Friday, June 2, 2017

Options Update: May 2017

I report my options trading activity monthly, usually shortly 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.

In last month's option update I added $918 to my tally of secured options income. This month I'm adding $1,635 more. I'm getting close to achieving my goal of earning $8,400 in options income in 2017. At this pace, I'll have to revise my goal upwards! Is it realistic to go for $12,000 instead? I wonder.

In May, two options got assigned, two expired, and I closed one option early. Also, I rolled forward three trades and sold one put. Following are details of all my options trades.

Assigned Options


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

In April, two options contracts I sold got assigned.

The first is two put contracts on Target Corporation (TGT). In January I rolled forward two $72.50 puts on TGT when they quickly moved into the money. In doing so, I reduced my obligation by selling two July $70 puts:

#043 :   2xTGT Jan 20 2017 72.50 P :: $    237.60 ($ -1,552.56)→ #050
#050 :   2xTGT Jul 21 2017 70.00 P :: $ 1,537.40 


Unfortunately, the options got assigned more than a month early, which is one of the risks you have to accept with American-style options. As a consequence, I bought 200 shares of TGT for $70 per share. With TGT trading at $55.35, the assignment handed me an immediate (unrealized) loss of $2,930. However, in return, I received $1,537 in secured options income.

I now own 340 shares of TGT at an average cost basis of $70.32 and an initial yield on cost (YoC) of 3.41%. The buy boosts DivGro's projected annual dividend income (PADI) by $480.

The second assignment is two $36 put contracts on Intel Corporation (INTC):

#069 :   2xINTC 19 May 2017 36.00 P :: $    192.00 ($        -0.99)

With INTC trading at $35.40 on expiration day, the puts expired in the money, and so I bought 200 shares of INTC for $36 per share. Notice though, that I received $0.95 per share in options income. So, effectively, I bought shares for $35.05 per share.

I now own 540 shares of INTC at an average cost basis of $27.50 and an initial YoC of 3.96%. The buy boosts DivGro's PADI by $218.

Expired Options


In May, two of my short options expired:

#055 :   2xCVS 19 May 2017 75.00 P :: $    184.00 
#070 :   1xXOM 19 May 2017 80.00 P :: $    116.00 

On options expiration day, CVS Health Corporation (CVS) closed at $76.32, and Exxon Mobil Corporation (XOM) closed at $81.93, respectively, so both short put options expired.

Closed Options


Sometimes it is possible to close options 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 May, I closed one put option early:

#057 :     3xINTC 19 May 2017 35.00 P :: $    270.00 ($ -42.70)→ secured 84% of available income 

The cost of buying back the put option is shown in parentheses. Having secured 84% of available income, I decided to close these options early and to add a total of $227.30 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 May, I rolled forward the following options:

#028 :   1xDIS 16 Jun 2017 105.00 C :: $    262.30 ($  -530.50)→ #078
#035 :   1xDIS 16 Jun 2017 105.00 C :: $    307.30 ($  -530.50)→ #078
#078 :   2xDIS 15 Dec 2017 110.00 C :: $ 1,090.60 ($      -1.01)


By going to the December expiration for the covered call options on my shares of The Walt Disney Company (DIS), I managed to earn a little extra premium income and simultaneously increased the strike price to $110.

#037 :   1xKO 19 May 2017 43.00 C :: $    112.30 ($    -66.56)→ #079
#041 :   1xKO 19 May 2017 42.00 C :: $    128.30 ($  -161.56)→ #079
#079 :   2xKO 19 Jan 2018 45.00 C :: $    300.00 ($      -3.13)


For my covered calls on my shares of The Coca-Cola Company (KO), I also earned extra premium income and increased the strike price to $45, but I had roll-forward all the way to January 2018.

Finally, I rolled forward two covered calls on my shares of AbbVie Inc (ABBV):

#054 :   2xABBV 19 May 2017 65.00 C :: $    194.00 ($  -366.58)→ #077
#077 :   2xABBV 15 Sep 2017 67.50 C :: $    408.00 ($      -1.60)


As before, I collected extra premium income and increased the strike price to $67.50 for a little breathing room.

New Covered Calls


Selling covered calls is a way to collect extra income on stocks you already own. I did not execute any covered call trades in May.

