January options trading update
I earned $1892 in net premiums last month. It was an incredible time to be an options trader. 🙂
When stock markets are volatile, option premiums increase.
This translates into more income for option sellers.
The majority of my trades are selling options, which takes advantage of time decay.
And the burn rate at which options lose their value over time can be measured by a portfolio’s position Theta.
For example, at one point my IBKR account was generating $597 of time value per day.
This assumes underlying prices remain constant along with everything else.
That’s absolutely crazy because it means I was making nearly $600 a day with time decay.
I can write more on this later, or make a video explaining this topic if anyone is interested.
Understanding Theta is the key to literally make money using the passage of time! 😬
Transaction Details
- I opened 12 new short put positions by selling put options.
- Rolled 3 existing short puts forward, and paid a net debit of $11 for these 3 rolls.
- Bought a Lightspeed risk reversal. 🙂
- I only had 1 option get assigned in January. It was a covered call of $TD. My stock got called away at $92/share.
Light teal = Roll
Light purple = Risk reversal
TD boggles my mind
I don’t understand why TD bank stock is up nearly 50% in the last year if you count dividends.
The stock is clearly overpriced now when compared to historical valuations.
TD’s stock price is approaching 14 times earnings, which is expensive because it’s usually around 12x.
And the banking industry average is just 10x.
I’m not happy about selling 100 shares at $92 when the stock was at $98. But I still have over 400 shares.
TD.TO continues to be my largest position thanks to the insane outperformance over the last year.
If TD ever falls to below $92 again I may pick up the 100 shares I sold. But that’s only an “if” so we’ll have to wait and see.
Etsy and tech companies feeling the pain
My largest premium trade in January was a $155 Etsy Put option that gave me $240 in premiums.
Unfortunately $ETSY has been hurt along with many other technology stocks recently.
$ETSY fell from nearly $200 just a month ago, to $135 today. This means my $155 put is in the money.
I was being too greedy with the premiums, and should have settled for a lower strike price. 😅
My other high premium trade, a $320 Mastercard Put earned over $200 of income as well.
However, that one is still deep out of the money thankfully.
Both $ETSY and $MA Put options had about a 10% chance of being exercised when the puts were written.
My largest current losers are PayPal, Sea Ltd, and Etsy.
If I were to close all these positions today I would be taking a loss of over $6,000 US. Ouch.
However, options isn’t a short term game. I can roll these positions forward and down before they expire.
I plan to use time decay to help reduce my losses over time.
And all 3 of these companies are profitable so I can also just wait for the share price to increase.
Growing profits will surely be reflected in the stock price over time. 🙂
Investing with options is similar to stocks. If you’re down, don’t panic. Just be patient and follow your plan.
I just have to be careful trading options with highly volatile growth stocks in the future.
The Lightspeed risk reversal strategy
I opened a risk reversal position on $LSPD, which is a very bullish strategy.
I didn’t want to risk too much so I only wagered $7.
Luckily the stock went up, and I made $472.
This is basically a 6,600% profit. So I should have put more money into this trade, lol.
If you want to follow my thought process behind this risk reversal strategy I documented the entire process in my latest video here.
Wealth inequality falls slightly with Meta stock correction
Overall I would say January was a great start to the year of options trading.
I am on track to reach my $20,000 annual income goal.
There were some mistakes made due to me being too aggressive with PayPal and Etsy.
At least I didn’t touch $FB, lol. That stock plummeted 25% after announcing earnings. 😧
$200 billion was wiped out. It was a record single day decline of any company in stock market history.
Mark Zuckerberg’s wealth dropped $29 billion. But don’t worry, he’s still the world’s richest millennial. 😂
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Random Useless Fact:
German shepherds were originally bred for herding sheep.
Hey Liquid,
wow!!!! Almost $1900 in options premium! Way to go man. You’re crushing it!
Thanks for the breakdown of your options, as well as the best and worst performers this month. Will February be another monthly beat? I would bet yes. Keep it up!
Thanks for the support Moe. 🙂 January was a month of learning for me, and I managed to not make the same mistakes this month so far. With the stock market continuing to be choppy I do expect February to be another record as well, lol.
Very nice cash flow! I’m very interested to see how you roll forward and use the wheel strategy to turn some of those trades back into green.
I almost wonder if it’s sometimes better to just eat losses and focus on churning out some $2,000 cash flow months. Just 3 of those in a row would wipe the slate clean.
Thanks AL. I plan to continue rolling unsuccessful trades by buying back my original put, and selling a new one with a later expiry. 🙂 It seems to be working so far. The tricky part about options is selecting the right stock to begin with.
I think it’s worthwhile to eat some losses here and there, and continue to make a profit overall. I just have to keep an eye on my portfolio’s Theta to make sure it doesn’t fall to low.
The video is amazing, thanks for putting in so much work to make this!
Glad you liked the video Leslie. Thanks for watching. 🙂
Hi Liquid,
Thank you for introducing me to options trading. I’ve been following your journey on this and have been using a free practice account on IB myself to make some good returns (I know practice is not the same but I’m planning to switch over my real money Questrade account to IB soon). I have a question though:
Since selling puts ties up your margin cash which could otherwise be used to just buy and hold stocks. Have you ever compared the cost/benefit of maxing out your margin account to buy and hold equities vs options trading? for example, if you sell a Visa Put, you would need about 23k margin room. Lets say the stock grows 5% and it expires out of the money, you make a nice chunk of income ($200-$300) and you don’t pay any interest on the margin but you would have missed out on 5% growth of the stock ($1150) which you could have purchased with your margin account.
Also, do you have a referral code for IB?
That’s a good question. It’s all about the trade off for me. In your example, I do miss out on more upside gains. However, I also reduce my losses. If Visa drops by 5% instead of going up by 5%, then I would keep my $200-$300 premium, and not get assigned the stock because I usually sell Puts way out of the money. In terms of which is better to maximize the margin potential long term, I think it’s balancing both buying stocks, and selling options relative to how expensive the market is. In other words, it depends on valuations. This attached image shows a stock’s intrinsic value in blue, and its share price over time in green. When the green line is below the blue line I think buying stocks makes a lot of sense and I would probably buy more than usual with my margin account. But when the green line crosses over above the blue line, stocks are overpriced, and perhaps a more conservative approach fits better such as selling Puts, or even Put spreads, because there is less room for upside potential, but greater risk of losses if a downturn occurs. So naturally when stock markets… Read more »