Every month, I compile an update of options trading 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.My foray into options is to boost dividend income with options income. I do so by leveraging the dividend growth stocks I own. While my focus will remain on dividend growth investing, options trading provides an interesting and potentially lucrative sideline activity. In about eight months of trading, I've secured about $2,500 in options income!
In last month's update, I reported eleven new options trades. This month, I only have four new options trades to report. However, I also rolled a couple of options forward to later expiration dates and closed five options positions early by buying back the options at much-reduced prices. Finally, three options positions expired.
Assigned Options
This month, three put options expired and I no longer have obligations potentially to buy shares:
As a result, I secured a total of $509.39 in options income. Recall that I only count options income once I no longer have any obligations associated with the corresponding options.
| #017 | : 6 | x | F Jan 20 2017 11.00 P | :: | $ 186.79 | ||
| #021 | : 1 | x | GD Jan 20 2017 130.00 P | :: | $ 127.30 | ||
| #022 | : 1 | x | HSY Jan 20 2017 90.00 P | :: | $ 195.30 |
As a result, I secured a total of $509.39 in options income. Recall that I only count options income once I no longer have any obligations associated with the corresponding options.
Closed Options
Sometimes it is possible to close options positions early and secure most of the options income. This happens when an out-of-the-money option goes further out-of-the-money.
A put option is out-of-the-money if the strike price is below the price of the underlying stock and goes further out-of-the-money if the stock price rises. Conversely, a call option is out-of-the-money if the strike price is above the price of the underlying stock and goes further out-of-the-money if the stock price drops.
Out-of-the-money options become less expensive as the stock price moves away from the strike price. This happens because there is a smaller chance that the stock price will cross the strike price to go in-the-money.
Now that I'm with Interactive Brokers it doesn't cost me so much in commissions to close options. In January month, I closed one put option and four call options early:
Above, the cost to buy back these options are shown in parentheses. The $75 call option for Dominion Resources (D) cost more to buy back because the option was in-the-money, meaning the option was likely to be assigned at expiration.
These trades secured at total of $1,039.78 in options income.
Usually, I sell options that are out-of-the-money and a couple of months away from expiration. I try to strike a reasonable balance between the risk of option assignment and the premium income on offer. While I prefer premium income of at least $100 per trade, this is not a hard and fast rule.
Sometimes, the price of an underlying stock moves faster than anticipated and causes the option I sold to go in-the-money well before expiration.
For covered calls, this means that the underlying stock is trading above the strike price and my shares will be called away on (or before) the expiration date. Likewise, for put contracts, the underlying stock is trading below the strike price, and I'll be expected to buy shares at the higher strike price on (or before) the expiration date.
While I could just wait for option assignment, another possibility is to roll forward the option. This means buying back the option, probably at a higher price than the premium originally collected, and selling another option with a later expiration date.
In January, I rolled forward these options:
As above, the cost to roll forward these options are shown in parentheses.
The Target Corporation (TGT) $72.50 puts quickly moved in-the-money when TGT's share price fell in January. I decided to buy myself some time and to simultaneously reduce my obligation a little by selling the July $70 puts. The trade cost me $15.16.
Similarly, I rolled the Gilead Sciences, Inc (GILD) $95 call to June and made up for the small TGT loss in the process. The trade added $62.91 to my options income total.
Overall, these trades added $47.65 to my options income total and I secured $341.90 in options income from the original trades. However, by rolling the trades forward I'm (temporarily) giving up $1,786.65 of secured options income.
A put option is out-of-the-money if the strike price is below the price of the underlying stock and goes further out-of-the-money if the stock price rises. Conversely, a call option is out-of-the-money if the strike price is above the price of the underlying stock and goes further out-of-the-money if the stock price drops.
Out-of-the-money options become less expensive as the stock price moves away from the strike price. This happens because there is a smaller chance that the stock price will cross the strike price to go in-the-money.
