Every month, I compile an update of all options activity shortly after options expiration Friday. Doing so allows me to report any options that expired or got assigned. I also report new options trades and provide a running tally of options income to date.
Soon I'll write about my goals for 2017, which will include a new goal related to options trading.
In last month's update, I reported nine new options trades. This month, I've executed eleven new options trades, while three options expired and one got assigned.
Assignments
When an option holder exercises an option, it is said to be assigned.
On 26 September 2016, I sold one December $97.50 call contract on my shares of Union Pacific Corporation (UNP), collecting $210.30 in options income after commissions.
After dipping to below $88 per share on 1 November, UNP's share price recovered quickly and shot past my option's strike price. As I wrote in an article discussing the assignment, the risk of covered calls is that you could end up "leaving money on the table" if the share price goes above your strike price.
Due to the assignment, I sold 100 shares of UNP at a reduced cost basis of $89.43 per share. All in all, I made a net gain of 10.66% on the original amount invested, or 12.24% annualized.
On 26 September 2016, I sold one December $97.50 call contract on my shares of Union Pacific Corporation (UNP), collecting $210.30 in options income after commissions.
After dipping to below $88 per share on 1 November, UNP's share price recovered quickly and shot past my option's strike price. As I wrote in an article discussing the assignment, the risk of covered calls is that you could end up "leaving money on the table" if the share price goes above your strike price.
Due to the assignment, I sold 100 shares of UNP at a reduced cost basis of $89.43 per share. All in all, I made a net gain of 10.66% on the original amount invested, or 12.24% annualized.
Expired Positions
This month, three open options expired and my obligations to either buy or sell shares "expired":
As a result, I secured a total of $427.80 in options income. (In my tally of options income, I label options income secured once the corresponding options expire).
| #025 | : 3 | x | CSCO Dec 16 2016 30.00 P | :: | $ 110.90 | ||
| #019 | : 2 | x | NKE Dec 16 2016 50.00 P | :: | $ 209.60 | ||
| #018 | : 1 | x | KO Dec 16 2016 42 C | :: | $ 107.30 |
As a result, I secured a total of $427.80 in options income. (In my tally of options income, I label options income secured once the corresponding options expire).
New Covered Calls
Selling covered calls is a way to collect extra income on stocks you already own. Since my last update, I executed these seven covered call trades:
#034 : 2016-12-05: Sold to Open 1 Contract of Option VLO Mar 17 2017 70.00 C
I own 100 shares of Valero Energy Corporation (VLO) at a cost basis of $61.57 per share. I'm willing to sell these shares for $70.00 on or before 17 March:
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This covered call yields 1.69%, or 6.07% on an annualized basis. The yield on cost of my VLO position is 3.90%, so I'm boosting dividend income by a factor of 1.56. If the option is exercised, I'll sell 100 shares of VLO at a reduced cost basis of $60.70 per share, for capital gains of 15.33%.
#035 : 2016-12-05: Sold to Open 1 Contract of Option DIS Jun 16 2017 105.00 C
I own 100 shares of The Walt Disney Company (DIS) at a cost basis of $98.65 per share. I'm willing to sell these shares for $105.00 on or before 16 June:
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This covered call yields 3.12%, or 5.90% on an annualized basis. The yield on cost of my DIS position is 1.58%, so I'm boosting dividend income by a factor of 3.73. If the option is exercised, I'll sell 100 shares of DIS at a reduced cost basis of $95.75 per share, for capital gains of 9.66%.
#036 : 2016-12-05: Sold to Open 1 Contract of Option ABBV Feb 17 2017 62.50 C
I own 100 shares of AbbVie Inc (ABBV) at a cost basis of $61.65 per share. I'm willing to sell these shares for $62.50 on or before 17 February:
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This covered call yields 2.49%, or 12.27% on an annualized basis. The yield on cost of my ABBV position is 4.15%, so I'm boosting dividend income by a factor of 2.96. If the option is exercised, I'll sell 100 shares of ABBV at a reduced cost basis of $60.29 per share, for capital gains of 3.67%.
