Conservative option strategies, what did you buy or sell today?

[fenders53]

(04-22-2020, 08:28 PM)Otter Wrote: So, along with today's buying spree in equities, I sold covered calls (weeklies, at most out to May 15) against a number of the added lots. $747.20 in option premium for covered calls sold against new purchases of ADM, EMR, LEG, NNN, NUE, O, ORCL, PFE, SON, TD, VFC, and VZ, with 5-10% gains on the underlying shares if I get called away.

Learned that the options market for BIP is too illiquid (massive bid/ask spreads and thinly traded) to mess with them. Also, premiums for WBA weeklies are pathetic, so I didn't bother.

Only playing this game with newly acquired lots of shares, but fun experiment so far. Suspect the premiums will fall off once volatility dies down, at which point I should just be holding anyhow.

Covered calls are a great temptation for me.  As I've shared before I got bit in 2019 losing shares in several of my stocks that went MOMO.  I keep it to a minimum and target stocks that are not likely to launch in a given market.  Easier with larger positions as I can sell a call or two and keep the rest of the shares ready for a rise if it happens.  I know I repeat myself a lot but I really believe this is not the time for selling options with long expirations.  Sell a few dozen of them months out and you'll be chasing too many of them for a quarter or longer.  I do mix it up though. Some are just a few days and others three weeks or so.  This option doesn't exist for most aristocrat like stocks when the IV settles down.

I enjoy sitting down over coffee and taking in $300 in option premiums, then I go to work and make a hundo lol. I'd rather just ring up $1000 or more at once, but my market timing clock is often broken. I seem to do better selling just a few a day so I can be selective and take what the market gives me. I'm less likely to force a trade just because I want the hundred bucks on 15 stocks.

[john]

(04-22-2020, 09:24 PM)Otter Wrote:

(04-20-2020, 06:17 PM)john Wrote: Looking for more nickels.
What is USO? I get that its a oil ETF and that its very cheap, is it price of oil only that makes it move?
Was away from computer today and missed the oil meltdown today. Looking to either sell a PUT on it or maybe just buy 100 and sell a CALL.
On a sidenote my brother works for Marathon, fairly high up. When Saudi Arabia and Russia got into a pissing match I asked him what his breakeven was he said $42 /barrel they were makin a little $ High $30s they were starting to lose.

Until yesterday, USO was an ETF that invested almost exclusively in the front month futures contract for West Texas Intermediate crude (/CL). It did a decent job of tracking along with the price of WTI during relatively ordinary market conditions, but was always subject to the sort of roll yield that goes along with such ETF structures (contango or backwardation, depending). 

As of yesterday, no one knows what the hell USO is with any real degree of certainty. They've changed the structure of the fund three times in less than 48 hours. They no longer have SEC authority to issue new shares to fund futures contract purchases (probably because they were controlling over 30% of the front month futures contract, which was causing its own dislocation in the oil market). So, it's basically a closed-ended fund now, trading at a premium to NAV.

On top of that, the fund managers decided that allowing the fund to follow the value of WTI down to 0 or negative territory was not something they wanted to happen. So, rather than being 80% front month, 20% second month holders (itself a relatively recent change from all front-month rolled on a regular basis, IIRC), the fund is now some blend of futures contracts or other WTI derivatives, constituted completely at the daily whim of fund managers. It is no longer tracking WTI spot in any meaningful way, as a survival tactic. USO is now a black box. Putting any money into USO at this point is basically walking up to the roulette wheel and guessing red or black.

I almost followed Fender into selling a PUT on USO few days ago. But I didn't understand what it was. Thanks for explanation...

[Otter]

(04-23-2020, 05:31 AM)fenders53 Wrote:

(04-22-2020, 08:28 PM)Otter Wrote: So, along with today's buying spree in equities, I sold covered calls (weeklies, at most out to May 15) against a number of the added lots. $747.20 in option premium for covered calls sold against new purchases of ADM, EMR, LEG, NNN, NUE, O, ORCL, PFE, SON, TD, VFC, and VZ, with 5-10% gains on the underlying shares if I get called away.

