Options Update: February 2017

I report on my options trading activity monthly, usually after options expiration Friday. Doing so allows me to report on expired or assigned options. I also report new options trades and provide a running tally of DivGro's options income to date.

Options trading is a sideline activity for DivGro. My goal is to boost dividend income with options income. I mainly sell covered calls, which is a way of leveraging my existing portfolio to generate more income. Occasionally, though, I'll sell put contracts and so set the price I'm willing to pay for stocks I want to buy.

In January's update, I reported four new options trades and a couple of rolled trades. I also reported closing five options positions early. Now that I'm trading at Interactive Brokers it doesn't cost me so much in commissions to roll or close options.

In February, I rolled forward five trades and closed one contract early. Four options expired and one got assigned, while I executed five new options trades. The end result is that I secured $1,393 in options income in February.

Assigned Options

When an option holder exercises an option, it is set to be assigned.

I sold one February $52.50 call contract on my shares of Reynolds American, Inc (RAI) on 7 September 2016 and collected $124.30 in options income after commissions.

#011 :   1

x

RAI 17 Feb 2016 52.50 C

::

$    124.30

In January 2017, U.K.-based British American Tobacco (BATS) reached an agreement to buy RAI for $59.64 per share. RAI's stock price jumped substantially and pushed the call option to deep in the money. 

Because of the takeover bid, I decided to let the option be assigned and to sell the shares, rather than trying to roll the option forward and to buy more time. 

I've yet to write a Recent Sell article, but my investment in RAI was quite successful! I made a net gain of 135.6% on the original amount invested, or 55% annualized. Note that I still own 100 shares of RAI in one of my IRA's.

The risk of covered calls is that you could end up "leaving money on the table" if the share price goes above the strike price. I'm fine with taking the risk because I'm boosting DivGro's dividend income with options income. 

Expired Options

This month, two put options and two call options expired:

#030 :   1	x	ABBV 17 Feb 2017 62.50 C	::	$    153.30
#036 :   1	x	ABBV 17 Feb 2017 62.50 C	::	$    153.30
#038 :   3	x	T 17 Feb 2017 40.00 P	::	$    140.90
#039 :   3	x	INTC 17 Feb 2017 35.00 P	::	$    179.90

As a result, I secured a total of $627.40 in options income.

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. These options become less expensive when the stock price moves away from the strike price because there is a smaller chance that the stock price will cross the strike price and go in the money.

In February, I closed one put option early:

#051 :   2	x	QCOM 17 Mar 2017 52.50 P	::	$    334.41	($ -40.99)		→ secured 88% of available income

The cost of buying back the put option is shown in parentheses. Having secured 88% of available income, I decided to close this option 3 weeks early and to add $293.42 to my options income tally.

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.

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, likely at a higher price than the original premium I collected and selling another option with a later expiration date.

In February, I rolled forward the following options:

#024 :   6	x	F 17 Mar 2017 13.00 C	::	$    138.79	($   -39.56)	→ #056
#045 :   4	x	F 17 Mar 2017 13.00 C	::	$    110.20	($   -26.37)	→ #056
#056 : 10	x	F 16 Jun 2017 13.00 C	::	$    350.00	($     -7.96)
#047 :   3	x	INTC 03 Mar 2017 36.00 P	::	$    241.52	($   -47.87)	→ #057
#057 :   3	x	INTC 19 May 2017 35.00 P	::	$    270.00	($     -2.88)
#052 :   2	x	QCOM 10 Feb 2017 53.50 C	::	$      42.00	($ -108.37)	→ #053
#053 :   2	x	QCOM 17 Mar 2017 55.00 C	::	$    177.00	($ -374.58)	→ #059
#059 :   2	x	QCOM 21 Jul 2017 57.50 C	::	$    573.00	($     -1.30)
#044 :   1	x	TGT 21 Apr 2017 77.50 C	::	$    192.30	($   -12.58)	→ #061
#061 :   1	x	TGT 20 Oct 2017 75.00 C	::	$    157.00	($     -1.59)

As above, the cost to roll forward these options are shown in parentheses.

Overall, these trades added $1,511.98 to my options income total and I secured $295.85 in options income from the original trades.

