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. 🙂
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. 🙂
Transaction Details
- I sold 24 Puts which is a record. I just couldn’t help myself. The premiums were too good to pass up.😅
- 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. 🙂 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.
Teal = 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. 🙂
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. 😅
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. 🙂
______________________________
Random Useless Fact:
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?
Thanks D. 🙂 The real test is to see whether or not I can keep up this momentum in a bear market, lol.
The premiums I earn count as capital gains because I’m not in the business of trading stocks.
As I plan to sell naked put options consistently year after year my profits should be considered capital gains.
Someone can correct me if I’m wrong but this is based on my personal interpretation from taxtips.ca
https://www.taxtips.ca/personaltax/investing/taxtreatment/options.htm
You’re right. I mostly sell put options on stocks that I want to own long term anyway.
The advantage of using options is I get to earn some income if the stock doesn’t fall to where I’m comfortable buying it at. And if I do get assigned the stock, it’s at a reasonable price that I’m willing to pay for anyway. 🙂
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?
I’m looking at $1,224 in profit if I close out all 17 of my open option positions today. 🙂 Of course I’d rather continue rolling than close for a loss, but in some cases if the stock is cheap enough I will just let it assign, such as with Lightspeed earlier this month. I would also let $SHOP assign below $600/share.
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!
Hey Dave, thanks for following along my options trades. That’s awesome you started a YouTube channel. Don’t forget to live your own videos. I do that all the time for mine, haha. I see that you’re using IBKR as well. That’s certainly the best broker for trading options. 🙂
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?
The only tracking I do is through the spreadsheet you see in these monthly posts. 🙂
It has information on times and option prices. I think that’s all I need. If I don’t close a position before it expires out of the money I would assume all of the gains from selling that option.
I rely on IB to give me the correct tax slips for my trades. If there are any questions or discrepancies brought to my attention by tax officials I will use my spreadsheets to double check. Otherwise I don’t worry about it. 🙂