Learned that the options market for BIP is too illiquid (massive bid/ask spreads and thinly traded) to mess with them. Also, premiums for WBA weeklies are pathetic, so I didn't bother.

Only playing this game with newly acquired lots of shares, but fun experiment so far. Suspect the premiums will fall off once volatility dies down, at which point I should just be holding anyhow.

Covered calls are a great temptation for me.  As I've shared before I got bit in 2019 losing shares in several of my stocks that went MOMO.  I keep it to a minimum and target stocks that are not likely to launch in a given market.  Easier with larger positions as I can sell a call or two and keep the rest of the shares ready for a rise if it happens.  I know I repeat myself a lot but I really believe this is not the time for selling options with long expirations.  Sell a few dozen of them months out and you'll be chasing too many of them for a quarter or longer.  I do mix it up though. Some are just a few days and others three weeks or so.  This option doesn't exist for most aristocrat like stocks when the IV settles down.

I enjoy sitting down over coffee and taking in $300 in option premiums, then I go to work and make a hundo lol.  I'd rather just ring up $1000 or more at once, but my market timing clock is often broken.  I seem to do better selling just a few a day so I can be selective and take what the market gives me.  I'm less likely to force a trade just because I want the hundred bucks on 15 stocks.  

Only went with covered calls on the newly acquired lots for several reasons. If I did it on some of those existing positions and got called away, the long term capital gains payable on some of those transactions would negate the option premium, and I wouldn't want to be out of those positions entirely.

If some of them run in the next few weeks and I have to pocket the 5-10% gains plus premiums received, and budget for the short term capital gains on those transactions, that's fine by me. It'll be more cash that I have to figure out where to put next.

[fenders53]

(04-23-2020, 08:26 AM)Otter Wrote:

(04-23-2020, 05:31 AM)fenders53 Wrote:

(04-22-2020, 08:28 PM)Otter Wrote: So, along with today's buying spree in equities, I sold covered calls (weeklies, at most out to May 15) against a number of the added lots. $747.20 in option premium for covered calls sold against new purchases of ADM, EMR, LEG, NNN, NUE, O, ORCL, PFE, SON, TD, VFC, and VZ, with 5-10% gains on the underlying shares if I get called away.

Learned that the options market for BIP is too illiquid (massive bid/ask spreads and thinly traded) to mess with them. Also, premiums for WBA weeklies are pathetic, so I didn't bother.

Only playing this game with newly acquired lots of shares, but fun experiment so far. Suspect the premiums will fall off once volatility dies down, at which point I should just be holding anyhow.

Covered calls are a great temptation for me.  As I've shared before I got bit in 2019 losing shares in several of my stocks that went MOMO.  I keep it to a minimum and target stocks that are not likely to launch in a given market.  Easier with larger positions as I can sell a call or two and keep the rest of the shares ready for a rise if it happens.  I know I repeat myself a lot but I really believe this is not the time for selling options with long expirations.  Sell a few dozen of them months out and you'll be chasing too many of them for a quarter or longer.  I do mix it up though. Some are just a few days and others three weeks or so.  This option doesn't exist for most aristocrat like stocks when the IV settles down.

I enjoy sitting down over coffee and taking in $300 in option premiums, then I go to work and make a hundo lol.  I'd rather just ring up $1000 or more at once, but my market timing clock is often broken.  I seem to do better selling just a few a day so I can be selective and take what the market gives me.  I'm less likely to force a trade just because I want the hundred bucks on 15 stocks.  

Only went with covered calls on the newly acquired lots for several reasons. If I did it on some of those existing positions and got called away, the long term capital gains payable on some of those transactions would negate the option premium, and I wouldn't want to be out of those positions entirely.

If some of them run in the next few weeks and I have to pocket the 5-10% gains plus premiums received, and budget for the short term capital gains on those transactions, that's fine by me. It'll be more cash that I have to figure out where to put next.

