I be in trouble? 3. Do I have a flexible exit strategy? The first question can be answered with the help of Delta from the table in the blog post. I try to pick a lower Delta for higher priced stocks. For example, my TSLA put option has less than 2% of being assigned. For lower priced… Read more »
I think the strategy is sound. I question the companies you are choosing to use the strategy on. A company like Tesla moved from ~$580 to over $700 in a month or so. That’s a 20% difference. Owning the stock would have generated that. Of course it could have gone down just as much or more in that time frame. I guess you also wouldn’t get the options premiums either on certain companies.
Yes, to me it’s about balancing the risk/reward and learning what works, and what doesn’t. I sometimes question the companies I choose as well. Not so much Tesla in this case, but WISH is actually in the money right now, lol.
I feel like I could have done more research into this company and probably chose a lower strike price. I think the most I could lose on this trade is $2K theoretically. I’m eager to see what happens to this contract next month. 🙂
This is such an interesting strategy because in a way it’s both more safe and more risky than conventional margin investing.
For example, had you just invested $60k of your available margin into SPY you would have earned about $12k so far this year, which is similar to what you’re earning with your option trading strategy but with a lot less effort.
By instead selling PUT options, you’ve reduced your risk as you would still earn that approximately $1k per month if the market went sideways for the year instead of up 20%. On the other hand, you’re increasing your risk because you are putting up twice as much margin. You are also potentially less diversified because you’re selling puts in only few individual companies at a time.
Overall, I’m loving this series and am happy to see you’ve found some success with this strategy!
Thanks dude. Glad you’re enjoying this series. That’s a great way to look at it. I’m increasing my risk in one dimension while reducing risk in another.
Not all risks are equal. Risk is what’s left over after we’ve considered everything. I’m quite comfortable managing margin risk because I’ve operated a margin account for many years. Risks come in all forms and is inevitable, but fortunately we can at least choose which risks we want to manage. 🙂
Hi boss,
I am curious. do u prepare 150K cash to take over the stocks if all put were assigned to u?
Hey Tony. I plan to borrow on margin if some of the stocks are assigned.
But if ALL the stocks become assigned, then yes. I have $150K of unused room in my home equity lines of credit. I can borrow against this balance any time I want and transfer the money to my brokerage account. 🙂
Welcome to the world of selling options! I’ve been laying low… need to start up on it again!
You should start posting your trades again, lol.
There’s lots of active people posting trades on Twitter too. 🙂
[…] again none of my options have been assigned in October. However, I have a couple of call options sold in September that are currently in the […]