May options trading update
I lost $893 trading options in May. I was kind of dreading this post, but here we are. 😅
What a big change one month can make. Last time I was up over $8K. And this month I’m down $893. The primary reason for losing money was I took some realized losses from my options positions instead of just holding onto paper losses, lol.
The party had to end eventually, and this month was it.
Because I was being assigned a lot of my put options, I decided to not open too many new positions this month and simply maintain what I already had.
Due to the uncertain market situation I have decided to not be as aggressive in May compared to previous months. I realized if the market were to fall another 10% or 15% from here, I would be at risk of getting a margin call. 😕
Several option positions expired in the money and were assigned.
- TFI International (TFII.TO) 100 shares at $105/share.
- Chromadex (CDXC) 200 shares at $5/share.
- Etsy (ETSY) 100 shares at $130/share.
- Ford (F) 300 shares at $18/share.
- Paypal (PYPL) 100 shares at 145/share.
All the assigned positions were on stocks that I wanted to own anyway. I may sell covered calls against these over time.
This month’s result was unexpected. But at least most of my open positions now are out of the money, so I’m in a pretty good place to continue selling new put options going forward.
- Options can go against you very quickly.
One thing I’ve learned this past month is to close my short put positions even if I’m going to take a loss. Betting wrong on the market and realizing a smaller short term loss is way better than risking a larger loss later down the road if the stock continues to move against you. For example, I now short 2 Etsy put options that are very much in the money. If I were to buy them back today I would realize a $7,000 loss. But had I closed my positions when they initially expired the first time I would have only lost $1,000 or so.
- You can lose money writing put options if you buy high and sell low.
I purchased a Shopify put option for $1985. As the owner of this option I make money when the price of Shopify stock falls. This was meant to be my hedge in the event of weakening market sentiment. But as of right now the option is worth $1195 because the stock has gone up. If I were to sell this option today to close my position I would take a loss of $790.
- Quality over high premiums.
There are a lot of high beta stocks. While these give very juicy premiums they also carry with them a lot of risk. I’ve noticed that even though lower implied volatility stocks such as BlackRock, Visa, or even Alphabet (Google) pay lower option premiums, they are certainly a lot more predictable. As someone who’s trying to earn consistent and reliable income I now believe it is better for me to prioritize selling options on these high quality companies, rather than on meme stocks and other high beta stocks.
- Don’t chase income.
Luckily there are some very smart readers who understand market movements more than me. And they’ve warned me to be careful not to take on too much risk with options. I should have listened to them earlier and paid more attention to my downside. But I’m thankful this month wasn’t as bad as it could have been. Hopefully I learned my lesson not too late, and this one month of loss doesn’t become a trend.
At the end of last month I estimated I would make $1k to $2k in May. It appears I was off by quite a lot. I do expect to be at least positive in June though. Even if I don’t open any new option positions, and just close my Shopify put option I would be up more than $1k from that single trade. 🙂
I plan to continue selling put options on high quality stocks going forward.
Random Useless Fact:
People are often willing to trade privacy for convenience.