Now that I'm with Interactive Brokers it doesn't cost me so much in commissions to close options. In January month, I closed one put option and four call options early:
| #002 : 1 | x | TGT Jan 20 2017 65.00 P | :: | $ 361.75 | ($ -3.79) | → secured 99% of available income |
| #009 : 1 | x | D Jan 20 2017 75.00 C | :: | $ 299.30 | ($ -65.39) | → secured 78% of available income |
| #015 : 1 | x | PFE Mar 17 2017 35.00 C | :: | $ 74.30 | ($ -10.99) | → secured 85% of available income |
| #026 : 1 | x | QCOM Feb 17 2017 70.00 C | :: | $ 192.30 | ($ -1.00) | → secured 99% of available income |
| #027 : 1 | x | QCOM Feb 17 2017 70.00 C | :: | $ 194.30 | ($ -1.00) | → secured 99% of available income |
Above, the cost to buy back these options are shown in parentheses. The $75 call option for Dominion Resources (D) cost more to buy back because the option was in-the-money, meaning the option was likely to be assigned at expiration.
These trades secured at total of $1,039.78 in options income.
Rolled Options
Usually, I sell options that are out-of-the-money and a couple of months away from expiration. I try to strike a reasonable balance between the risk of option assignment and the premium income on offer. While I prefer premium income of at least $100 per trade, this is not a hard and fast rule.
Sometimes, the price of an underlying stock moves faster than anticipated and causes the option I sold to go in-the-money well before expiration.
For covered calls, this means that the underlying stock is trading above the strike price and my shares will be called away on (or before) the expiration date. Likewise, for put contracts, the underlying stock is trading below the strike price, and I'll be expected to buy shares at the higher strike price on (or before) the expiration date.
While I could just wait for option assignment, another possibility is to roll forward the option. This means buying back the option, probably at a higher price than the premium originally collected, and selling another option with a later expiration date.
In January, I rolled forward these options:
| #016 : 1 | x | GILD Feb 17 2017 95.00 C | :: | $ 104.30 | ($ -234.09) | → #046 | |
| #046 : 1 | x | GILD Jun 16 2017 85.00 C | :: | $ 296.90 | |||
| #043 : 2 | x | TGT Jan 20 2017 72.50 P | :: | $ 237.60 | ($ -1,552.56) | → #050 | |
| #050 : 2 | x | TGT Jul 21 2017 70.00 P | :: | $ 1,537.40 |
As above, the cost to roll forward these options are shown in parentheses.
The Target Corporation (TGT) $72.50 puts quickly moved in-the-money when TGT's share price fell in January. I decided to buy myself some time and to simultaneously reduce my obligation a little by selling the July $70 puts. The trade cost me $15.16.
Similarly, I rolled the Gilead Sciences, Inc (GILD) $95 call to June and made up for the small TGT loss in the process. The trade added $62.91 to my options income total.
Overall, these trades added $47.65 to my options income total and I secured $341.90 in options income from the original trades. However, by rolling the trades forward I'm (temporarily) giving up $1,786.65 of secured options income.
New Covered Calls
Selling covered calls is a way to collect extra income on stocks you already own. Since my last update, I executed just one new covered call trade:
#049 : 2017-01-20: Sold to Open 1 Contract of Option D Apr 21 2017 75.00 C
I own 100 shares of Dominion Resources, Inc (D) at a cost basis of $75.79 per share. I'm willing to sell these shares for $75.00 on or before 21 April:
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This covered call yields 1.70%, or 6.81% on an annualized basis. The yield on cost of my D position is 3.96%, so I'm boosting dividend income by a factor of 1.72. If the option is exercised, I'll sell 100 shares of D at a reduced cost basis of $74.50 per share, for capital gains of 0.67%.
For covered calls, I think an achievable goal is to double dividend income. The covered call trades on D does not quite double dividend income.
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!
#047 : 2017-01-17: Sold to Open 3 Contracts of Option INTC Mar 3 2017 36.00 P
I'm willing to buy 300 shares of Intel Corporation (INTC) for $36.00 per share on or before 3 March. INTC closed at $36.80 per share on the date of my trade:
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This put option trade yields 2.19%, or 17.76% on an annualized basis. At $36.80 per share, INTC yields 2.83%, so I'm boosting dividend income by a factor of 6.28. If the options are exercised, I'll buy 300 shares at a cost basis of $35.19 per share, a discount of 4.36%.
