Options Update: August 2017

My goal with DivGro is to generate a reliable and growing dividend income stream. I invest mainly in quality dividend growth stocks with a track record of paying and regularly increasing dividends.

In June 2016, I started trading options to boost my income from dividends. I sell covered calls and secured puts on dividend stocks I own or would like to own. The options income I collect flows back into DivGro, just like dividends. It provides extra cash to buy more dividend growth stocks.

Through July 2017, I've collected options income totaling about $16,400. Of that total, about $8,800 is secured, meaning I no longer have any obligations to fulfill. My monthly options update serves as a status report on the open options and the obligations I have. I also report on new trades and I provide a running tally of DivGro's options income to date.

In 2017, I'm aiming to earn at least $8,400 in options income. This month I didn't gain much, as most of my trades were focused on rolling forward options—in some cases at a net loss. Sometimes it is necessary to give up some secured options income in order to improve your options positions, and that's exactly what I did in August.

So I added only $32 in secured options income in August, increasing $2017's total to $6,305. (Last month I secured $1,376 in options income, so this month's small gain is not a train smash...)

On the other hand, I've added $2,087 in options income to my account in August!

This month, four options expired and I closed one option early. Additionally, I rolled forward six options and I sold two covered calls and one secured put. Finally, one put option was assigned in August, allowing me to buy CSCO shares at a small discount.

Assigned Options

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

In August, one option contract I'd sold got assigned.

#068 :   2

x

CSCO 18 Aug 2017 31.00 P

::

$ 146.00

($ -0.99)

On option expiration day, Cisco Systems (CSCO) closed at $30.37 and so the puts got assigned. I was obliged to buy 200 shares of CSCO at $31 per share. However, since I received about 73¢ per share in options premium, effectively I paid $30.27 per share.

I now own 500 CSCO shares at an average cost basis of $31.10 per share and an average yield on cost of 3.73%. The buy boosts DivGro's projected annual dividend income by $232.

Expired Options

In July, three short options expired, all three of them puts:

#087 :   5	x	BAC 18 Aug 2017 22.00 P	::	$ 190.00	($ -6.48)
#082 :   1	x	CVS 18 Aug 2017 75.00 P	::	$ 222.00	($ -0.80)
#080 :   1	x	OC 18 Aug 2017 60.00 P	::	$ 210.00	($ -1.95)
#096 :   2	x	WBA 25 Aug 2017 75.00 P	::	$ 130.00	($ -0.99)

On options expiration day, Bank of America (BAC) closed at $23.50, CVS Health (CVS) closed at $77.66, and Owens Corning (OC) closed at $67.10 and so these short put options all expired. Also, Walgreens Boots Alliance (WBA) closed at $81.13, so my short puts on WBA also expired.

Closed Options

When an out of the money option goes further out of the money, you can close the option early and secure most of the options income.

In August, I closed one option early:

#066 :   1

x

CSCO 20 Oct 2017 33.00 C

::

$ 189.00

($ -19.68)

→ secured 90% of available income

The cost of buying back the put options is shown in parentheses.

Rolled Options

Rolling forward options means buying back an option and selling another option with a later expiration date. You can do this to avoid options assignment for in the money options.

In August, I rolled forward several options.

The first is is on AbbVie (ABBV), which popped about 8% in the last two weeks. With the stock now trading above $75 per share, even the new strike price is in the money. Also, I had to go all the way to June 2018 to make the roll reasonable:

#077 :   2	x	ABBV 15 Sep 2017 67.50 C	::	$    408.00	($ -1,295.88)	→ #103
#103 :   2	x	ABBV 15 Jun 2018 70.00 C	::	$ 1,373.00	($        -1.32)

The average cost basis of my 200 shares is $61.65, so the $70 strike price represents an upside of 13.5%. My last buy was on 5 December 2016, so if the call options are not exercised before 6 December, the capital gains would be long-term gains.

Ford Motor (F) is one of the stocks that has "given" me more than $1,000 in options premium income. While the stock price remains under pressure, I can continue to sell covered calls and "make up" for unrealized losses:

#088 : 20	x	F 15 Sep 2017 12.00 C	::	$ 220.00	($ -62.44)	→ #105
#105 : 20	x	F 16 Mar 2018 12.00 C	::	$ 480.00	($ -25.68)

F is trading above $11 again on a good truck sales report, so my roll forward was well-timed. I decided to go for the March 2018 expiration, as Ford sometimes pays a special dividend in January in addition to its regular 15¢ per share dividend.