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:

#080 : 2017-05-12: Sold to Open 1 Contract of Option OC Aug 18 2017 60.00 P

I'm willing to buy 100 shares of Owens Corning (OC) for $60.00 per share on or before 18 August. OC closed at $60.87 per share on the date of my trade:

Open Date :  2017-05-12
Expiration Date :  2017-08-18    Number of Days in Trade : 98
Price at Close :  $60.87 per shareDiscount at Strike Price : 1.43%
Strike Price :  $60.00 per share
Number of Contracts : 1Number of Shares :100
Put Premium :  $2.10 per shareOptions Income : $210.00
Commission : -$1.95
Net Premium :  $2.120 per shareNet Options Income : $211.95
Options Yield :  3.48%Annualized Options Yield : 12.98%
----------------------------  ----------------------------------------------------  -----------
Commission if Exercised : $0.00
Cost Basis if Exercised : $57.88Discount if Exercised : 4.91%

This put option trade yields 3.48%, or 12.98% on an annualized basis. At $60.87 per share, OC yields 1.31%, so I'm boosting dividend income by a factor of 9.87. If the option is exercised, I'll buy 100 shares at a cost basis of $57.88 per share, a discount of 4.91%.



Selling puts is riskier than selling covered calls. Generally, I like to see a dividend boost factor of 5.00 or more, unless I can buy shares at a discount of at least 10%. With a dividend boost factor of 9.87, the short put trade on OC provides good compensation for the risk I'm taking on.