#048 : 2017-01-17: Sold to Open 3 Contracts of Option GE Mar 3 2017 31.00 P
I'm willing to buy 300 shares of General Electric Company (GE) for $31.00 per share on or before 3 March. GE closed at $31.72 per share on the date of my trade:
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This put option trade yields 1.88%, or 15.23% on an annualized basis. At $31.72 per share, GE yields 3.03%, so I'm boosting dividend income by a factor of 5.03. If the options are exercised, I'll buy 300 shares at a cost basis of $30.40 per share, a discount of 4.15%.
#051 : 2017-01-26: Sold to Open 2 Contracts of Option QCOM Mar 17 2017 52.50 P
I'm willing to buy 200 shares of Qualcomm Inc (QCOM) for $52.50 per share on or before 17 March. QCOM closed at $54.05 per share on the date of my trade:
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This put option trade yields 2.06%, or 15.03% on an annualized basis. At $54.05 per share, QCOM yields 3.92%, so I'm boosting dividend income by a factor of 3.83. If the options are exercised, I'll buy 200 shares at a cost basis of $51.39 per share, a discount of 4.93%.
Selling puts is riskier than selling covered calls. Generally, I like to see a dividend boost factor of five or more, unless I can buy shares at a discount of at least 10%. The put trades on INTC and GE are successful in this regard, but the put trade on QCOM is not.
Open Positions
Below is a summary of the open options in my portfolio. Quoted prices are end-of-session prices on 10 February. Four of these options expire in February:
Currently, six positions are in the red. Of these, only the Reynolds American, Inc (RAI) $52.50 covered call expires in February, so I'll review the position soon to see if rolling the option forward is, well, an option...
Uncovered Positions
At this time, I don't have any uncovered positions in my Interactive Brokers 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. Soon I'll be moving these stocks to Interactive Brokers so I can trade options on them:
Ticker
|
Company
|
#Shares
|
Cost
Basis
|
Recent
Price
|
Call
ADV
|
Put
ADV
|
Apple, Inc
|
100
|
$104.41
|
$132.12
|
49,006
|
28,091
| |
Intel Corporation
|
120
|
$23.31
|
$35.34
|
7,356
|
2,325
| |
AT&T Inc
|
150
|
$33.43
|
$41.38
|
5,355
|
3,692
| |
T. Rowe Price Group, Inc
|
100
|
$74.32
|
$69.40
|
200
|
88
|
The last two columns show the average number of call and put options executed in 20 consecutive days, in January 2017. I'm including it here to show how widely options trading volume varies by stock.
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 |
| #051 | 2017-01-26 | : | 2 | × | QCOM 17 Mar 2017 $52.50 P | $ 336.00 | ( $ -1.59 ) | $ 8,678.75 | ➤ $ 2,689.75 | |
| #050 | 2017-01-20 | : | 2 | × | TGT 21 Jul 2017 $70.00 P | $ 1,540.00 | ( $ -2.60 ) | $ 8,344.34 | ➤ $ 2,691.34 | |
| #049 | 2017-01-20 | : | 1 | × | D 21 Apr 2017 $75.00 C | $ 248.00 | ( $ -0.40 ) | $ 6,806.94 | ➤ $ 2,693.94 | |
