Conservative option strategies, what did you buy or sell today?
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Conservative option strategies, what did you buy or sell today?
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02-20-2019, 10:08 AM
Do you guys track your options performance in any formal way? If so, how? I figure it is easy enough to track the return on any individual trade, but across trades where a small percentage of the puts you sell are exercised, how do you determine overall return? Seems you can only measure against hypotheticals ("well, I would have bought it at X, so the fact that the shares were put to me at Y, and commissions were Z, so I gained / lost Q....").
02-20-2019, 10:32 AM
(02-20-2019, 10:08 AM)Kerim Wrote: Do you guys track your options performance in any formal way? If so, how? I figure it is easy enough to track the return on any individual trade, but across trades where a small percentage of the puts you sell are exercised, how do you determine overall return? Seems you can only measure against hypotheticals ("well, I would have bought it at X, so the fact that the shares were put to me at Y, and commissions were Z, so I gained / lost Q...."). Not formally, but I compute the ones that are exercised and I am almost always selling puts a few percent out of the money so that number will always be cheaper than if I just went long at time of put sale. Mostly I just look at i.e. "I just bought MO or KHC for $300 above current market price". I like to beat myself up and contemplate if I made a bad decision on the company overall, but it's short-term of course. As far as the strategy the number I watch is the monthly income it generates. Lately I have about $100K committed to the strategy. Monthly income from option sales, after subtracting any I may have bought back for whatever reason is my return. Commissions subtracted of course. Goal is 2% monthly profit, or $2000 just from options. These are covered so the collateral is drawing about 2.4% annual while it's idle. I've been under the goal a few times. I've also had months that exceed $3500. Several times in the last 6 months which I am thrilled with that as it blows away my dividend income on a percentage basis. Even 1 1/2% would be acceptable accept during an extremely strong bull market year when just being long is better. This mostly ends during a prolonged down market as you now own the stocks long. A little cover call writing happens then if it makes sense.
02-20-2019, 02:31 PM
(02-20-2019, 10:08 AM)Kerim Wrote: Do you guys track your options performance in any formal way? If so, how? I figure it is easy enough to track the return on any individual trade, but across trades where a small percentage of the puts you sell are exercised, how do you determine overall return? Seems you can only measure against hypotheticals ("well, I would have bought it at X, so the fact that the shares were put to me at Y, and commissions were Z, so I gained / lost Q....").As a pure trading strategy, it's easy enough to calculate as I'll get an entry and exit price, usually not more than a week or two apart. Add the premiums, commissions, possible taxes and you should be done. Now if you use a put to enter a long term position with no plans of letting go off the shares, then it might be a bit more complicated. But I guess then you should count it like you do with the rest of the portfolio that has unrealized losses/gains. Buy price is X, premium is Y, current price is Z so Z + Y - X = unrealized profit. It's no different than the rest of your holdings. For yearly returns, I make it simple for myself. I have a certain amount that I'm willing to use for options trading, sometimes (like now) I have zero options so I'm not using that money, and sometimes I might go a few thousand above my own limit. But I just calculate it as if my set amount would be used 365 days a year, since it essentially is there only for these trades, whether or not it's actually used or just lying there on my account waiting.
02-20-2019, 04:10 PM
No formal tabulation just a feel for what is and isn't working.
Spec play alert: Bought 6MAR19 15 Call on VIX looking for it to revert back to 18 or so before expiration.