Rolling the QCOM option forward (twice) cost more than the premiums I collected originally. In the process, I gave up secured options income in the amount of $263.95 ($42 + $177 - $108.37 - $374.58). However, in return, I collected $571.70 in new premium income ($573 - $1.30). At the same time, I managed to increase the strike price from $53.50 to $57.50.

New Covered Calls

Selling covered calls is a way to collect extra income on stocks you already own. Since my last update, I executed four new covered call trade:

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#052 : 2017-02-07: Sold to Open 2 Contracts of Option QCOM Feb 10 2017 53.50 C

I own 200 shares of Qualcomm Inc (QCOM) at a cost basis of $53.07 per share. I'm willing to sell these shares for $53.50 on or before 10 February:

Open Date :  2017-02-07 Expiration Date :  2017-02-10     Number of Days in Trade :  3 Cost Basis :  $53.07 per share Gain at Strike Price :  0.81% Strike Price :  $53.50 per share Number of Contracts : 2 Number of Shares : 200 Call Premium :  $0.21 per share Options Income :  $42.00 Commission :  $2.08 Net Premium :  $0.200 per share Net Options Income :  $39.92 Options Yield :  0.38% Annualized Options Yield :  45.79% ----------------------------   --------------------- -------------------------------   ----------- Commission if Exercised :  $0.00 Cost Basis if Exercised :  $52.87 Gain if Exercised :  1.19%

This covered call yields 0.38%, or 45.79% on an annualized basis. The yield on cost of my QCOM position is 3.99%, so I'm boosting dividend income by a factor of 11.46. If the options are exercised, I'll sell 200 shares of QCOM at a reduced cost basis of $52.87 per share, for capital gains of 1.19%.

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#054 : 2017-02-24: Sold to Open 2 Contracts of Option ABBV May 19 2017 65.00 C

I own 200 shares of AbbVie Inc (ABBV) at a cost basis of $61.65 per share. I'm willing to sell these shares for $65.00 on or before 19 May:

Open Date :  2017-02-24 Expiration Date :  2017-05-19     Number of Days in Trade :  84 Cost Basis :  $61.65 per share Gain at Strike Price :  5.43% Strike Price :  $65.00 per share Number of Contracts : 2 Number of Shares : 200 Call Premium :  $0.97 per share Options Income :  $194.00 Commission :  $0.99 Net Premium :  $0.965 per share Net Options Income :  $193.01 Options Yield :  1.57% Annualized Options Yield :  6.81% ----------------------------   --------------------- -------------------------------   ----------- Commission if Exercised :  $0.00 Cost Basis if Exercised :  $60.68 Gain if Exercised :  7.11%

This covered call yields 1.57%, or 6.81% 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 1.64. If the options are exercised, I'll sell 200 shares of ABBV at a reduced cost basis of $60.68 per share, for capital gains of 7.11%.

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#058 : 2017-02-24: Sold to Open 1 Contract of Option PFE Sep 15 2017 35.00 C

I own 100 shares of Pfizer Inc (PFE) at a cost basis of $30.68 per share. I'm willing to sell these shares for $35.00 on or before 15 September:

Open Date :  2017-02-24 Expiration Date :  2017-09-15     Number of Days in Trade :  203 Cost Basis :  $30.68 per share Gain at Strike Price :  14.08% Strike Price :  $35.00 per share Number of Contracts : 1 Number of Shares : 100 Call Premium :  $1.13 per share Options Income :  $113.00 Commission :  -$1.00 Net Premium :  $1.140 per share Net Options Income :  $114.00 Options Yield :  3.72% Annualized Options Yield :  6.69% ----------------------------   --------------------- -------------------------------   ----------- Commission if Exercised :  $0.00 Cost Basis if Exercised :  $29.54 Gain if Exercised :  18.48%

This covered call yields 3.72%, or 6.69% on an annualized basis. The yield on cost of my PFE position is 4.17%, so I'm boosting dividend income by a factor of 1.60. If the option is exercised, I'll sell 100 shares of PFE at a reduced cost basis of $29.54 per share, for capital gains of 18.48%.