| #048 | 2017-01-17 | : | 3 | × | GE 03 Mar 2017 $31.00 P | $ 180.00 | ( $ -1.48 ) | $ 6,559.34 | ➤ $ 2,694.34 | |
| #047 | 2017-01-17 | : | 3 | × | INTC 03 Mar 2017 $36.00 P | $ 243.00 | ( $ -1.48 ) | $ 6,380.82 | ➤ $ 2,695.82 | |
| #046 | 2017-01-20 | : | 1 | × | GILD 16 Jun 2017 $85.00 C | $ 298.00 | ( $ -1.10 ) | $ 6,139.30 | ➤ $ 2,697.30 | |
| #045 | 2016-12-27 | : | 4 | × | F 17 Mar 2017 $13.00 C | $ 120.00 | ( $ -9.80 ) | $ 5,842.40 | ➤ $ 2,698.40 | |
| #044 | 2016-12-27 | : | 1 | × | TGT 21 Apr 2017 $77.50 C | $ 200.00 | ( $ -7.70 ) | $ 5,732.20 | ➤ $ 2,708.20 | |
| #043 | 2016-12-23 | : | 2 | × | TGT 20 Jan 2017 $72.50 P | $ 246.00 | ( $ -1,560.96 ) | → #050 | $ 5,539.90 | ➤ $ 2,715.90 |
| #042 | 2016-12-23 | : | 1 | × | PG 17 Mar 2017 $87.50 C | $ 129.00 | ( $ -7.70 ) | $ 6,854.86 | ➤ $ 4,030.86 | |
| #041 | 2016-12-23 | : | 1 | × | KO 19 May 2017 $42.00 C | $ 136.00 | ( $ -7.70 ) | $ 6,733.56 | ➤ $ 4,038.56 | |
| #040 | 2016-12-23 | : | 1 | × | CSCO 21 Apr 2017 $32.00 C | $ 53.00 | ( $ -7.70 ) | $ 6,605.26 | ➤ $ 4,046.26 | |
| #039 | 2016-12-21 | : | 3 | × | INTC 17 Feb 2017 $35.00 P | $ 189.00 | ( $ -9.10 ) | $ 6,559.96 | ➤ $ 4,053.96 | |
| #038 | 2016-12-21 | : | 3 | × | T 17 Feb 2017 $40.00 P | $ 150.00 | ( $ -9.10 ) | $ 6,380.06 | ➤ $ 4,063.06 | |
| #037 | 2016-12-09 | : | 1 | × | KO 18 May 2017 $43.00 C | $ 120.00 | ( $ -7.70 ) | $ 6,239.16 | ➤ $ 4,072.16 | |
| #036 | 2016-12-05 | : | 1 | × | ABBV 17 Feb 2017 $62.50 C | $ 161.00 | ( $ -7.70 ) | $ 6,126.86 | ➤ $ 4,079.86 | |
| #035 | 2016-12-05 | : | 1 | × | DIS 16 Jun 2017 $105.00 C | $ 315.00 | ( $ -7.70 ) | $ 5,973.56 | ➤ $ 4,087.56 | |
| #034 | 2016-12-05 | : | 1 | × | VLO 17 Mar 2017 $70.00 C | $ 112.00 | ( $ -7.70 ) | $ 5,666.26 | ➤ $ 4,095.26 | |
| #033 | 2016-12-05 | : | 2 | × | TROW 21 Apr 2017 $65.00 P | $ 230.00 | ( $ -8.40 ) | $ 5,561.96 | ➤ $ 4,102.96 | |
| #032 | 2016-11-25 | : | 1 | × | KMB 21 Apr 2017 $120.00 C | $ 280.00 | ( $ -7.70 ) | $ 5,340.36 | ➤ $ 4,111.36 | |
| #031 | 2016-11-25 | : | 2 | × | PFE 17 Mar 2017 $33.00 C | $ 132.00 | ( $ -8.40 ) | $ 5,068.06 | ➤ $ 4,119.06 | |
| #030 | 2016-11-25 | : | 1 | × | ABBV 17 Feb 2017 $62.50 C | $ 161.00 | ( $ -7.70 ) | $ 4,944.46 | ➤ $ 4,127.46 | |
| #029 | 2016-11-25 | : | 2 | × | CSCO 21 Apr 2017 $32.00 C | $ 104.00 | ( $ -8.40 ) | $ 4,791.16 | ➤ $ 4,135.16 | |
| #028 | 2016-11-25 | : | 1 | × | DIS 16 Jun 2017 $105.00 C | $ 270.00 | ( $ -7.70 ) | $ 4,695.56 | ➤ $ 4,143.56 | |
| #027 | 2016-11-25 | : | 1 | × | QCOM 17 Feb 2017 $70.00 C | $ 202.00 | ( $ -8.70 ) | $ 4,433.26 | ➤ $ 4,151.26 | |
| #026 | 2016-11-25 | : | 1 | × | QCOM 17 Feb 2017 $70.00 C | $ 200.00 | ( $ -8.70 ) | $ 4,239.96 | ➤ $ 3,957.96 | |
| #025 | 2016-11-25 | : | 3 | × | CSCO 16 Dec 2016 $30.00 P | $ 120.00 | ( $ -9.10 ) | $ 4,048.66 | ➤ $ 3,766.66 | |