#037 : 2016-12-09: Sold to Open 1 Contract of Option KO May 19 2017 43.00 C
I own 100 shares of The Coca-Cola Company (KO) at a cost basis of $41.31 per share. I'm willing to sell these shares for $43.00 on or before 19 May:
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This covered call yields 2.72%, or 6.17% on an annualized basis. The yield on cost of my KO position is 3.39%, so I'm boosting dividend income by a factor of 1.82. If the option is exercised, I'll sell 100 shares of KO at a reduced cost basis of $40.36 per share, for capital gains of 6.55%.
#040 : 2016-12-23: Sold to Open 1 Contract of Option CSCO Apr 21 2017 32.00 C
I own 100 shares of Cisco Systems, Inc (CSCO) at a cost basis of $30.30 per share. I'm willing to sell these shares for $32.00 on or before 21 April:
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This covered call yields 1.50%, or 4.59% on an annualized basis. The yield on cost of my CSCO position is 3.43%, so I'm boosting dividend income by a factor of 1.34. If the option is exercised, I'll sell 100 shares of CSCO at a reduced cost basis of $30.02 per share, for capital gains of 6.61%.
#041 : 2016-12-23: Sold to Open 1 Contract of Option KO May 19 2017 42.00 C
I own 100 shares of The Coca-Cola Company (KO) at a cost basis of $41.31 per share. I'm willing to sell these shares for $42.00 on or before 19 May:
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This covered call yields 3.11%, or 7.72% on an annualized basis. The yield on cost of my KO position is 3.39%, so I'm boosting dividend income by a factor of 2.28. If the option is exercised, I'll sell 100 shares of KO at a reduced cost basis of $40.20 per share, for capital gains of 4.49%.
#042 : 2016-12-23: Sold to Open 1 Contract of Option PG Mar 17 2017 87.50 C
I own 100 shares of The Procter & Gamble Company (PG) at a cost basis of $81.77 per share. I'm willing to sell these shares for $87.50 on or before 17 March:
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This covered call yields 1.48%, or 6.45% on an annualized basis. The yield on cost of my PG position is 3.28%, so I'm boosting dividend income by a factor of 1.97. If the option is exercised, I'll sell 100 shares of PG at a reduced cost basis of $80.73 per share, for capital gains of 8.39%.
For covered calls, I think an achievable goal is to double dividend income. The covered call trades on DIS, ABBV, and KO (one of two) more than double dividend income, but those on VLO, KO (one of two), CSCO, and PG do not. Overall, though, I'm more than doubling dividend income with these covered calls.
New Put Contracts
Selling put options allows me to set the price I'm willing to pay for a stock I want to buy. In effect, I get paid while waiting for the share price to drop!
In last month's pulse article, I identified three DivGro positions that I wanted to increase. One of those is T. Rowe Price Group, Inc (TROW), a stock that is trading at a premium of about 3% to my fair value estimate:
• T. Rowe Price Group, Inc
streak 30 years | 5-year growth rate 14% | yield 2.91% @ $74.28 | payout 52% | debt 0%
moat wide | credit rating N/A | safety 2 | financial strength A+
Similarly, in this month's pulse article, I identified Target Corporation (TGT) as a position that I wanted to increase. The stock is trading at a discount of 10% to my fair value estimate:
• Target Corporation
streak 49 years | 5-year growth rate 21% | yield 3.25% @ $73.74 | payout 45% | debt 64%
moat none | credit rating A | safety 1 | financial strength A
Rather than buy shares outright, I decided to sell put options and wait for a lower entry price. In addition, I identified Intel Corporation (INTC) and AT&T Inc (T) as suitable for put option trades:
#033 : 2016-12-05: Sold to Open 2 Contracts of Option TROW Apr 21 2017 65.00 P
I'm willing to buy 200 shares of T. Rowe Price Group, Inc (TROW) for $65.00 per share on or before 21 April 2017. TROW closed at $75.58 per share on the date of my trade:
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This put option trade yields 1.47%, or 3.91% on an annualized basis. At $75.58 per share, TROW yields 2.86%, so I'm boosting dividend income by a factor of 1.37. If the options are exercised, I'll buy 200 shares at a cost basis of $63.98 per share, a discount of 15.35%.