Gilead Sciences (GILD) is another Health Care sector stock that popped recently. The stock traded at a new 52-week high of $84.10 this week, well above my average cost basis of $80.23 per share. To protect my shares (somewhat), I rolled forward the $75 options to $80 strike options expiring in February 2018.

#074 :   2	x	GILD 15 Sep 2017 75.00 C	::	$ 210.00	($ -949.47)	→ #106
#106 :   2	x	GILD 15 Feb 2018 80.00 C	::	$ 923.00	($     -1.91)

If GILD still trades well above $80 in the new year, I'll probably roll forward these options again!

Target (TGT) recovered nicely from its 52-week low of $48.56. The stock now trades at about $56, so I decided to roll forward my puts and to increase the strike price to $50:

#084 :   2	x	TGT 20 Oct 2017 45.00 P	::	$ 248.00	($ -22.58)	→ #108
#108 :   2	x	TGT 19 Jan 2018 50.00 P	::	$ 336.00	($   -1.59)

Wells Fargo (WFC) is going in the opposite direction as the company's account scandal broadened. With the external review now over, hopefully, WFC can start rebuilding customer's trust.

#097 :   3	x	WFC 15 Sep 2017 52.50 P	::	$ 222.00	($ -245.86)	→ #109
#109 :   3	x	WFC 19 Jan 2018 50.00 P	::	$ 364.00	($     -1.30)

I decided to roll forward the WFC put options to January 2018 and also to drop the strike price to $50. Let's see if WFC can turn things around!

Finally, with Wal-Mart (WMT) trading above $78 per share, I decided to roll forward and increase the strike price of my WMT puts:

#086 :   2	x	WMT 15 Sep 2017 70.00 P	::	$ 246.00	($ -9.16)	→ #110
#110 :   2	x	WMT 15 Dec 2017 75.00 P	::	$ 314.00	($ -2.57)

With several of these trades, I collected extra premium income by rolling forward the options. The exception is that rolling forward my GILD covered calls cost me about $27.

New Covered Calls

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

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#104 : 2017-08-30: Sold to Open 3 Contracts of Option CSCO Feb 16 2018 34.00 C

I own 300 shares of Cisco Systems (CSCO) at a cost basis of $31.10 per share. I'm willing to sell these shares for $34.00 on or before 16 February:

Open Date :  2017-08-30 Expiration Date :  2018-02-16     Number of Days in Trade :  170 Cost Basis :  $31.10 per share Gain at Strike Price :  9.32% Strike Price :  $34.00 per share Number of Contracts : 3 Number of Shares : 300 Call Premium :  $0.61 per share Options Income :  $182.00 Commission :  $2.38 Net Premium :  $0.599 per share Net Options Income :  $179.62 Options Yield :  1.93% Annualized Options Yield :  4.14% ----------------------------   --------------------- -------------------------------   ----------- Commission if Exercised :  $0.00 Cost Basis if Exercised :  $30.50 Gain if Exercised :  11.47%

This covered call yields 1.93%, or 4.14% on an annualized basis. The yield on cost of my CSCO position is 3.73%, so I'm boosting dividend income by a factor of 1.11. If the options are exercised, I'll sell 300 shares of CSCO at a reduced cost basis of $30.50 per share, for capital gains of 11.47%.

---

#107 : 2017-08-30: Sold to Open 4 Contracts of Option QCOM Apr 20 2018 60.00 C

I own 400 shares of Qualcomm (QCOM) at a cost basis of $60.49 per share. I'm willing to sell these shares for $60.00 on or before 20 April:

Open Date :  2017-08-30 Expiration Date :  2018-04-20     Number of Days in Trade :  233 Cost Basis :  $60.49 per share Gain at Strike Price :  -0.81% Strike Price :  $60.00 per share Number of Contracts : 4 Number of Shares : 400 Call Premium :  $1.31 per share Options Income :  $524.00 Commission :  $1.99 Net Premium :  $1.305 per share Net Options Income :  $522.01 Options Yield :  2.16% Annualized Options Yield :  3.38% ----------------------------   --------------------- -------------------------------   ----------- Commission if Exercised :  $0.00 Cost Basis if Exercised :  $59.18 Gain if Exercised :  1.38%

This covered call yields 2.16%, or 3.38% on an annualized basis. The yield on cost of my QCOM position is 3.77%, so I'm boosting dividend income by a factor of 0.90. If the options are exercised, I'll sell 400 shares of QCOM at a reduced cost basis of $59.18 per share, for capital gains of 1.38%.