| #024 | 2016-11-25 | : | 6 | × | F 17 Mar 2017 $13.00 C | $ 150.00 | ( $ -11.21 ) | $ 3,937.76 | ➤ $ 3,655.76 | |
| #023 | 2016-10-14 | : | 2 | × | WMT 18 Nov 2016 $67.50 P | $ 256.00 | ( $ -8.40 ) | $ 3,798.97 | ➤ $ 3,666.97 | |
| #022 | 2016-10-14 | : | 1 | × | HSY 20 Jan 2017 $90.00 P | $ 203.00 | ( $ -7.70 ) | $ 3,551.37 | ➤ $ 3,419.37 | |
| #021 | 2016-10-14 | : | 1 | × | GD 20 Jan 2017 $130.00 P | $ 135.00 | ( $ -7.70 ) | $ 3,356.07 | ➤ $ 3,224.07 | |
| #020 | 2016-10-11 | : | 2 | × | WFC 18 Nov 2016 $44.00 P | $ 170.00 | ( $ -8.40 ) | $ 3,228.77 | ➤ $ 3,096.77 | |
| #019 | 2016-10-07 | : | 2 | × | NKE 16 Dec 2016 $50.00 P | $ 218.00 | ( $ -8.40 ) | $ 3,067.17 | ➤ $ 2,935.17 | |
| #018 | 2016-09-26 | : | 1 | × | KO 16 Dec 2016 $42.00 C | $ 115.00 | ( $ -7.70 ) | $ 2,857.57 | ➤ $ 2,725.57 | |
| #017 | 2016-09-26 | : | 6 | × | F 20 Jan 2017 $11.00 P | $ 198.00 | ( $ -11.21 ) | $ 2,750.27 | ➤ $ 2,618.27 | |
| #016 | 2016-09-26 | : | 1 | × | GILD 17 Feb 2017 $95.00 C | $ 112.00 | ( $ -241.79 ) | → #046 | $ 2,563.48 | ➤ $ 2,431.48 |
| #015 | 2016-09-26 | : | 1 | × | PFE 17 Mar 2017 $35.00 C | $ 82.00 | ( $ -18.69 ) | $ 2,693.27 | ➤ $ 2,561.27 | |
| #014 | 2016-09-26 | : | 1 | × | UNP 16 Dec 2016 $97.50 C | $ 218.00 | ( $ -24.92 ) | $ 2,629.96 | ➤ $ 2,497.96 | |
| #013 | 2016-09-26 | : | 2 | × | PFE 28 Oct 2016 $34.00 P | $ 128.00 | ( $ -25.40 ) | $ 2,436.88 | ➤ $ 2,304.88 | |
| #012 | 2016-09-08 | : | 1 | × | JNJ 18 Nov 2016 $115.00 P | $ 143.00 | ( $ -7.70 ) | $ 2,334.28 | ➤ $ 2,202.28 | |
| #011 | 2016-09-07 | : | 1 | × | RAI 17 Feb 2017 $52.50 C | $ 132.00 | ( $ -7.70 ) | $ 2,198.98 | ➤ $ 2,066.98 | |
| #010 | 2016-09-07 | : | 1 | × | KMB 21 Oct 2016 $130.00 C | $ 120.00 | ( $ -7.70 ) | $ 2,074.68 | ➤ $ 2,074.68 | |
| #009 | 2016-09-07 | : | 1 | × | D 20 Jan 2017 $75.00 C | $ 307.00 | ( $ -73.09 ) | $ 1,962.38 | ➤ $ 1,962.38 | |
| #008 | 2016-08-30 | : | 3 | × | INTC 21 Oct 2016 $35.00 P | $ 258.00 | ( $ -9.10 ) | $ 1,728.47 | ➤ $ 1,728.47 | |
| #007 | 2016-08-30 | : | 3 | × | CSCO 21 Oct 2016 $31.00 C | $ 294.00 | ( $ -26.17 ) | $ 1,479.57 | ➤ $ 1,479.57 | |
| #006 | 2016-08-29 | : | 6 | × | F 18 Nov 2016 $13.00 C | $ 168.00 | ( $ -11.21 ) | $ 1,211.74 | ➤ $ 1,211.74 | |
| #005 | 2016-08-26 | : | 1 | × | DIS 18 Nov 2016 $100.00 C | $ 121.00 | ( $ -7.70 ) | $ 1,054.95 | ➤ $ 1,054.95 | |
| #004 | 2016-08-09 | : | 3 | × | CSCO 19 Aug 2016 $31.00 P | $ 207.00 | ( $ -26.10 ) | $ 941.65 | ➤ $ 941.65 | |
| #003 | 2016-08-09 | : | 1 | × | DIS 19 Aug 2016 $98.50 C | $ 95.00 | ( $ -7.70 ) | $ 760.75 | ➤ $ 760.75 | |
| #002 | 2016-06-16 | : | 1 | × | TGT 20 Jan 2017 $65.00 P | $ 370.00 | ( $ -12.04 ) | $ 673.45 | ➤ $ 673.45 | |
| #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
New this month is that I closed several options early and also rolled a couple of options to later expiration dates. I've updated color scheme in the running tally of options income. For closed and rolled options, I show the cost associated with closing or rolling those trades in parentheses. Additionally, for rolled options, I include a reference (→) to the new trade.