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 

IDDATE:NO×TICKER OPTIONINCOME( EXPENSES )ROLLEDTOTAL➤ SECURED
#0802017-05-12:  1×OC 18 Aug 2017 $60.00 P $    210.00 ( $        -1.95 )$ 12,947.53 ➤ $ 6,939.53 
#0792017-05-12:  2×KO 19 Jan 2018 $45.00 C $    200.00 ( $        -3.13 )$ 12,739.48 ➤ $ 6,941.48 
#0782017-05-12:  2×DIS 15 Dec 2017 $110.00 C $ 1,090.00 ( $        -1.01 )$ 12,542.61 ➤ $ 6,944.61 
#0772017-05-12:  2×ABBV 15 Sep 2017 $67.50 C $    408.00 ( $        -1.60 )$ 11,453.62 ➤ $ 6,945.62 
#0762017-04-21:  2×LOW 21 Jul 2017 $80.00 P $    408.00 ( $        -1.00 )$ 11,047.22 ➤ $ 6,947.22 
#0752017-04-21:  3×INTC 16 Jun 2017 $35.00 P $    189.00 ( $        -3.86 )$ 10,640.22 ➤ $ 6,948.22 
#0742017-04-21:  2×GILD 15 Sep 2017 $75.00 C $    210.00 ( $        -1.59 )$ 10,455.08 ➤ $ 6,952.08 
#0732017-04-21:20×F 16 Jun 2017 $12.00 C $    320.00 ( $        -9.11 )$ 10,246.67 ➤ $ 6,953.67 
#0722017-04-21:  1×D 20 Oct 2017 $77.50 C $    323.00 ( $        -0.35 )$ 9,935.78 ➤ $ 6,962.78 
#0712017-04-21:  5×BAC 21 Jul 2017 $20.00 P $    160.00 ( $        -2.28 )$ 9,613.13 ➤ $ 6,963.13 
#0702017-04-04:  1×XOM 19 May 2017 $80.00 P $    116.00 ( $        -1.00 )$ 9,455.41 ➤ $ 6,965.41 
#0692017-04-04:  2×INTC 19 May 2017 $36.00 P $    192.00 ( $        -0.99 )$ 9,340.41 ➤ $ 6,850.41 
#0682017-04-04:  2×CSCO 18 Aug 2017 $31.00 P $    146.00 ( $        -0.99 )$ 9,149.40 ➤ $ 6,659.40 
#0672017-04-03:  1×HRL 15 Sep 2017 $37.50 C $      84.00 ( $        -1.10 )$ 9,004.39 ➤ $ 6,660.39 
#0662017-04-03:  1×CSCO 20 Oct 2017 $33.00 C $    189.00 ( $        -1.59 )$ 8,921.49 ➤ $ 6,661.49 
#0652017-03-20:  1×WBA 21 Apr 2017 $84.00 P $    184.00 ( $        -1.10 )$ 8,734.08 ➤ $ 6,663.08 
#0642017-03-17:  1×TGT 19 Jan 2018 $65.00 C $      93.00 ( $        -1.10 )$ 8,551.18 ➤ $ 6,480.18 
#0632017-03-17:  1×PG 15 Dec 2017 $90.00 C $    492.00 ( $        -1.11 )$ 8,459.28 ➤ $ 6,481.28 
#0622017-03-17:  2×PFE 15 Sep 2017 $35.00 C $    220.00 ( $        -1.29 )$ 7,968.39 ➤ $ 6,482.39 
#0612017-02-24:  1×TGT 20 Oct 2017 $75.00 C $    157.00 ( $        -5.68 )→ #064$ 7,749.68 ➤ $ 6,483.68 
#0602017-02-24:  2×QCOM 21 Jul 2017 $57.50 C $    580.00 ( $        -1.00 )$ 7,598.36 ➤ $ 6,332.36 
#0592017-02-24:  2×QCOM 21 Jul 2017 $57.50 C $    573.00 ( $        -1.30 )$ 7,019.36 ➤ $ 6,333.36 
#0582017-02-24:  1×PFE 15 Sep 2017 $35.00 C $    113.00 ( $        -1.00 )$ 6,447.66 ➤ $ 6,334.66 
#0572017-02-24:  3×INTC 19 May 2017 $35.00 P $    270.00 ( $      -42.70 )$ 6,335.66 ➤ $ 6,335.66 
#0562017-02-24:10×F 16 Jun 2017 $13.00 C $    350.00 ( $      -47.99 )$ 6,108.36 ➤ $ 6,108.36 
#0552017-02-24:  2×CVS 19 May 2017 $75.00 P $    184.00 ( $        -0.99 )$ 5,806.35 ➤ $ 5,806.35 
#0542017-02-24:  2×ABBV 19 May 2017 $65.00 C $    194.00 ( $    -366.58 )→ #077$ 5,623.34 ➤ $ 5,623.34 
#0532017-02-10:  2×QCOM 17 Mar 2017 $55.00 C $    177.00 ( $    -374.58 )→ #059$ 5,795.92 ➤ $ 5,795.92 
#0522017-02-07:  2×QCOM 10 Feb 2017 $53.50 C $      42.00 ( $    -108.37 )→ #053$ 5,993.50 ➤ $ 5,993.50 
#0512017-01-26:  2×QCOM 17 Mar 2017 $52.50 P $    336.00 ( $      -42.58 )$ 6,059.87 ➤ $ 6,059.87 
#0502017-01-20:  2×TGT 21 Jul 2017 $70.00 P $ 1,540.00 ( $        -2.60 )$ 5,766.45 ➤ $ 5,766.45 
#0492017-01-20:  1×D 21 Apr 2017 $75.00 C $    248.00 ( $    -301.74 )→ #072$ 4,229.05 ➤ $ 4,229.05 
#0482017-01-17:  3×GE 03 Mar 2017 $31.00 P $    180.00 ( $        -1.48 )$ 4,282.79 ➤ $ 4,282.79 
#0472017-01-17:  3×INTC 03 Mar 2017 $36.00 P $    243.00 ( $      -49.35 )→ #057$ 4,104.27 ➤ $ 4,104.27 
#0462017-01-20:  1×GILD 16 Jun 2017 $85.00 C $    298.00 ( $      -12.19 )$ 3,910.62 ➤ $ 3,910.62 
#0452016-12-27:  4×F 17 Mar 2017 $13.00 C $    120.00 ( $      -36.17 )→ #056$ 3,624.81 ➤ $ 3,624.81 
#0442016-12-27:  1×TGT 21 Apr 2017 $77.50 C $    200.00 ( $      -20.28 )→ #061$ 3,540.98 ➤ $ 3,540.98 
#0432016-12-23:  2×TGT 20 Jan 2017 $72.50 P $    246.00 ( $ -1,560.96 )→ #050$ 3,361.26 ➤ $ 3,361.26 
#0422016-12-23:  1×PG 17 Mar 2017 $87.50 C $    129.00 ( $    -389.79 )→ #063$ 4,676.22 ➤ $ 4,676.22 