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#060 : 2017-02-24: Sold to Open 2 Contracts of Option QCOM Jul 21 2017 57.50 C

I own 200 shares of Qualcomm Inc (QCOM) at a cost basis of $67.92 per share. I'm willing to sell these shares for $57.50 on or before 21 July:

Open Date :  2017-02-24 Expiration Date :  2017-07-21     Number of Days in Trade :  147 Cost Basis :  $67.92 per share Gain at Strike Price :  -15.34% Strike Price :  $57.50 per share Number of Contracts : 2 Number of Shares : 200 Call Premium :  $2.90 per share Options Income :  $580.00 Commission :  $1.00 Net Premium :  $2.895 per share Net Options Income :  $579.00 Options Yield :  4.26% Annualized Options Yield :  10.59% ----------------------------   --------------------- -------------------------------   ----------- Commission if Exercised :  $0.00 Cost Basis if Exercised :  $65.03 Gain if Exercised :  -11.57%

This covered call yields 4.26%, or 10.59% on an annualized basis. The yield on cost of my QCOM position is 3.12%, so I'm boosting dividend income by a factor of 3.39. If the options are exercised, I'll sell 200 shares of QCOM at a reduced cost basis of $65.03 per share, for a capital loss of 11.57%.

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For covered calls, I think an achievable goal is to double dividend income. The covered call trades on QCOM easily doubles dividend income, while those on ABBV and PFE do not. Options trade #060 is a risky trade, as I'll end up with a capital loss if the options are exercised. I'll have to monitor those options carefully!

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! I sold only one put contract in this period:

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#055 : 2017-02-24: Sold to Open 2 Contracts of Option CVS May 19 2017 75.00 P

I'm willing to buy 200 shares of CVS Health Corporation (CVS) for $75.00 per share on or before 19 May. CVS closed at $81.48 per share on the date of my trade:

Open Date :  2017-02-24 Expiration Date :  2017-05-19     Number of Days in Trade :  84 Price at Close :  $81.48 per share Discount at Strike Price :  7.95% Strike Price :  $75.00 per share Number of Contracts : 2 Number of Shares : 200 Put Premium :  $0.92 per share Options Income :  $184.00 Commission :  $0.99 Net Premium :  $0.915 per share Net Options Income :  $183.01 Options Yield :  1.12% Annualized Options Yield :  4.88% ----------------------------   --------------------- -------------------------------   ----------- Commission if Exercised :  $0.00 Cost Basis if Exercised :  $74.08 Discount if Exercised :  9.08%

This put option trade yields 1.12%, or 4.88% on an annualized basis. At $81.48 per share, CVS yields 2.45%, so I'm boosting dividend income by a factor of 1.99. If the options are exercised, I'll buy 200 shares at a cost basis of $74.08 per share, a discount of 9.08%.

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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%. My put trade on CVS is not quite successful in this regard, although the discount if exercised of 9% is pretty close.