---

For covered calls, I think an achievable goal is to earn double the dividend income. Both these covered calls fail to accomplish that goal.

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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#102 : 2017-08-18: Sold to Open 2 Contracts of Option HRL Dec 15 2017 32.50 P

I'm willing to buy 200 shares of Hormel Foods (HRL) for $32.50 per share on or before 15 December. HRL closed at $34.09 per share on the date of my trade:

Open Date :  2017-08-18 Expiration Date :  2017-12-15     Number of Days in Trade :  119 Price at Close :  $34.09 per share Discount at Strike Price :  4.66% Strike Price :  $32.50 per share Number of Contracts : 2 Number of Shares : 200 Put Premium :  $1.00 per share Options Income :  $200.00 Commission :  -$0.11 Net Premium :  $1.001 per share Net Options Income :  $200.11 Options Yield :  2.94% Annualized Options Yield :  9.01% ----------------------------   --------------------- -------------------------------   ----------- Commission if Exercised :  $0.00 Cost Basis if Exercised :  $31.50 Discount if Exercised :  7.60%

This put option trade yields 2.94%, or 9.01% on an annualized basis. At $34.09 per share, HRL yields 1.99%, so I'm boosting dividend income by a factor of 4.52. If the options are exercised, I'll buy 200 shares at a cost basis of $31.50 per share, a discount of 7.60%.

---

For selling puts 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 factor of 4.52, my put trade on HRL is close enough to the 5.00 target.

Options Expiring Next Month

The following option expires in September, so I'll be monitoring it closely:

#067 :  1

x

HRL 15 Sep 2017 37.50 C

::

Closed at $30.74 on 31 Aug (22% safety margin)

HRL is trading well below the $37.50 strike price, so I'll just wait for the call to expire.