#0412016-12-23:  1×KO 19 May 2017 $42.00 C $    136.00 ( $    -169.26 )→ #079$ 4,937.01 ➤ $ 4,937.01 
#0402016-12-23:  1×CSCO 21 Apr 2017 $32.00 C $      53.00 ( $    -180.28 )→ #066$ 4,970.27 ➤ $ 4,970.27 
#0392016-12-21:  3×INTC 17 Feb 2017 $35.00 P $    189.00 ( $        -9.10 )$ 5,097.55 ➤ $ 5,097.55 
#0382016-12-21:  3×T 17 Feb 2017 $40.00 P $    150.00 ( $        -9.10 )$ 4,917.65 ➤ $ 4,917.65 
#0372016-12-09:  1×KO 18 May 2017 $43.00 C $    120.00 ( $      -74.26 )→ #079$ 4,776.75 ➤ $ 4,776.75 
#0362016-12-05:  1×ABBV 17 Feb 2017 $62.50 C $    161.00 ( $        -7.70 )$ 4,731.01 ➤ $ 4,731.01 
#0352016-12-05:  1×DIS 16 Jun 2017 $105.00 C $    315.00 ( $    -538.20 )→ #078$ 4,577.71 ➤ $ 4,577.71 
#0342016-12-05:  1×VLO 17 Mar 2017 $70.00 C $    112.00 ( $        -7.70 )$ 4,800.91 ➤ $ 4,800.91 
#0332016-12-05:  2×TROW 21 Apr 2017 $65.00 P $    230.00 ( $        -8.40 )$ 4,696.61 ➤ $ 4,696.61 
#0322016-11-25:  1×KMB 21 Apr 2017 $120.00 C $    280.00 ( $        -7.70 )$ 4,475.01 ➤ $ 4,475.01 
#0312016-11-25:  2×PFE 17 Mar 2017 $33.00 C $    132.00 ( $    -303.69 )→ #062$ 4,202.71 ➤ $ 4,202.71 
#0302016-11-25:  1×ABBV 17 Feb 2017 $62.50 C $    161.00 ( $        -7.70 )$ 4,374.40 ➤ $ 4,374.40 
#0292016-11-25:  2×CSCO 21 Apr 2017 $32.00 C $    104.00 ( $        -8.40 )$ 4,221.10 ➤ $ 4,221.10 
#0282016-11-25:  1×DIS 16 Jun 2017 $105.00 C $    270.00 ( $    -538.20 )→ #078$ 4,125.50 ➤ $ 4,125.50 
#0272016-11-25:  1×QCOM 17 Feb 2017 $70.00 C $    202.00 ( $        -8.70 )$ 4,393.70 ➤ $ 4,393.70 
#0262016-11-25:  1×QCOM 17 Feb 2017 $70.00 C $    200.00 ( $        -8.70 )$ 4,200.40 ➤ $ 4,200.40 
#0252016-11-25:  3×CSCO 16 Dec 2016 $30.00 P $    120.00 ( $        -9.10 )$ 4,009.10 ➤ $ 4,009.10 
#0242016-11-25:  6×F 17 Mar 2017 $13.00 C $    150.00 ( $      -50.77 )→ #056$ 3,898.20 ➤ $ 3,898.20 
#0232016-10-14:  2×WMT 18 Nov 2016 $67.50 P $    256.00 ( $        -8.40 )$ 3,798.97 ➤ $ 3,798.97 
#0222016-10-14:  1×HSY 20 Jan 2017 $90.00 P $    203.00 ( $        -7.70 )$ 3,551.37 ➤ $ 3,551.37 
#0212016-10-14:  1×GD 20 Jan 2017 $130.00 P $    135.00 ( $        -7.70 )$ 3,356.07 ➤ $ 3,356.07 
#0202016-10-11:  2×WFC 18 Nov 2016 $44.00 P $    170.00 ( $        -8.40 )$ 3,228.77 ➤ $ 3,228.77 
#0192016-10-07:  2×NKE 16 Dec 2016 $50.00 P $    218.00 ( $        -8.40 )$ 3,067.17 ➤ $ 3,067.17 
#0182016-09-26:  1×KO 16 Dec 2016 $42.00 C $    115.00 ( $        -7.70 )$ 2,857.57 ➤ $ 2,857.57 
#0172016-09-26:  6×F 20 Jan 2017 $11.00 P $    198.00 ( $      -11.21 )$ 2,750.27 ➤ $ 2,750.27 
#0162016-09-26:  1×GILD 17 Feb 2017 $95.00 C $    112.00 ( $    -241.79 )→ #046$ 2,563.48 ➤ $ 2,563.48 
#0152016-09-26:  1×PFE 17 Mar 2017 $35.00 C $      82.00 ( $      -18.69 )$ 2,693.27 ➤ $ 2,693.27 
#0142016-09-26:  1×UNP 16 Dec 2016 $97.50 C $    218.00 ( $      -24.92 )$ 2,629.96 ➤ $ 2,629.96 
#0132016-09-26:  2×PFE 28 Oct 2016 $34.00 P $    128.00 ( $      -25.40 )$ 2,436.88 ➤ $ 2,436.88 
#0122016-09-08:  1×JNJ 18 Nov 2016 $115.00 P $    143.00 ( $        -7.70 )$ 2,334.28 ➤ $ 2,334.28 
#0112016-09-07:  1×RAI 17 Feb 2017 $52.50 C $    132.00 ( $        -7.70 )$ 2,198.98 ➤ $ 2,198.98 
#0102016-09-07:  1×KMB 21 Oct 2016 $130.00 C $    120.00 ( $        -7.70 )$ 2,074.68 ➤ $ 2,074.68 
#0092016-09-07:  1×D 20 Jan 2017 $75.00 C $    307.00 ( $      -73.09 )$ 1,962.38 ➤ $ 1,962.38 
#0082016-08-30:  3×INTC 21 Oct 2016 $35.00 P $    258.00 ( $        -9.10 )$ 1,728.47 ➤ $ 1,728.47 
#0072016-08-30:  3×CSCO 21 Oct 2016 $31.00 C $    294.00 ( $      -26.17 )$ 1,479.57 ➤ $ 1,479.57 
#0062016-08-29:  6×F 18 Nov 2016 $13.00 C $    168.00 ( $      -11.21 )$ 1,211.74 ➤ $ 1,211.74 
#0052016-08-26:  1×DIS 18 Nov 2016 $100.00 C $    121.00 ( $        -7.70 )$ 1,054.95 ➤ $ 1,054.95 
#0042016-08-09:  3×CSCO 19 Aug 2016 $31.00 P $    207.00 ( $      -26.10 )$    941.65 ➤ $    941.65 
#0032016-08-09:  1×DIS 19 Aug 2016 $98.50 C $      95.00 ( $        -7.70 )$    760.75 ➤ $    760.75 
#0022016-06-16:  1×TGT 20 Jan 2017 $65.00 P $    370.00 ( $      -12.04 )$    673.45 ➤ $    673.45 
#0012016-06-01:  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