02-20-2019, 09:02 PM
(02-20-2019, 02:31 PM)crimsonghost747 Wrote:You'd really have to do as Crimson has stated and isolate the option. Then isolate entry and exit for the stock. The other part is where we debate. I think it's a big deal to get into every position a little cheaper as that savings can be invested. He contends we miss being long in some stocks that will run to the moon and we missed the bus. In fairness that's a defendable position. With this current six week market run you could have outperformed my income strat by just being long, and cashing out some shares about now. But the market is still down some since I started this with a high volume of put positions. I am not down through all this.(02-20-2019, 10:08 AM)Kerim Wrote: Do you guys track your options performance in any formal way? If so, how? I figure it is easy enough to track the return on any individual trade, but across trades where a small percentage of the puts you sell are exercised, how do you determine overall return? Seems you can only measure against hypotheticals ("well, I would have bought it at X, so the fact that the shares were put to me at Y, and commissions were Z, so I gained / lost Q....").As a pure trading strategy, it's easy enough to calculate as I'll get an entry and exit price, usually not more than a week or two apart. Add the premiums, commissions, possible taxes and you should be done. Not to repeat myself, but for me it's total option premiums received, minus the few I bought to close out through the month, minus commissions. That is cash in the account I can split into other investments. Call it what you want but I am re-investing a lot of it into shares of whatever, so it's a form of DRIP in my mind. Option premium or a dividend is cash money right? I own a lot of DGI as well and it does it's DGI thing over time I hope. I find every way I possible can to diversify, including my strategies. I would never commit all my money to and idea. But this is the golden method of entering position Crimson. Don't ever forget that Mike and I are right lol. I had to run off to work this AM but Mikes goal of 1 1/2% monthly is more reasonable. I mentioned a couple 3 1/2% months during the past 6 months. Here is how that happened. JAN was a straight up month and it was just easy as you could sell a put almost in the money and it was worthless in a matter of a week. OCT-NOV was very volatile and acting on the extreme dips was instantly rewarded in many cases. I sold puts in AAPL, MMM, HD etc. Stock would launch and you could buy it back for a lucrative profit, then recycle the money into another put sale a week later. Yes this is just trading but a few stocks were cooperating fully. The opportunity presented itself repeatedly and there was little logic in sitting on a highly profitable position for another 3 weeks for little reward. It was not likely the put would ever exercise so far out of the money. I was forced into plenty of long positions through all this so no regrets. I have a long list of stocks I want to own long the next year or two. I'll probably let the market decide which order as long as I am somewhat diversified. I'm inclined to keep doing this strategy until it fails me. Some of my long positions took a horrible beating and this kept me in the green except DEC. Only way you were green in DEC is if you were shorting everything.
Forgot about this position from last week. I'll share it publically and we'll see how it goes. Some may not regard this as conservative but I have followed the company off and on for decades. Owned them back in the 1990s. The company is Newell Brands. bet you haven't heard of them? I'm betting you have heard of Rubbermaid, Elmer's, Graco, Sharpie, Papermate, Sunbeam, Ball, First Alert, Coleman Outdoors, Yankee Candle, Oster etc. Their business plan since forever is acquiring famous brands that come up for sale. It worked fairly well since forever but they screwed up when they bought Jarden Brands a few years ago. I am an avid fly fisherman, and excuse my French, but they overpaid for a bunch of mostly has been fishing brands that are now commodity Wal-Mart fodder. They can't dump some of this stuff fast enough to get rid of debt. Stock has taken a beating but it is my belief they will survive with their stable of consumer product brands. I may have jumped early but they dropped hard on a bad earning report. They aren't going out of business IMO. We'll see if they right the ship fast enough to save my puts. I believe they will or I wouldn't have sold them. I don't normally sell long options but they clearly need a few quarters to restore any confidence. NWL is an accidental high yielder with a current Div of 5.4%. It's safe for now IMO, though I won't be collecting it soon with puts. It offers some downside protection though IMO. Anyway, well see how wise or foolish my reasoning sounds in a few months. Here are the trades.
Current price is $17.15 JUN Strike 16 puts. $1.12, 20% annualized return SEP Strike 17 puts, $2.20, 21% annualized return. Only $3300 worth of capital tied up collecting MM interest for now, minus the $332 in cash already in my account. Doubt I leave these alone until expiration but we'll see. Cash them out if it bounces significantly, or roll them forward and sell more time. I'd like to own NWL longer term but I don't want to be exercised until it is near the true bottom, whenever that is. NWL is at the top end of my risk tolerance range. I would never risk a lot of capital as they are a mistake or two away from a dividend cut. They are going to need to divest a few more brands and not give them away so they can lighten their debt load.