I have done the same many times.  I could make great income if that's all I ever did with my entire portfolio since it's a 401K.  Only problem is you have to be willing to keep buying higher during an extended  the market run. That's a flawed strategy that would fail soon enough.  It's a better side game.

[Otter]

Looks like I sold them XOP LEAPs too soon. Will try not to think about it.

[fenders53]

(04-23-2020, 10:28 AM)Otter Wrote: Looks like I sold them XOP LEAPs too soon. Will try not to think about it.

When you trade as often as we have been lately it's going to happen.  I tend to think about bad trades.  It's why I usually to buy and sell partial positions over the course of days or weeks.  It's nice to get it half right lol. We just have to find something that works for our own personality. 

I am selling some May 15 or earlier puts this week as I am getting a little cashy.  KO, FRT,T,ADM.  Maybe force my O put order to exercise today.  This is the fewest puts sells I've had open for over a year.  If I am going to suck my thumb waiting for a 5-10% drop in a stock I might as well use some of the money and get some of these high vol premiums.

[fenders53]

My apologies if anyone falls asleep while reading this because it is truly conservative and boring, but I hope you'll read the entire post. For the most part I use a "basket" strategy. My two year basket is mostly in a very short-term bond fund with a decent enough yield over 2% and not volatile. The five year basket often has a lot of cash in it as I tend to trade it and use it to back up cash covered puts. The cash yields are going to hurt my overall income yields and I don't see this changing soon. I'd like to solve this without making it overly-complicated. My other activities keep things complicated enough around options expiration dates.

So I think I am going to go WAY conservative with some of the cash I would otherwise be saving for a real crash. It was very close but I didn't invest a dime of it in equities in March. I think I am going to assemble a small basket of aristocrats and sell some way out of the money puts. Maybe 20% OTM, and stagger the expirations from 2-4 months. Might add a bit of TLT because it tends to run counter to equities. (that isn't a fail-proof thought, but it usually does well enough when equities dive). This differs from my normal strategy of selling 15-30 puts a month much closer to the money and much shorter DTE.

I suspect you guys have read enough to know I am cautious overall. My love for utilities runs deep and a little too much cash makes me sleep better. This has to pass my risk-reward filter because within a few months it will be a substantial amount of money. So here is my justification.

-This is cash I was saving for market Armageddon. If the market crashes again this year I intend to deploy it anyway. It won't affect my life for five years if I get trapped in equities.

-If for example I am forced to buy KO at $35, or JNJ at $120, the market is highly likely in trouble anyway. If this happens IV is high and I can likely roll forward and sell some more time if that makes sense at that time. I haven't decided on the stocks but these are representative. Solid balance sheets and near zero chance of a Div cut is absolutely required. A lot of sectors are completely off the table without a significant pullback. Maybe next quarter. No chance I am not going to try this trick with WMT, CAT or XOM at current prices and recession risk.

I am leaning pharma-consumer non-durable-maybe the right financial, and TLT.

-A 5% annual option premium yield with lowish beta stocks looks pretty easy unless the market stabilizes longer term and IV dies. If this works at all it completely solves the problem of cash accounts killing my current yields. I use these yields to feed bucket #1 which is cash I do want the option of spending in about two years. This bucket could be full in under a year if I don't eat 1/2% yields on a lot of money for years.

Opinions welcomed.

[NilesMike]

I am doing something similar. I got rid of my speculative account, long story, and am going to just grind out wheel trades on quality dividend payers. Sell puts until I get the stock, then covered calls until it's called away. Rinse and repeat. Right now I'm on a CC with T. Sold the October 32 strike. If it's called away, max profit is 11.9% for 168 days. If not called it's 8% return, with capital risk. Should be able to grind out 12-15% a year on these.

My DGI portfolio is down about 11% from ATH, livable.