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
#061	2017-02-24	:	1	×	TGT 20 Oct 2017 $75.00 C	$    157.00	( $        -1.59 )		$ 10,650.72	➤ $ 4,082.72
#060	2017-02-24	:	2	×	QCOM 21 Jul 2017 $57.50 C	$    580.00	( $        -1.00 )		$ 10,495.31	➤ $ 4,084.31
#059	2017-02-24	:	2	×	QCOM 21 Jul 2017 $57.50 C	$    573.00	( $        -1.30 )		$ 9,916.31	➤ $ 4,085.31
#058	2017-02-24	:	1	×	PFE 15 Sep 2017 $35.00 C	$    113.00	( $        -1.00 )		$ 9,344.61	➤ $ 4,086.61
#057	2017-02-24	:	3	×	INTC 19 May 2017 $35.00 P	$    270.00	( $        -2.88 )		$ 9,232.61	➤ $ 4,087.61
#056	2017-02-24	:	10	×	F 16 Jun 2017 $13.00 C	$    350.00	( $        -7.96 )		$ 8,965.49	➤ $ 4,090.49
#055	2017-02-24	:	2	×	CVS 19 May 2017 $75.00 P	$    184.00	( $        -0.99 )		$ 8,623.45	➤ $ 4,098.45
#054	2017-02-24	:	2	×	ABBV 19 May 2017 $65.00 C	$    194.00	( $        -0.99 )		$ 8,440.44	➤ $ 4,099.44
#053	2017-02-10	:	2	×	QCOM 17 Mar 2017 $55.00 C	$    177.00	( $    -374.58 )	→ #059	$ 8,247.43	➤ $ 4,100.43
#052	2017-02-07	:	2	×	QCOM 10 Feb 2017 $53.50 C	$      42.00	( $    -108.37 )	→ #053	$ 8,445.01	➤ $ 4,298.01
#051	2017-01-26	:	2	×	QCOM 17 Mar 2017 $52.50 P	$    336.00	( $      -42.58 )		$ 8,511.38	➤ $ 4,364.38
#050	2017-01-20	:	2	×	TGT 21 Jul 2017 $70.00 P	$ 1,540.00	( $        -2.60 )		$ 8,217.96	➤ $ 4,070.96
#049	2017-01-20	:	1	×	D 21 Apr 2017 $75.00 C	$    248.00	( $        -0.40 )		$ 6,680.56	➤ $ 4,073.56
#048	2017-01-17	:	3	×	GE 03 Mar 2017 $31.00 P	$    180.00	( $        -1.48 )		$ 6,432.96	➤ $ 4,073.96
#047	2017-01-17	:	3	×	INTC 03 Mar 2017 $36.00 P	$    243.00	( $      -49.35 )	→ #057	$ 6,254.44	➤ $ 4,075.44
#046	2017-01-20	:	1	×	GILD 16 Jun 2017 $85.00 C	$    298.00	( $        -1.10 )		$ 6,060.79	➤ $ 3,881.79
#045	2016-12-27	:	4	×	F 17 Mar 2017 $13.00 C	$    120.00	( $      -36.17 )	→ #056	$ 5,763.89	➤ $ 3,882.89
#044	2016-12-27	:	1	×	TGT 21 Apr 2017 $77.50 C	$    200.00	( $      -20.28 )	→ #061	$ 5,680.06	➤ $ 3,799.06
#043	2016-12-23	:	2	×	TGT 20 Jan 2017 $72.50 P	$    246.00	( $ -1,560.96 )	→ #050	$ 5,500.34	➤ $ 3,619.34
#042	2016-12-23	:	1	×	PG 17 Mar 2017 $87.50 C	$    129.00	( $        -7.70 )		$ 6,815.30	➤ $ 4,934.30
#041	2016-12-23	:	1	×	KO 19 May 2017 $42.00 C	$    136.00	( $        -7.70 )		$ 6,694.00	➤ $ 4,942.00
#040	2016-12-23	:	1	×	CSCO 21 Apr 2017 $32.00 C	$      53.00	( $        -7.70 )		$ 6,565.70	➤ $ 4,949.70
#039	2016-12-21	:	3	×	INTC 17 Feb 2017 $35.00 P	$    189.00	( $        -9.10 )		$ 6,520.40	➤ $ 4,957.40
#038	2016-12-21	:	3	×	T 17 Feb 2017 $40.00 P	$    150.00	( $        -9.10 )		$ 6,340.50	➤ $ 4,777.50
#037	2016-12-09	:	1	×	KO 18 May 2017 $43.00 C	$    120.00	( $        -7.70 )		$ 6,199.60	➤ $ 4,636.60
#036	2016-12-05	:	1	×	ABBV 17 Feb 2017 $62.50 C	$    161.00	( $        -7.70 )		$ 6,087.30	➤ $ 4,644.30
#035	2016-12-05	:	1	×	DIS 16 Jun 2017 $105.00 C	$    315.00	( $        -7.70 )		$ 5,934.00	➤ $ 4,491.00
#034	2016-12-05	:	1	×	VLO 17 Mar 2017 $70.00 C	$    112.00	( $        -7.70 )		$ 5,626.70	➤ $ 4,498.70
