November options trading review
I received $1,579 in premiums selling options in November. 😀 This is a new record high for me. Yay!
For the first time ever I had my options assigned. I will discuss what those were, and what I plan to do with those stocks next. 🙂
First, here are the detailed trading transactions below. 🙂 This table is the same as in previous months, except I added a new column on the right (Implied Volatility) because a reader requested it.
The implied volatility indicates how volatile the underlying stock is, and directly correlates with how much premium you can earn from selling its options.
I rolled TD and WISH options forward because I didn’t want them to get assigned, lol.
I also made some pretty bold moves in November. Near the end of the month I sold a put option on Sea Ltd, a large gaming company. I earned $64 in options income. And as you can see under the initial delta column, there was only a 6% chance this option would expire in the money.
However, within just 3 weeks SE shares fell 12%. Now there is a good chance I will have to spend $24,000 to buy 100 shares of this stock this Friday. We’ll see what happens.
My first time getting assigned a stock
If you’ve been reading these monthly updates you might remember in October I sold a 2 put options on Aecon Group (ARE), a Canadian construction company. My strike price was $18 and it closed at $17 per share on expiration date.
This means I spent 200 x $18 = $3,600 to buy 200 shares.
The carrying cost on the margin debt I used to buy it is 1.66%.
ARE is currently paying a 4.28% dividend yield. 🙂
Lightspeed (LSPD) is another stock that was assigned. This 42 day option initially had a 12% chance of expiring in the money. I thought 12% was conservative. But apparently it closed on expiration date so deep in the money it’s going to be hard to recover financially from this trade, lol.
Here’s a refresher of what my October’s trades looked like. I’ve highlighted the two stocks mentioned (ARE) and (LSPD) which both expired in the money on November 19th, hence the assignments.
So what am I going to do with these 2 stocks?
For ARE I plan to use a short strangle.
The reason is because ARE is a resilient company with an EPS growth rate of 4.7% per year over the last 5 years. The CEO of the company just bought $318,000 worth of ARE shares last week, showing confidence by upper management in the business. The P/E ratio of 16.7 is below the 5 year average of 23.2.
With a shortage of homes in the country, I think Aecon Group is well positioned take advantage of new construction projects in the future.
Given its historical growth and future financial projections ARE isn’t an expensive stock right now.
This is why it’s important to do your research into a stock before trading its options. I am comfortable buying ARE at $18/share because I’m pretty sure it’s worth $20 today. However, it’s not super cheap either.
This is why a short strangle should work very well here.
My Short Strangle strategy for ARE
How this works is I will sell both a put option and a call option at the same time on ARE.
The put option means if ARE goes down lower in price I will buy even more of the stock. This makes sense. If I’m already happy to buy ARE at $18/share. Then I would be even more excited to buy it at $16 or $14 per share. 😀 The underlying business probably isn’t going to change. But the markets can be irrational sometimes, which leads to undervalued stocks.
Meanwhile, the call option I sell means if ARE goes up higher in price I will sell my shares. This essentially completes the wheel, which is an amazing options strategy that I wrote about before. Since I bought ARE at $18, if I am forced to sell it at – let’s say $20 – then I essentially lock in a profit of 11%. 🙂 ARE was trading at $20 just a few months ago.
And finally if ARE shares stays relatively flat then I continue to hold the 200 shares I currently have, keep the premiums earned, and nothing happens. 🙂 This strategy works great on a stock like ARE right now where it’s not over priced, but not dramatically oversold either.
It allows me to maximize the premiums I can collect by earning income from both a call and a put option, at the same time.
I don’t see how this can possible end badly. 🙂 Which is not something I can say for my Lightspeed Commerce stock assignment, lol.
I bought 100 LSPD shares for US $70 each, which was my strike price. In retrospect my strike was kind of high. Today LSPD is trading at just US $44/share, oops. 😅
Selling a covered call for LSPD
At first I was concerned when the stock fell 28% in a single day in early November. What the heck happened? Then I was somewhat relieved when insiders started to buy more of the stock. But my relief was short lived, because most recently insiders are dumping their shares, lol. What a roller coaster ride. I have no idea what they’re trying to do now. 😂
My only source of confidence now is the company’s growth. Hopefully it does not slow down. According to 11 analysts that cover this stock, the average price target prediction is $106 with the gloomiest analyst putting the stock at $80 in 1 year from now.
So what is my plan with LSPD? Will as you might have seen in my November trades table in this post I have sold a $80 call option. If the stock rises back up above $80 then it will get called away from me. As of today there is only a 6% chance for this option to expire in the money. I don’t think it will be exercised, but who knows?
My mistake with LSPD was underestimating just how much this stock can fall within a short period of time.
I learned that for next time, with high volatility technology stocks I will pick a strike price that has a less ambitious delta. I think around -5% would be a good target. The delta for LSPD was -11.9% and that was clearly too aggressive.
Either that, or I should just stay away from high growth companies with negative earnings, lol.
LSPD was trading at $58 per share when my option expired and I paid $70 per share. This means I left 100 x $12 = $1,200 on the table. But it’s more like $1,000 after accounting for the premiums I already earned.
This is the most I’ve lost with options so far. $1,000 is a lot of money. But luckily it’s still manageable. And I’m pretty fortunate nothing has blown up in my face yet despite the recent market pull back.
I also had 2 call option get exercised. One for CNQ, and one for SUM.
I’ve earned $10,000 in options premiums so far this year, which has been phenomenal. 😮
My goal for 2022 is to make $18,000 or more from trading options. Let’s see what happens. 😉
Random Useless Fact:
Netflix is currently worth $1 billion more than Disney by market capitalization.