#038 : 2016-12-21: Sold to Open 3 Contracts of Option T Feb 17 2017 35.00 P
I'm willing to buy 300 shares of AT&T Inc (T) for $35.00 per share on or before 17 February 2017. T closed at $42.36 per share on the date of my trade:
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This put option trade yields 1.11%, or 6.98% on an annualized basis. At $42.36 per share, T yields 4.63%, so I'm boosting dividend income by a factor of 1.51. If the options are exercised, I'll buy 300 shares at a cost basis of $34.59 per share, a discount of 18.35%.
#038 : 2016-12-21: Sold to Open 3 Contracts of Option INTC Feb 17 2017 35.00 P
I'm willing to buy 300 shares of Intel Corporation (INTC) for $35.00 per share on or before 17 February 2017. INTC closed at $36.98 per share on the date of my trade:
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This put option trade yields 1.62%, or 10.21% on an annualized basis. At $36.98 per share, INTC yields 2.81%, so I'm boosting dividend income by a factor of 3.63. If the options are exercised, I'll buy 300 shares at a cost basis of $34.46 per share, a discount of 6.82%.
#043 : 2016-12-23: Sold to Open 2 Contracts of Option TGT Jan 20 2017 72.50 P
I'm willing to buy 200 shares of Target Corporation (TGT) for $72.50 per share on or before 20 January 2017. TGT closed at $73.50 per share on the date of my trade:
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This put option trade yields 1.62%, or 21.08% on an annualized basis. At $73.50 per share, TGT yields 3.27%, so I'm boosting dividend income by a factor of 6.46. If the options are exercised, I'll buy 200 shares at a cost basis of $71.40 per share, a discount of 2.86%.
Open Positions
Below is a summary of the 23 open options in my portfolio. Quoted prices are end-of-session prices on 23 December. Five of these options expire in January:
Currently, 11 positions are in the red. Of these, The Walt Disney Company (DIS), Reynolds American, Inc (RAI), and Valero Energy Corporation (VLO) are deep in the money. The call option on RAI expires in February, so I'll review the position in February to see if rolling the option to a later expiration date is worth doing.
Uncovered Positions
At this time, I don't have any uncovered positions in my Scottrade brokerage account.
In my FolioInvesting account, I have several positions with at least 100 shares. These positions would be eligible for covered call trading, except that FolioInvesting does not offer options trading. I'm planning on moving these stocks to a new account where I can trade options.
Here are the stocks in my FolioInvesting account that I need to move to a brokerage that offers options trading:
Ticker
|
Company
|
#Shares
|
Cost
Basis
|
Recent
Price
|
Call
ADV
|
Put
ADV
|
Apple, Inc
|
100
|
$104.41
|
$116.52
|
45,885
|
34,826
| |
Intel Corporation
|
120
|
$23.31
|
$36.97
|
3,816
|
3,509
| |
AT&T Inc
|
150
|
$33.43
|
$42.73
|
7,180
|
2,908
|
The last two columns show the average number of call and put options executed in 21 consecutive days, in November 2016. I'm including it here to show how widely options trading volume varies by stock.
