Saturday, May 5, 2018

Options Update: April 2018

DivGro's focus is dividend growth investing. Most articles I post here relate to the strategy of dividend growth investing and how I manage my portfolio.

In June 2016, I added options trading to leverage the equity in my portfolio and to generate more income. My monthly options update articles report on these trades and I keep track of the options income so generated.

Options trading gives my trader's mind something to work on. For the most part, I sell puts on stocks I would like to own and covered calls on stocks I already own. Sometimes, I execute more speculative options trades, too, such as bull put spreads and other combo trades.

Options trading generates extra income, which allows me to buy more dividend growth stocks than otherwise would have been possible.

Each update serves as a status report on the open options and obligations I have. I also report new trades and provide a running tally of DivGro's options income to date.

Recap


One of my goals in 2018 is to secure at least $12,000 in options income, a challenging goal which represents an increase of about 43% over the amount I secured in 2017. Recall that I consider options income secured if I no longer have any obligations to fulfill.

In January and February, I executed some defensive trades and a few bull put spreads that "cost" me some of my previously secured options income. In March, I made up some of the losses recorded in January and February, and I'm happy to say that April was another good month!

Nevertheless, I still have a long way to go to achieve my options goal for 2018.

The following snapshot shows the trades I executed in April. You can see all my options trades on a new options page that automatically updates whenever I enter new trades.


Assigned Options


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

In April, two options I sold got assigned.

#1542018-02-26:-1×LOW 20 Apr 2018 $92.50 P $ 196.00 ( $ -0.79 )
#149a2018-02-23:-1×MO 20 Apr 2018 $60.00 P $   72.00 ( $ -0.54 )

On options expiration day, the April $60 put contracts on Altria (MO) were in the money. I decided to roll forward one put options and have the other one be assigned. Having received $70 in options premium, the cost basis for buying 100 shares of MO is $60 − ($72 − $0.54) ÷ 100  = $59.29 per share. (MO traded between $56.57 and $57.82 on April 20).

Lowe's (LOW) share price tumbled after I sold the April $92.50 put contracts, so the puts also were in the money. However, in this case the option was assigned four days before expiration day. My cost basis for buying 100 shares of LOW is $92.50 − ($196 − $0.79)  ÷ 100 = $90.55.

These buys added $444 to DivGro's projected annual dividend income.

One of the risks of selling put options is that the share price could move below the strike price by the expiration date. When this happens, the option is in the money and will be assigned. That's why I only sell put options on stock I would like to own.

On the other hand, I suffered a rather big loss on the following bull put spread:

#1532018-02-26:  5×HD 20 Apr 2018 $185.00 P $        0.00 ( $ -4,827.70 )
#1522018-02-26:-5×HD 20 Apr 2018 $190.00 P $ 3,450.00 ( $        -2.79 )

The reason is Home Depot (HD) closed at $177.01 on options expiration day, well below my short and long HD puts. The five $190 puts got assigned and I had to buy 500 shares of HD at $190 per share. Fortunately, I didn't have to come up with $95,000 to buy those shares because I could cover the obligation with my $185 long puts.

However, in buying 500 shares at $190 per share and immediately selling those shares for $185 per share, I realized a $2,500 loss. Of course, the loss is offset in part by the net options premium I received. The net loss is $1,380.49.

Expired Options


In April, the following options expired:

#1652018-03-14:-1×RS 20 Apr 2018 $87.50 P $ 170.00 ( $ -0.34 )
#1462018-02-23:-2×DIS 06 Apr 2018 $112.00 C $ 142.00 ( $ -0.74 )
#1282018-01-10:-1×AXP 20 Apr 2018 $100.00 P $ 330.00 ( $ -0.80 )

I secured options income of $640.12 due to these expirations.

On 6 April, Disney (DIS) closed at $100.35 per share, well below the $112 strike price of my 6 April covered calls. The calls expired and I get to keep the options premium of $170, minus the 34¢ trade commission.