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
#110	2017-08-30	:	2	×	WMT 15 Dec 2017 $75.00 P	$    314.00	( $        -2.57 )		$ 18,492.98	➤ $ 8,816.98
#109	2017-08-30	:	2	×	WFC 19 Jan 2018 $50.00 P	$    364.00	( $        -1.30 )		$ 18,181.55	➤ $ 8,819.55
#108	2017-08-30	:	2	×	TGT 19 Jan 2018 $50.00 P	$    336.00	( $        -1.59 )		$ 17,818.85	➤ $ 8,820.85
#107	2017-08-30	:	4	×	QCOM 20 Apr 2018 $60.00 C	$    524.00	( $        -1.99 )		$ 17,484.44	➤ $ 8,822.44
#106	2017-08-30	:	2	×	GILD 15 Feb 2018 $80.00 C	$    923.00	( $        -1.91 )		$ 16,962.43	➤ $ 8,824.43
#105	2017-08-30	:	20	×	F 16 Mar 2018 $12.00 C	$    480.00	( $      -25.68 )		$ 16,041.34	➤ $ 8,826.34
#104	2017-08-30	:	3	×	CSCO 16 Feb 2018 $34.00 C	$    182.00	( $        -2.38 )		$ 15,587.02	➤ $ 8,852.02
#103	2017-08-30	:	2	×	ABBV 15 Jun 2018 $70.00 C	$ 1,373.00	( $        -1.32 )		$ 15,407.40	➤ $ 8,854.40
#102	2017-08-18	:	2	×	HRL 15 Dec 2017 $32.50 P	$    200.00	( $        -0.11 )		$ 14,035.72	➤ $ 8,855.72
#101	2017-07-18	:	3	×	PFE 15 Dec 2017 $34.00 C	$    210.00	( $        -2.39 )		$ 13,835.83	➤ $ 8,855.83
#100	2017-07-18	:	2	×	LOW 19 Jan 2018 $75.00 P	$    830.00	( $        -2.59 )		$ 13,628.22	➤ $ 8,858.22
#099	2017-07-18	:	3	×	GE 18 Jun 2018 $30.00 C	$    153.00	( $        -2.09 )		$ 12,800.81	➤ $ 8,860.81
#098	2017-07-18	:	3	×	NKE 19 Jan 2018 $50.00 P	$    301.00	( $        -3.85 )		$ 12,649.90	➤ $ 8,862.90
#097	2017-07-18	:	3	×	WFC 15 Sep 2017 $52.50 P	$    222.00	( $    -245.86 )	→ #109	$ 12,352.75	➤ $ 8,866.75
#096	2017-07-18	:	2	×	WBA 25 Aug 2017 $75.00 P	$    130.00	( $        -0.99 )		$ 12,376.61	➤ $ 8,890.61
#095	2017-07-18	:	1	×	TXN 20 Oct 2017 $75.00 P	$    134.00	( $        -0.80 )		$ 12,247.60	➤ $ 8,761.60
#094	2017-07-18	:	2	×	SBUX 19 Jan 2018 $52.50 P	$    246.00	( $        -1.00 )		$ 12,114.40	➤ $ 8,762.40
#093	2017-07-18	:	1	×	DIS 20 Oct 2017 $97.50 P	$    105.00	( $        -0.80 )		$ 11,869.40	➤ $ 8,763.40
#092	2017-07-18	:	1	×	AAPL 20 Oct 2018 $130.00 P	$    114.00	( $        -1.00 )		$ 11,765.20	➤ $ 8,764.20
#091	2017-07-01	:	3	×	GE 15 Sep 2017 $33.00 C	$      98.50	( $        -4.97 )	→ #099	$ 11,652.20	➤ $ 8,765.20
#090	2017-06-21	:	2	×	TGT 19 Jan 2018 $65.00 C	$      76.00	( $        -1.97 )		$ 11,558.67	➤ $ 8,671.67
#089	2017-06-21	:	2	×	INTC 20 Oct 2017 $36.00 C	$    152.00	( $        -0.99 )		$ 11,484.64	➤ $ 8,673.64
#088	2017-06-21	:	20	×	F 15 Sep 2017 $12.00 C	$    220.00	( $      -62.44 )	→ #105	$ 11,333.63	➤ $ 8,674.63
#087	2017-06-21	:	5	×	BAC 18 Aug 2017 $22.00 P	$    190.00	( $        -6.48 )		$ 11,176.07	➤ $ 8,517.07
#086	2017-06-16	:	2	×	WMT 15 Sep 2017 $70.00 P	$    246.00	( $        -9.16 )	→ #110	$ 10,992.55	➤ $ 8,333.55
#085	2017-06-16	:	1	×	VLO 15 Dec 2017 $70.00 C	$    230.00	( $        -0.80 )		$ 10,755.71	➤ $ 8,096.71
#084	2017-06-16	:	2	×	TGT 20 Oct 2017 $45.00 P	$    248.00	( $      -22.58 )	→ #108	$ 10,526.51	➤ $ 8,097.51
#083	2017-06-16	:	3	×	PPL 20 Oct 2017 $37.00 P	$    147.00	( $        -0.11 )		$ 10,301.09	➤ $ 7,872.09
#082	2017-06-16	:	1	×	CVS 18 Aug 2017 $75.00 P	$    222.00	( $        -0.80 )		$ 10,154.20	➤ $ 7,872.20
#081	2017-06-16	:	2	×	AXP 21 Jul 2017 $80.00 P	$    266.00	( $        -1.00 )		$ 9,933.00	➤ $ 7,651.00
#080	2017-05-12	:	1	×	OC 18 Aug 2017 $60.00 P	$    210.00	( $        -1.95 )		$ 9,668.00	➤ $ 7,386.00
#079	2017-05-12	:	2	×	KO 19 Jan 2018 $45.00 C	$    200.00	( $        -3.13 )		$ 9,459.95	➤ $ 7,177.95