I'm count secured options income, which is income from options with no further obligations.


Total
Options Income
Secured
Options Income
This Month:
$ 12,948$   6,940
Last Month:
$ 12,742$   5,305
Difference:
$      306$   1,635

I started 2017 with $2,512 in secured options income, so with $6,940 secured through May 2017, I've earned $4,428 in options income. This is 52.7% of my options income goal for 2017.

Take care everybody and thanks for reading!

I'm still a learner options trader. If you see anything you disagree with or question, 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!

8 comments :

  1. I need to learn this. How did you learn how to do options?

    ReplyDelete
    Replies
    1. Hi, FiscalVoyage -- the way I learn is to do lots of reading. And I'm still doing so, because I consider myself a "learner options trader". I'm also subscribed to a few investment advisory services that cover options selling. I don't necessarily execute the suggested trades, but I follow along to learn why the trades are suggested. (My focus is dividend growth stocks, so I don't want to own non-dividend paying stocks and many of the suggested trades are option trades on non-dividend paying stocks). Hope that helps and all the best!

      Delete
  2. Fantastic results, I have also wanted to know how to trade options, sounds like there could be a few things I could learn from you. Thanks for sharing!

    ReplyDelete
    Replies
    1. Thanks, BHL -- I've learned a little about options trading and, for the time-being, I'm just applying what I've learned over and over again. There is so much about options trading that I still need to learn, but I'm just taking my time. I'm happy to share what I know, and I hope some readers with more options trading experience would give feedback and guidance along the way!

      Delete
  3. Hi FerdiS - Would you be willing to share links to the books, articles, etc. that you find useful? Also, what investment advisory services do you follow?

    Best

    Mack

    ReplyDelete
    Replies
    1. Hi Mack, I'll try to find some time to gather options trading learning material. As for the investment advisory services, I follow several, but here are a couple to look into:

      http://stansberryresearch.com/products/retirement-trader/
      http://stansberryresearch.com/products/dailywealth-trader/

      I'll share some additional ones I'm following later.

      Delete
    2. Hi FerdiS

      Thank you for these links.

      Best regards,

      Mack

      Delete
    3. You're welcome, Mack! Hope it helps!

      Delete

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