On 20 April, Reliance Steel & Aluminum (RS) closed at $89.66 per share, above the $87.50 put strike price. The put expired and I no longer have the obligation to buy 100 RS shares.

On 20 April, American Express (AXP) closed at $100.79 per share, above the $100 put strike price. The put expired and I no longer have the obligation to buy 100 AXP shares.

Additionally, the following bull put spreads expired:

#1632018-03-14:10×NEE 20 Apr 2018 $150.00 P $        0.00 ( $ -1,055.63 )
#1622018-03-14:-10×NEE 20 Apr 2018 $155.00 P $ 2,153.00 ( $        -5.70 )
#1392018-01-12:  6×RL 20 Apr 2018 $100.00 P $        0.00 ( $ -2,427.25 )
#1382018-01-12:-6×RL 20 Apr 2018 $105.00 P $ 3,566.00 ( $        -3.34 )

On options expiration day, NextEra Energy (NEE) closed at $160.79, well above my short and long NEE puts. This means I maximized my income on the bull put spread.

Similarly, Ralph Lauren (RL) closed at $106.27 on options expiration day, above my short and long RL puts. Again, I maximized my income on the bull put spread.

These bull spreads helped me to secure $2,227.08 in options income.

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.

I did not close any options early in April.

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.

Here are the options I rolled forward in April:

#1772018-04-20:-3×GLW 18 Jan 2019 $27.00 P $    618.00 ( $        -0.97 )
#1762018-04-20:-1×PG 18 Jan 2019 $77.50 P $    627.00 ( $        -0.63 )
#1752018-04-20:-1×MO 20 Jul 2018 $60.00 P $    438.00 ( $        -0.63 )
#1742018-04-20:-3×KBH 18 Jan 2019 $30.00 P $ 1,494.00 ( $        -1.46 )
#1732018-04-06:-1×WMT 18 May 2018 $87.50 P $    304.00 ( $        -0.63 )
#1582018-03-14:-3×GLW 20 Apr 2018 $29.00 P $    141.00 ( $    -465.32 )→ #177
#1552018-02-26:-1×WMT 06 Apr 2018 $90.00 P $    130.00 ( $    -221.61 )→ #173
#1502018-02-23:-1×PG 20 Apr 2018 $80.00 P $    171.00 ( $    -562.41 )→ #176
#149b2018-02-23:-1×MO 20 Apr 2018 $60.00 P $      72.00 ( $    -267.16 )→ #175
#1302018-01-10:-3×KBH 20 Apr 2018 $31.00 P $    306.00 ( $ -1,283.91 )→ #174

On 6 April, Walmart (WMT) closed at $86.86 per share, so my $90 put option was in the money. I decided to roll forward the option to May and simultaneously to lower the strike price to $87.50. In the process, I surrendered $91.61 in secured options income, but added $303.37 to my options income tally.

On options expiration date, Corning (GLW) closed at $27.55 per share, so my $29 put options were in the money. I decided to roll forward the options to January 2019 and simultaneously to decrease the strike price to $27. In the process, I surrendered $324.33 in options income, but added $676.87 to my options income tally.

Procter & Gamble (PG) traded deep in the money on April 20, closing at above $73.80 per share. I rolled forward my April $80 put option, again to January 2019. At the same time, I lowered the strike price to $77.50. The trade cost me $391.41 in secured options income, but I added $626.37 to my options income tally.

Earlier I mentioned rolling forward one of the MO $60 put options, as it was trading in the money on options expiration day. The trade cost me $195.16 in secured options income, but I added $437.37 to my options income tally by rolling forward to the July $60 put option.

Finally, KB Home (KBH) closed at $26.29 per share on options expiration date. This means that my $31 put options were in the money. Rather than buying KBH for $31 per share, I rolled forward to the $30 January 2019 puts. With this trade, I surrendered $977.91 in secured options income, but added $1,492.54 to my options income tally.