With the covered call investment tools available at borntosell.com, I can get a summary of all covered positions under various scenarios. Generally, I'll do slightly better if my covered call options are exercised:
Options Income Tally
Here is a running tally of the total amount received from options trades, as well as the options premiums secured due to options that expired:
key: expired • closed • rolled • assigned • open
| ID | DATE | : | NO | × | TICKER OPTION | INCOME | ( EXPENSES ) | ROLLED | TOTAL | ➤ SECURED |
| #045 | 2016-12-27 | : | 4 | × | F 17 Mar 2017 $13.00 C | $ 120.00 | ( $ -9.80 ) | $ 7,711.22 | ➤ $ 2,512.22 | |
| #044 | 2016-12-27 | : | 1 | × | TGT 21 Apr 2017 $77.50 C | $ 200.00 | ( $ -7.70 ) | $ 7,601.02 | ➤ $ 2,522.02 | |
| #043 | 2016-12-23 | : | 2 | × | TGT 20 Jan 2017 $72.50 P | $ 246.00 | ( $ -8.40 ) | $ 7,408.72 | ➤ $ 2,529.72 | |
| #042 | 2016-12-23 | : | 1 | × | PG 17 Mar 2017 $87.50 C | $ 129.00 | ( $ -7.70 ) | $ 7,171.12 | ➤ $ 2,538.12 | |
| #041 | 2016-12-23 | : | 1 | × | KO 19 May 2017 $42.00 C | $ 136.00 | ( $ -7.70 ) | $ 7,049.82 | ➤ $ 2,545.82 | |
| #040 | 2016-12-23 | : | 1 | × | CSCO 21 Apr 2017 $32.00 C | $ 53.00 | ( $ -7.70 ) | $ 6,921.52 | ➤ $ 2,553.52 | |
| #039 | 2016-12-21 | : | 3 | × | INTC 17 Feb 2017 $35.00 P | $ 189.00 | ( $ -9.10 ) | $ 6,876.22 | ➤ $ 2,561.22 | |
| #038 | 2016-12-21 | : | 3 | × | T 17 Feb 2017 $40.00 P | $ 150.00 | ( $ -9.10 ) | $ 6,696.32 | ➤ $ 2,570.32 | |
| #037 | 2016-12-09 | : | 1 | × | KO 18 May 2017 $43.00 C | $ 120.00 | ( $ -7.70 ) | $ 6,555.42 | ➤ $ 2,579.42 | |
| #036 | 2016-12-05 | : | 1 | × | ABBV 17 Feb 2017 $62.50 C | $ 161.00 | ( $ -7.70 ) | $ 6,443.12 | ➤ $ 2,587.12 | |
| #035 | 2016-12-05 | : | 1 | × | DIS 16 Jun 2017 $105.00 C | $ 315.00 | ( $ -7.70 ) | $ 6,289.82 | ➤ $ 2,594.82 | |
| #034 | 2016-12-05 | : | 1 | × | VLO 17 Mar 2017 $70.00 C | $ 112.00 | ( $ -7.70 ) | $ 5,982.52 | ➤ $ 2,602.52 | |
| #033 | 2016-12-05 | : | 2 | × | TROW 21 Apr 2017 $65.00 P | $ 230.00 | ( $ -8.40 ) | $ 5,878.22 | ➤ $ 2,610.22 | |
| #032 | 2016-11-25 | : | 1 | × | KMB 21 Apr 2017 $120.00 C | $ 280.00 | ( $ -7.70 ) | $ 5,656.62 | ➤ $ 2,618.62 | |
| #031 | 2016-11-25 | : | 2 | × | PFE 17 Mar 2017 $33.00 C | $ 132.00 | ( $ -8.40 ) | $ 5,384.32 | ➤ $ 2,626.32 | |
| #030 | 2016-11-25 | : | 1 | × | ABBV 17 Feb 2017 $62.50 C | $ 161.00 | ( $ -7.70 ) | $ 5,260.72 | ➤ $ 2,634.72 | |
| #029 | 2016-11-25 | : | 2 | × | CSCO 21 Apr 2017 $32.00 C | $ 104.00 | ( $ -8.40 ) | $ 5,107.42 | ➤ $ 2,642.42 | |
| #028 | 2016-11-25 | : | 1 | × | DIS 16 Jun 2017 $105.00 C | $ 270.00 | ( $ -7.70 ) | $ 5,011.82 | ➤ $ 2,650.82 | |
| #027 | 2016-11-25 | : | 1 | × | QCOM 17 Feb 2017 $70.00 C | $ 202.00 | ( $ -7.70 ) | $ 4,749.52 | ➤ $ 2,658.52 | |
| #026 | 2016-11-25 | : | 1 | × | QCOM 17 Feb 2017 $70.00 C | $ 200.00 | ( $ -7.70 ) | $ 4,555.22 | ➤ $ 2,666.22 | |
| #025 | 2016-11-25 | : | 3 | × | CSCO 16 Dec 2016 $30.00 P | $ 120.00 | ( $ -9.10 ) | $ 4,362.92 | ➤ $ 2,673.92 | |