[fenders53]

(05-03-2020, 05:13 PM)NilesMike Wrote: I am doing something similar. I got rid of my speculative account, long story, and am going to just grind out wheel trades on quality dividend payers. Sell puts until I get the stock, then covered calls until it's called away. Rinse and repeat. Right now I'm on a CC with T. Sold the October 32 strike. If it's called away, max profit is 11.9% for 168 days. If not called it's 8% return, with capital risk. Should be able to grind out 12-15% a year on these.

My DGI portfolio is down about 11% from ATH, livable.

My true DGI port is down 11-12% and tbat is fine with the SPY down a similar amount.  It required dozens of trades off the dip to make it that good.  My speculative bucket was not that large but it was absolutely devastated.  I couldn't have chosen worse sectors on purpose after the virus hit.    I had no choice but bail and wait for re-entry if they don't go BK.    

I am going to hope the market has a rough week or two so I can sell puts with more confidence.  The list of stocks I feel completely safe with is very short unless we get a little pull back.  Stocks like T and MO become easy choices when the market gets roughed up.  That probably happens soon enough.  If it doesn't I'll proceed with ultra boring picks fpr now.

[Otter]

I have to say, I'm finding the idea of selling puts until I get assigned into a position I want very attractive. How far out are the expiries on the puts you guys typically sell? For example, was looking at the 08/21/20 option chain on KO (a little over a quarter away). Could sell a $40 Put and collect probably $155 or so in premiums, which is almost a year's dividend on the underlying position.

[NilesMike]

(05-04-2020, 04:11 PM)Otter Wrote: I have to say, I'm finding the idea of selling puts until I get assigned into a position I want very attractive. How far out are the expiries on the puts you guys typically sell? For example, was looking at the 08/21/20 option chain on KO (a little over a quarter away). Could sell a $40 Put and collect probably $155 or so in premiums, which is almost a year's dividend on the underlying position.

I usually am 35-45 day out but there is absolutely nothing wrong with your choice. It is well reasoned and meets YOUR goals, which is all that really matters.

Good luck

[fenders53]

(05-04-2020, 04:11 PM)Otter Wrote: I have to say, I'm finding the idea of selling puts until I get assigned into a position I want very attractive. How far out are the expiries on the puts you guys typically sell? For example, was looking at the 08/21/20 option chain on KO (a little over a quarter away). Could sell a $40 Put and collect probably $155 or so in premiums, which is almost a year's dividend on the underlying position.

I knew you would come around Otter.  I'd be broke by now if this was a bad idea after 600 trades.  I've lost track, it might be 800.  Getting a years dividends up front and then worst case being forced long at a good price relative to just going long today is a beautiful thing.  I sometimes pick the expiration date carefully so I qualify for the first dividend days after I might be assigned.  It's mathematical of course, but more art than science in execution.  In some cases it depends on how much spare time you have to manage option positions.  A few general rules I take the liberty of bending only slightly for best results.  

-Required that you are willing to own the stock, that's obvious.  
-A stock that has sold down some. Doesn't have to be extremely oversold, but over-bought is generally not a good idea if the DTE is a month or more away.
-Don't chase extraordinarily high premiums.  No different than yield chasing.
-Just a personal rule but if I can't get 1% yield in under a month I don't sell it.  That's not a problem now.  It's more like a week right now.      

The time will return when this doesn't work nearly so well for lowish beta stocks but IV is still high enough now.  I have targeted KO as well. REITs coming soon again.  You have the resources so my recommendation is spread it out over a few strikes and dates for the experience.  Option premium time decay accelerates around 45 days.  Normally I make more money doing two or more shorter options over that same 90 days.  Sell at least one contract well short of 45 for the purposes of experience.  Roll it forward if that makes sense.  There are times I chase a stock way lower for a better entry, or it expires worthless.  Whether that makes sense varies from one trade to the next.

I normally go 30-45 days like Mike. Lately I have not and it is working very well only because IV is so high. I've made nice income for 2-3 days of exposure at times.