New Covered Calls


Selling covered calls is a way to collect extra income on stocks you already own.

I sold the following call contract in this period:

#1722018-04-06:-2×DIS 18 May 2018 $110.00 C $ 116.00 ( $ -1.38 )


#172 : 2018-04-06: Sold to Open 2 Contracts of Option DIS May 18 2018 110.00 C

I own 200 shares of Walt Disney (DIS) at a cost basis of $99.20 per share. I'm willing to sell these shares for $110.00 on or before 18 May:

Open Date :  2018-04-06
Expiration Date :  2018-05-18    Number of Days in Trade : 42
Cost Basis :  $99.20 per shareGain at Strike Price : 10.89%
Strike Price :  $110.00 per share
Number of Contracts : 2Number of Shares :200
Call Premium :  $0.58 per shareOptions Income : $116.00
Commission : $1.38
Net Premium :  $0.573 per shareNet Options Income : $114.62
Options Yield :  0.58%Annualized Options Yield : 5.02%
----------------------------  ----------------------------------------------------  -----------
Commission if Exercised : $0.00
Cost Basis if Exercised : $98.63Gain if Exercised : 11.53%

This covered call yields 0.58%, or 5.02% on an annualized basis. The yield on cost of my DIS position is 1.69%, so I'm boosting dividend income by a factor of 2.97. If the options are exercised, I'll sell 200 shares of DIS at a reduced cost basis of $98.63 per share, for capital gains of 11.53%.


For covered calls, I think an achievable goal is to earn double the dividend yield. The DIS covered call easily doubles the stock's dividend yield.

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 didn't sell any put contracts in this period.

Options Expiring Soon


I look forward to expiring options, hopefully allowing me to secure more options income. Of course, for in the money options, I have decisions to make before the expiration date.

The following options expire in the next two months:

May:
#1732018-04-06:-1×WMT 18 May 2018 $87.50 P $ 304.00 ( $ -0.63 ) → At the money 
#1722018-04-06:-2×DIS 18 May 2018 $110.00 C $ 116.00 ( $ -1.38 )→ Out of the money with an  8% safety margin 
#1712018-03-23:-3×XLRE 18 May 2018 $29.00 P $ 120.00 ( $ -0.18 )→ Out of the money with an  8% safety margin 
#1702018-03-23:-2×APC 18 May 2018 $57.50 P $ 290.00 ( $ -0.99 )→ Out of the money with a  16% safety margin 
#1692018-03-22:-3×PFE 18 May 2018 $34.00 P $ 141.00 ( $ -1.47 )→ Out of the money with a  2% safety margin 
#1682018-03-22:-3×GPS 18 May 2018 $31.00 P $ 447.00 ( $ -1.48 )→ In the money by  9% — caution! 
#1672018-03-14:-6×WEN 18 May 2018 $16.00 P $ 270.00 ( $ -0.25 )→ Out of the money with a  5% safety margin 
#1662018-03-14:-2×STLD 18 May 2018 $46.00 P $ 410.00 ( $ -0.69 ) → At the money 
#1592018-03-14:-2×HOG 18 May 2018 $40.00 P $ 186.00 ( $ -0.98 )→ Out of the money with an  3% safety margin 
#1572018-03-14:-1×BUD 18 May 2018 $105.00 P $ 200.00 ( $ -0.79 )→ In the money by  7% — caution! 
#1512018-02-23:-2×SBUX 18 May 2018 $52.50 P $ 194.00 ( $ -0.98 )→ Out of the money with a  10% safety margin 
#1472018-02-23:-2×EEM 18 May 2018 $46.00 P $ 156.00 ( $ -2.42 )→ Out of the money with a  1% safety margin 
#1452018-02-23:-3×BAC 18 May 2018 $29.00 P $ 150.00 ( $ -1.47 )→ Out of the money with a  1% safety margin 
#1442018-02-23:-2×AAPL 18 May 2018 $155.00 P $ 374.00 ( $ -2.43 )→ Out of the money with a  19% safety margin 