| #024 | 2016-11-25 | : | 6 | × | F 17 Mar 2017 $13.00 C | $ 150.00 | ( $ -11.21 ) | $ 4,252.02 | ➤ $ 2,563.02 | |
| #023 | 2016-10-14 | : | 2 | × | WMT 18 Nov 2016 $67.50 P | $ 256.00 | ( $ -8.40 ) | $ 4,113.23 | ➤ $ 2,574.23 | |
| #022 | 2016-10-14 | : | 1 | × | HSY 20 Jan 2017 $90.00 P | $ 203.00 | ( $ -7.70 ) | $ 3,865.63 | ➤ $ 2,326.63 | |
| #021 | 2016-10-14 | : | 1 | × | GD 20 Jan 2017 $130.00 P | $ 135.00 | ( $ -7.70 ) | $ 3,670.33 | ➤ $ 2,334.33 | |
| #020 | 2016-10-11 | : | 2 | × | WFC 18 Nov 2016 $44.00 P | $ 170.00 | ( $ -8.40 ) | $ 3,543.03 | ➤ $ 2,342.03 | |
| #019 | 2016-10-07 | : | 2 | × | NKE 16 Dec 2016 $50.00 P | $ 218.00 | ( $ -8.40 ) | $ 3,381.43 | ➤ $ 2,180.43 | |
| #018 | 2016-09-26 | : | 1 | × | KO 16 Dec 2016 $42.00 C | $ 115.00 | ( $ -7.70 ) | $ 3,171.83 | ➤ $ 1,970.83 | |
| #017 | 2016-09-26 | : | 6 | × | F 20 Jan 2017 $11.00 P | $ 198.00 | ( $ -11.21 ) | $ 3,064.53 | ➤ $ 1,863.53 | |
| #016 | 2016-09-26 | : | 1 | × | GILD 17 Feb 2017 $95.00 C | $ 112.00 | ( $ -7.70 ) | $ 2,877.74 | ➤ $ 1,874.74 | |
| #015 | 2016-09-26 | : | 1 | × | PFE 17 Mar 2017 $35.00 C | $ 82.00 | ( $ -7.70 ) | $ 2,773.44 | ➤ $ 1,882.44 | |
| #014 | 2016-09-26 | : | 1 | × | UNP 16 Dec 2016 $97.50 C | $ 218.00 | ( $ -24.92 ) | $ 2,699.14 | ➤ $ 1,890.14 | |
| #013 | 2016-09-26 | : | 2 | × | PFE 28 Oct 2016 $34.00 P | $ 128.00 | ( $ -25.40 ) | $ 2,506.06 | ➤ $ 1,697.06 | |
| #012 | 2016-09-08 | : | 1 | × | JNJ 18 Nov 2016 $115.00 P | $ 143.00 | ( $ -7.70 ) | $ 2,403.46 | ➤ $ 1,594.46 | |
| #011 | 2016-09-07 | : | 1 | × | RAI 17 Feb 2017 $52.50 C | $ 132.00 | ( $ -7.70 ) | $ 2,268.16 | ➤ $ 1,459.16 | |
| #010 | 2016-09-07 | : | 1 | × | KMB 21 Oct 2016 $130.00 C | $ 120.00 | ( $ -7.70 ) | $ 2,143.86 | ➤ $ 1,466.86 | |
| #009 | 2016-09-07 | : | 1 | × | D 20 Jan 2017 $75.00 C | $ 307.00 | ( $ -7.70 ) | $ 2,031.56 | ➤ $ 1,354.56 | |
| #008 | 2016-08-30 | : | 3 | × | INTC 21 Oct 2016 $35.00 P | $ 258.00 | ( $ -9.10 ) | $ 1,732.26 | ➤ $ 1,362.26 | |
| #007 | 2016-08-30 | : | 3 | × | CSCO 21 Oct 2016 $31.00 C | $ 294.00 | ( $ -26.17 ) | $ 1,483.36 | ➤ $ 1,113.36 | |
| #006 | 2016-08-29 | : | 6 | × | F 18 Nov 2016 $13.00 C | $ 168.00 | ( $ -11.21 ) | $ 1,215.53 | ➤ $ 845.53 | |
| #005 | 2016-08-26 | : | 1 | × | DIS 18 Nov 2016 $100.00 C | $ 121.00 | ( $ -7.70 ) | $ 1,058.74 | ➤ $ 688.74 | |
| #004 | 2016-08-09 | : | 3 | × | CSCO 19 Aug 2016 $31.00 P | $ 207.00 | ( $ -26.10 ) | $ 945.44 | ➤ $ 575.44 | |
| #003 | 2016-08-09 | : | 1 | × | DIS 19 Aug 2016 $98.50 C | $ 95.00 | ( $ -7.70 ) | $ 764.54 | ➤ $ 394.54 | |
| #002 | 2016-06-16 | : | 1 | × | TGT 20 Jan 2017 $65.00 P | $ 370.00 | ( $ -8.25 ) | $ 677.24 | ➤ $ 307.24 | |
| #001 | 2016-06-01 | : | 6 | × | F 19 Aug 2016 $13.00 C | $ 330.00 | ( $ -14.51 ) | $ 315.49 | ➤ $ 315.49 |
key: expired • closed • rolled • assigned • open
I've now earned more than $2,500 in secured option income in about 7 months of options trading. With five options expiring in January, I have a good chance of crossing the $3,000 mark.