02-22-2019, 09:48 AM
Would this be the morning to sell puts at super low strike price on KHC? (Like $30?) Or just waaaay too toxic / risky until we have more information on how all this plays out?
(02-22-2019, 09:48 AM)Kerim Wrote: Would this be the morning to sell puts at super low strike price on KHC? (Like $30?) Or just waaaay too toxic / risky until we have more information on how all this plays out? I'd wait a couple days. This one is not going to run away from you in any significant way. I'll edit this post in a few with my KHC option trades. EDIT: It rained lemons on my remaining 100 KHC shares. Some poor guy took my other 100 shares last Friday when my sell expired 25 cents in the money. I'd like to just sell it all and ban myself from the stock forever. Did this instead. I had an APR Strike 50 call sell open. It went worthless today so I bought it back for $3 to clear the way for a new call sell. Just sold a MAR 37.50 cover call for $60. I will consider selling a put in a few days. I need to sleep on that. Too many unanswered questions and people will be looking for the exit. KHC could drop another 10% and I am not going to get burned bad again. Kerim your $30 strike is proper thinking though. That option premium will likely get better in a day or two but we never know. I may be angry now but KHC is deal at some price.
02-25-2019, 10:12 PM
Looks like no one is doing any option trading? :p
I didn't find any good deals in my regulars, so this week it's time to try something new and exciting and super risky! Sold 2x ACB puts for Friday with a strike of $7. I got $20 for each so that's a 2.85% premium in a week. As always for me, this is a pure trade. If they get assigned then I'll just cover call the shit out of them until they are gone.
02-26-2019, 08:08 AM
(02-25-2019, 10:12 PM)crimsonghost747 Wrote: Looks like no one is doing any option trading? :p
02-26-2019, 08:15 AM
Let us now how that one turns out. It's been very slow for me, but I'll not complain too much about this market.
 I've been stuck working a lot the past few weeks and and the market has been right for much put buying. I should see a few covered calls later in the week I gave to be careful now that the market only goes up every day lol. I don't mind rolling a few calls forward, but a bunch of once is a hassle.
Here is an example of patience paying off when you sell a call on a stock you don't wish to sell, but are just trying to boost income. Lately this plays out favorably on a stock or two for me most every month. It requires some courage and the stock better be quality so it is somewhat predictable on the downside. As it applies to covered calls, we never know when a stock we wish to hold and are just trying to steal some premium on will run up WAY faster than we planned. Here is an example for Crimson to critique lol.
HD runs up fast near 180 from the high 160s I sell a call about a month out at strike $185 for only only $143. This is easy money. I can't lose since it is way overbought already right? $143 is a really nice three week monthly "dividend". It looked so good on paper lol. So option is expiring last Friday I roll it forward. HD is like +$7.50 in the money and there is no hope I won't be exercised tonight. I buy back that call for $740! This $600 paper loss really, really sucks but I know I can resell a Mar 190 for $626 and buy some time and get back to even for now. I am now up like $20 by some miracle and endured the stress of missing the HD run trying to not sell my shares WAY under-market. But I still got my shares. I thought HD earnings would be mediocre and oh look that $626 call drops to way under $200 on the dip today, only a week later. Good chance it expires near worthless if I hold. I could retire it now and make a couple % overall. Certainly not how I planned it but the point is this requires some nerve, and you must be dealing with quality stocks or you lose in the end. Puts or call sales matters none when you bet wrong. I was WAY in the red on MO, MET, XOM, PRU etc. I was ridiculously under water on MO. Losing on MO would stink, but it was thousands had I panicked only weeks ago. It's a high probability you can dance your way out of a deep in the red play by selling time until the market or stock bounces. This rarely works with garbage stocks. Quality will save you with patience. I have never had to do it for more than a few months, but I would roll forward many months if I had to. Yeah this option drama is not for everyone. The overall income makes it endurable for me every month. Hasn't failed me yet in some real bad months. I only SELL options and remain convinced the odds make me a winner over time, as long as I remain rational when it gets very ugly. |
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