June:

#1642018-03-14:-3×PFE 15 Jun 2018 $34.00 P $ 150.00 ( $ -1.47 )→ Out of the money with a  2% safety margin 
#1482018-02-23:-2×HRL 15 Jun 2018 $32.50 P $ 304.00 ( $  0.00 )→ Out of the money with a  10% safety margin 
#1422018-02-16:-2×GILD 15 Jun 2018 $85.00 C $ 678.00 ( $ -1.13 )→ Out of the money with a  23% safety margin 

Two options are in the money and two are at the money. I'll have to monitor these carefully as the options expiration dates approach.


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
#1772018-04-20:-3×GLW 18 Jan 2019 $27.00 P $       618.00 ( $          -0.97 )$    28,589.95 ➤ $      3,922.95 
#1762018-04-20:-1×PG 18 Jan 2019 $77.50 P $       627.00 ( $          -0.63 )$    27,972.92 ➤ $      3,923.92 
#1752018-04-20:-1×MO 20 Jul 2018 $60.00 P $       438.00 ( $          -0.63 )$    27,346.55 ➤ $      3,924.55 
#1742018-04-20:-3×KBH 18 Jan 2019 $30.00 P $    1,494.00 ( $          -1.46 )$    26,909.18 ➤ $      3,925.18 
#1732018-04-06:-1×WMT 18 May 2018 $87.50 P $       304.00 ( $          -0.63 )$    25,416.64 ➤ $      3,926.64 
#1722018-04-06:-2×DIS 18 May 2018 $110.00 C $       116.00 ( $          -1.38 )$    25,113.27 ➤ $      3,927.27 
#1712018-03-23:-3×XLRE 18 May 2018 $29.00 P $       120.00 ( $          -0.18 )$    24,998.65 ➤ $      3,928.65 
#1702018-03-23:-2×APC 18 May 2018 $57.50 P $       290.00 ( $          -0.99 )$    24,878.83 ➤ $      3,928.83 
#1692018-03-22:-3×PFE 18 May 2018 $34.00 P $       141.00 ( $          -1.47 )$    24,589.82 ➤ $      3,929.82 
#1682018-03-22:-3×GPS 18 May 2018 $31.00 P $       447.00 ( $          -1.48 )$    24,450.29 ➤ $      3,931.29 
#1672018-03-14:-6×WEN 18 May 2018 $16.00 P $       270.00 ( $          -0.25 )$    24,004.77 ➤ $      3,932.77 
#1662018-03-14:-2×STLD 18 May 2018 $46.00 P $       410.00 ( $          -0.69 )$    23,735.02 ➤ $      3,933.02 
#1652018-03-14:-1×RS 20 Apr 2018 $87.50 P $       170.00 ( $          -0.34 )$    23,325.71 ➤ $      3,933.71 
#1642018-03-14:-3×PFE 15 Jun 2018 $34.00 P $       150.00 ( $          -1.47 )$    23,156.05 ➤ $      3,764.05 
#1632018-03-14:10×NEE 20 Apr 2018 $150.00 P $           0.00 ( $   -1,055.63 )$    23,007.52 ➤ $      3,765.52 
#1622018-03-14:-10×NEE 20 Apr 2018 $155.00 P $    2,153.00 ( $          -5.70 )$    24,063.15 ➤ $      4,821.15 
#1612018-03-14:-2×KMB 17 Jan 2020 $100.00 P $    1,503.00 ( $            0.00 )$    21,915.85 ➤ $      2,673.85 
#1602018-03-14:  2×KMB 17 Jan 2020 $135.00 C $           0.00 ( $      -783.00 )$    20,412.85 ➤ $      2,673.85 
#1592018-03-14:-2×HOG 18 May 2018 $40.00 P $       186.00 ( $          -0.98 )$    21,195.85 ➤ $      3,456.85 