Take care everybody and thanks for reading!
I consider myself a beginner as far as options trading goes, so I still have lots to learn. If you see anything I do or write that you disagree with, please let me know in the comments below. Or if you just want to share some advice or encouragement, I'd be happy to hear from you, too!
INTC is a good one. I recently sold virtual put options on it for my newsletter portfolio. I did the same strike price ($35), but at a later date.
ReplyDeleteThose boring mature blue chip stocks like INTC, QCOM, CSCO that have often have long sideways stock prices are great for option-selling, because you can just collect tons of income from their wide-moat slow-growth business operations, and yet their option premiums are higher than some other sectors, like the typical blue-chip consumer defensive companies.
Thanks for commenting, Lyn -- yes, I'm often surprised to see the premiums available for technology stocks. It almost makes me want to focus on those stocks! But that would be putting the cart before the horse, because DivGro is firstly about "generating a reliable and growing dividend income stream" and secondly about boosting dividend income with options trading.
DeleteYeah I agree- becoming overly concentrated wouldn't be good. I just find it a nice area for options, like a sweet spot between volatility and premiums. In some other sectors, I rarely bother with options because the premiums are so low, and tend to just hold companies without options.
DeleteI'll have to see what works and what doesn't. Sometimes it helps to go out further with expiration date, but that's not always the case.
DeleteFantastic post and fantastic blog. Thanks for the clear explanations about your options strategies. There is always something to learn from your posts. Keep up the great work and all the best with your new positions!
ReplyDeleteThanks, Mike -- I appreciate your comment and support. I find writing these updates to be helpful for myself (to clarify my thoughts) and I'm happy if my readers find them worth the read, too!
DeleteTake care and happy investing!
Your options commissions seem high. I'm at Interactive Brokers and pay usually 70 cents a contract. A similar deal is available at Options House (which I've used and liked.) If you are going to continue to close out positions early (incur two commissions per trade), I think it makes sense to shop brokers. Fifteen bucks round trip on a 150 dollar premium is a ten percent drag!
ReplyDeleteYes. I'm planning to move my FolioInvesting account to Interactive Brokers. I have not closed out positions early for the very reason you mention. That's not good. I can't wait to move to IB!
DeleteGreat job Ferdi. I love reading posts about options. You're doing so good with it.
ReplyDeleteThanks, Investment Hunting -- I'm enjoying this adventure and I like seeing more and more dividend growth investors also getting into options.
Delete