#078	2017-05-12	:	2	×	DIS 15 Dec 2017 $110.00 C	$ 1,090.00	( $        -1.01 )		$ 9,263.08	➤ $ 7,181.08
#077	2017-05-12	:	2	×	ABBV 15 Sep 2017 $67.50 C	$    408.00	( $ -1,295.88 )	→ #103	$ 8,174.09	➤ $ 7,182.09
#076	2017-04-21	:	2	×	LOW 21 Jul 2017 $80.00 P	$    408.00	( $    -743.57 )	→ #100	$ 9,061.97	➤ $ 8,069.97
#075	2017-04-21	:	3	×	INTC 16 Jun 2017 $35.00 P	$    189.00	( $        -3.86 )		$ 9,397.54	➤ $ 8,405.54
#074	2017-04-21	:	2	×	GILD 15 Sep 2017 $75.00 C	$    210.00	( $    -949.47 )	→ #106	$ 9,212.40	➤ $ 8,220.40
#073	2017-04-21	:	20	×	F 16 Jun 2017 $12.00 C	$    320.00	( $        -9.11 )		$ 9,951.87	➤ $ 8,959.87
#072	2017-04-21	:	1	×	D 20 Oct 2017 $77.50 C	$    323.00	( $        -0.35 )		$ 9,640.98	➤ $ 8,648.98
#071	2017-04-21	:	5	×	BAC 21 Jul 2017 $20.00 P	$    160.00	( $        -2.28 )		$ 9,318.33	➤ $ 8,649.33
#070	2017-04-04	:	1	×	XOM 19 May 2017 $80.00 P	$    116.00	( $        -1.00 )		$ 9,160.61	➤ $ 8,491.61
#069	2017-04-04	:	2	×	INTC 19 May 2017 $36.00 P	$    192.00	( $        -0.99 )		$ 9,045.61	➤ $ 8,376.61
#068	2017-04-04	:	2	×	CSCO 18 Aug 2017 $31.00 P	$    146.00	( $        -0.99 )		$ 8,854.60	➤ $ 8,185.60
#067	2017-04-03	:	1	×	HRL 15 Sep 2017 $37.50 C	$      84.00	( $        -1.10 )		$ 8,709.59	➤ $ 8,040.59
#066	2017-04-03	:	1	×	CSCO 20 Oct 2017 $33.00 C	$    189.00	( $      -19.68 )		$ 8,626.69	➤ $ 8,041.69
#065	2017-03-20	:	1	×	WBA 21 Apr 2017 $84.00 P	$    184.00	( $        -1.10 )		$ 8,457.37	➤ $ 7,872.37
#064	2017-03-17	:	1	×	TGT 19 Jan 2018 $65.00 C	$      93.00	( $        -1.10 )		$ 8,274.47	➤ $ 7,689.47
#063	2017-03-17	:	1	×	PG 15 Dec 2017 $90.00 C	$    492.00	( $        -1.11 )		$ 8,182.57	➤ $ 7,690.57
#062	2017-03-17	:	2	×	PFE 15 Sep 2017 $35.00 C	$    220.00	( $      -22.57 )	→ #101	$ 7,691.68	➤ $ 7,691.68
#061	2017-02-24	:	1	×	TGT 20 Oct 2017 $75.00 C	$    157.00	( $        -5.68 )	→ #064	$ 7,494.25	➤ $ 7,494.25
#060	2017-02-24	:	2	×	QCOM 21 Jul 2017 $57.50 C	$    580.00	( $    -123.57 )		$ 7,342.93	➤ $ 7,342.93
#059	2017-02-24	:	2	×	QCOM 21 Jul 2017 $57.50 C	$    573.00	( $    -123.07 )		$ 6,886.50	➤ $ 6,886.50
#058	2017-02-24	:	1	×	PFE 15 Sep 2017 $35.00 C	$    113.00	( $      -12.09 )	→ #101	$ 6,436.57	➤ $ 6,436.57
#057	2017-02-24	:	3	×	INTC 19 May 2017 $35.00 P	$    270.00	( $      -42.70 )		$ 6,335.66	➤ $ 6,335.66
#056	2017-02-24	:	10	×	F 16 Jun 2017 $13.00 C	$    350.00	( $      -47.99 )		$ 6,108.36	➤ $ 6,108.36
#055	2017-02-24	:	2	×	CVS 19 May 2017 $75.00 P	$    184.00	( $        -0.99 )		$ 5,806.35	➤ $ 5,806.35
#054	2017-02-24	:	2	×	ABBV 19 May 2017 $65.00 C	$    194.00	( $    -366.58 )	→ #077	$ 5,623.34	➤ $ 5,623.34
#053	2017-02-10	:	2	×	QCOM 17 Mar 2017 $55.00 C	$    177.00	( $    -374.58 )	→ #059	$ 5,795.92	➤ $ 5,795.92
#052	2017-02-07	:	2	×	QCOM 10 Feb 2017 $53.50 C	$      42.00	( $    -108.37 )	→ #053	$ 5,993.50	➤ $ 5,993.50
#051	2017-01-26	:	2	×	QCOM 17 Mar 2017 $52.50 P	$    336.00	( $      -42.58 )		$ 6,059.87	➤ $ 6,059.87

key:  expired  •  closed  •  rolled  •  assigned  •  open 

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

Goals Progress

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

	Total Options Income		Secured Options Income
This Month:	$ 18,493		$   8,817
Last Month:	$ 16,406		$   8,785
Difference:	$   2,087		$        32

I started 2017 with $2,512 in secured options income, so with $8,817 secured through August 2017, I've earned $6,305 in options income. This is 75.1% of my options income goal of $8,400 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!