February 2022 Options Trading Summary | $7,404

February options trading update

 

I earned $7,403.73 in net premiums after commission this month.
Most of this was thanks to the higher than average volatility in the stock market. πŸ™‚

Higher implied volatility increases option premiums, translating into more income for option sellers like myself.

 

Video breakdown of trades

I produced a video explaining my individual trades for the month, including a live demonstration selling a Tesla put option using Interactive Brokers, and collecting $211.

You can watch that here, or see below. πŸ™‚

 

Transaction Details

  • I sold 24 Puts which is a record. I just couldn’t help myself. The premiums were too good to pass up.πŸ˜…
  • I rolled 5 options forward, including a new $SHOP put option.
  • I had 1 option expire in the money and get assigned, my $30 Lightspeed put option. This means I now have 200 shares of $LSPD, and my average cost dropped from $70/share to $50/share. πŸ™‚ There were no other assignments because I rolled the rest, lol.
  • My largest net earnings came from selling puts on $SHOP, $MELI, $BABA, and $BLK.

TealΒ = Roll
Purple = Short strangle
Peach = Put spread
Green = Risk reversal

 

Mistakes

I should stop selling covered calls on TD. I originally thought the stock would pull back because it’s overvalued. However, it continues to surprise me how resilient the stock is. The implied volatility is fairly low so I will not be trying to guess this stock’s movement going forward. That being said, if TD.TO (currently at $105/share) falls to below $95/share again I will be a buyer. πŸ™‚

I bought a $590 Shopify put option on February 16th to protect myself against downside risk. However I later sold this option to make a profit and close out my position. That was a mistake because $SHOP dropped a lot in early morning trading last Thursday. Instead of selling it for $349 on Wednesday. I should have waited until Thursday to sell it for $1,300 at least. In this case I should have kept my hedge for a little longer. πŸ˜…

 

Looking ahead

Last week the volatility index (VIX) peaked above 30, which is quite high. I don’t expect markets to continue being so volatile next month so my options income would probably revert back to normal.

For long term investors the good news is whenever the VIX rises above 30 for a period of time, the stock market has historically produced very high returns over the next 500 days. So if being in the middle of a market correction doesn’t feel good now, at least we can be optimistic about the future. πŸ™‚

 

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Random Useless Fact:

 

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D Investor
D Investor
02/28/2022 12:34 pm

Great work Liquid – those are some nice premiums.

I’ve yet to trade options – but your video series are certainly peaking my interest.

Do the premiums you receive count as a capital gain from a tax perspective? Or is it actually classified as income?

Do you mainly trade options on stocks that you are ok to hold (i.e. good long term holds with growth potential) if they get assigned?

AnotherLoonie
02/28/2022 9:34 pm

Cash flow looks great but with your recent rolls I wonder what your mark-to-market profitability looks like. In other words, how is your performance if you assume you had to close out your positions instead of roll?

Dave
03/06/2022 10:02 am

Hey Liquid,

Always love to follow your options trades. Been a reader for quite a while and actually just started my own YouTube channel. Hope you don’t mind a little shameless self promotion but I’m pretty happy with my newest video – https://youtu.be/BaR7GHgJDKE

Maybe one day if I grow my channel I could interview you on your channel!

Tax Noob
Tax Noob
03/16/2022 3:05 pm

Hi Liquid,

I am curious, how do you track your options for tax purposes? Do you manually track each profit and loss or do you assume the IB will send you the correct tax slips at the end of the year?