#033	2016-12-05	:	2	×	TROW 21 Apr 2017 $65.00 P	$    230.00	( $        -8.40 )		$ 5,522.40	➤ $ 4,506.40
#032	2016-11-25	:	1	×	KMB 21 Apr 2017 $120.00 C	$    280.00	( $        -7.70 )		$ 5,300.80	➤ $ 4,514.80
#031	2016-11-25	:	2	×	PFE 17 Mar 2017 $33.00 C	$    132.00	( $        -8.40 )		$ 5,028.50	➤ $ 4,522.50
#030	2016-11-25	:	1	×	ABBV 17 Feb 2017 $62.50 C	$    161.00	( $        -7.70 )		$ 4,904.90	➤ $ 4,530.90
#029	2016-11-25	:	2	×	CSCO 21 Apr 2017 $32.00 C	$    104.00	( $        -8.40 )		$ 4,751.60	➤ $ 4,377.60
#028	2016-11-25	:	1	×	DIS 16 Jun 2017 $105.00 C	$    270.00	( $        -7.70 )		$ 4,656.00	➤ $ 4,386.00
#027	2016-11-25	:	1	×	QCOM 17 Feb 2017 $70.00 C	$    202.00	( $        -8.70 )		$ 4,393.70	➤ $ 4,393.70
#026	2016-11-25	:	1	×	QCOM 17 Feb 2017 $70.00 C	$    200.00	( $        -8.70 )		$ 4,200.40	➤ $ 4,200.40
#025	2016-11-25	:	3	×	CSCO 16 Dec 2016 $30.00 P	$    120.00	( $        -9.10 )		$ 4,009.10	➤ $ 4,009.10
#024	2016-11-25	:	6	×	F 17 Mar 2017 $13.00 C	$    150.00	( $      -50.77 )	→ #056	$ 3,898.20	➤ $ 3,898.20
#023	2016-10-14	:	2	×	WMT 18 Nov 2016 $67.50 P	$    256.00	( $        -8.40 )		$ 3,798.97	➤ $ 3,798.97
#022	2016-10-14	:	1	×	HSY 20 Jan 2017 $90.00 P	$    203.00	( $        -7.70 )		$ 3,551.37	➤ $ 3,551.37
#021	2016-10-14	:	1	×	GD 20 Jan 2017 $130.00 P	$    135.00	( $        -7.70 )		$ 3,356.07	➤ $ 3,356.07
#020	2016-10-11	:	2	×	WFC 18 Nov 2016 $44.00 P	$    170.00	( $        -8.40 )		$ 3,228.77	➤ $ 3,228.77
#019	2016-10-07	:	2	×	NKE 16 Dec 2016 $50.00 P	$    218.00	( $        -8.40 )		$ 3,067.17	➤ $ 3,067.17
#018	2016-09-26	:	1	×	KO 16 Dec 2016 $42.00 C	$    115.00	( $        -7.70 )		$ 2,857.57	➤ $ 2,857.57
#017	2016-09-26	:	6	×	F 20 Jan 2017 $11.00 P	$    198.00	( $      -11.21 )		$ 2,750.27	➤ $ 2,750.27
#016	2016-09-26	:	1	×	GILD 17 Feb 2017 $95.00 C	$    112.00	( $    -241.79 )	→ #046	$ 2,563.48	➤ $ 2,563.48
#015	2016-09-26	:	1	×	PFE 17 Mar 2017 $35.00 C	$      82.00	( $      -18.69 )		$ 2,693.27	➤ $ 2,693.27
#014	2016-09-26	:	1	×	UNP 16 Dec 2016 $97.50 C	$    218.00	( $      -24.92 )		$ 2,629.96	➤ $ 2,629.96
#013	2016-09-26	:	2	×	PFE 28 Oct 2016 $34.00 P	$    128.00	( $      -25.40 )		$ 2,436.88	➤ $ 2,436.88
#012	2016-09-08	:	1	×	JNJ 18 Nov 2016 $115.00 P	$    143.00	( $        -7.70 )		$ 2,334.28	➤ $ 2,334.28
#011	2016-09-07	:	1	×	RAI 17 Feb 2017 $52.50 C	$    132.00	( $        -7.70 )		$ 2,198.98	➤ $ 2,198.98
#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 

For a complete listing of all options transactions, please visit my Options History page.

Goals Progress

My goal is to earn $8,400 in options income in 2017. 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, only open options have potential obligations.

	Total Options Income		Secured Options Income
This Month:	$ 10,651		$  4,083
Last Month:	$   8,679		$  2,690
Difference:	$   1,972		$  1,393

Year to date I've earned $1,571 in options income or 18.7% of my options income goal for 2017.

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!