Goals Progress
One of my goals in 2017 is to earn $8,400 in options income. I only count secured options income, which is income from options for which I no longer have any potential obligations. In the tally table above, open options have potential obligations.
| Total Options Income | Secured Options Income | ||
This Month:
| $8,679 | $2,690 | |
Last Month:
| $7,711 | $2,512 | |
Difference:
| $ 968 | $ 178 |
Having secured $178 of options income this month, I've completed 2.1% of my options income goal for 2017, which is a start...
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!
Gogogogogogo!
ReplyDeleteI rarely close my positions early. I may be leaving some money on the table but it just seems like a lot of work for not a lot of reward. My budget is already met so I'm in lazy man mode.
Hi, Financial Velociraptor --
DeleteAs mentioned, sometimes I capture more than 80% of the potential value of an option long before expiration. By closing early, I can release the cash being held for collateral (in the case of puts) and sell a new put, or I can sell a new covered call. Just trying to be more efficient!
That is a lot of option activity with a great result!
ReplyDeleteI also close early when I capture a significant part of the premium early. TO me, it is not just worth the risk or allocation of capital at that point
I'm really glad that it is no longer costing me so much to close early. That flexibility will allow me to be more efficient with my options trades.
DeleteThanks for commenting and happy investing!
Hi FerdiS , please do not get me wrong , my concern is that when market finally turns around liquidity will evaporate ,spread will become prohibitive ,
ReplyDeleteyou will be not be able to close position or sell another call , you will be watching how your money evaporate , it is frustrating and painfull experience , I leanred that the hard way , what will you do then ?
When did you learn this "lesson"? Was it in the 2007-9 great recession? I'm asking because that is almost 10 years ago. Or did you experience this in more recent times during the bull market? I'm asking because I'd like to understand your cautions better. Volatility is quite low now and when the market finally turns, I believe volatility will rise and compensate. No?
Deletegreat recession is a good example , volatility will rise , spread between bid and ask will be huge , time will show.
ReplyDeleteYes, time will show. I guess my point is the great recession is almost 10 years ago. I've heard of people that sold everything during the great recession and haven't gotten back in the market since. If they had stuck it out, they would've made all their "losses" back and then some.
Delete