#1582018-03-14:-3×GLW 20 Apr 2018 $29.00 P $       141.00 ( $      -465.32 )→ #177$    21,010.83 ➤ $      3,457.83 
#1572018-03-14:-1×BUD 18 May 2018 $105.00 P $       200.00 ( $          -0.79 )$    21,335.15 ➤ $      3,782.15 
#1562018-02-26:-2×ABBV 17 Jan 2020 $100.00 C $    5,508.00 ( $          -1.24 )$    21,135.94 ➤ $      3,782.94 
#1552018-02-26:-1×WMT 06 Apr 2018 $90.00 P $       130.00 ( $      -221.61 )→ #173$    15,629.18 ➤ $      3,784.18 
#1542018-02-26:-1×LOW 20 Apr 2018 $92.50 P $       196.00 ( $          -0.79 )$    15,720.79 ➤ $      3,875.79 
#1532018-02-26:  5×HD 20 Apr 2018 $185.00 P $           0.00 ( $   -4,827.70 )$    15,525.58 ➤ $      3,680.58 
#1522018-02-26:-5×HD 20 Apr 2018 $190.00 P $    3,450.00 ( $          -2.79 )$    20,353.28 ➤ $      8,508.28 
#1512018-02-23:-2×SBUX 18 May 2018 $52.50 P $       194.00 ( $          -0.98 )$    16,906.07 ➤ $      5,061.07 
#1502018-02-23:-1×PG 20 Apr 2018 $80.00 P $       171.00 ( $      -562.41 )→ #176$    16,713.05 ➤ $      5,062.05 
#149b2018-02-23:-1×MO 20 Apr 2018 $60.00 P $         72.00 ( $      -267.16 )→ #175$    17,104.46 ➤ $      5,453.46 
#149a2018-02-23:-1×MO 20 Apr 2018 $60.00 P $         72.00 ( $          -0.54 )$    17,299.62 ➤ $      5,648.62 
#1482018-02-23:-2×HRL 15 Jun 2018 $32.50 P $       304.00 ( $            0.00 )$    17,228.16 ➤ $      5,577.16 
#1472018-02-23:-2×EEM 18 May 2018 $46.00 P $       156.00 ( $          -2.42 )$    16,924.16 ➤ $      5,577.16 
#1462018-02-23:-2×DIS 06 Apr 2018 $112.00 C $       142.00 ( $          -0.74 )$    16,770.58 ➤ $      5,579.58 
#1452018-02-23:-3×BAC 18 May 2018 $29.00 P $       150.00 ( $          -1.47 )$    16,629.32 ➤ $      5,438.32 
#1442018-02-23:-2×AAPL 18 May 2018 $155.00 P $       374.00 ( $          -2.43 )$    16,480.79 ➤ $      5,439.79 
#1432018-02-16:-3×NKE 20 Jul 2018 $60.00 P $       441.00 ( $          -2.38 )$    16,109.22 ➤ $      5,442.22 
#1422018-02-16:-2×GILD 15 Jun 2018 $85.00 C $       678.00 ( $          -1.13 )$    15,670.60 ➤ $      5,444.60 
#1412018-01-12:  6×WYNN 16 Mar 2018 $155.00 P $           0.00 ( $   -2,708.04 )$    14,993.73 ➤ $      5,445.73 
#1402018-01-12:-6×WYNN 16 Mar 2018 $160.00 P $    3,791.00 ( $          -3.14 )$    17,701.77 ➤ $      8,153.77 
#1392018-01-12:  6×RL 20 Apr 2018 $100.00 P $           0.00 ( $   -2,427.25 )$    13,913.91 ➤ $      4,365.91 
#1382018-01-12:-6×RL 20 Apr 2018 $105.00 P $    3,566.00 ( $          -3.34 )$    16,341.16 ➤ $      6,793.16 
#1372018-01-12:  8×JPM 16 Mar 2018 $105.00 P $           0.00 ( $      -842.23 )$    12,778.50 ➤ $      3,230.50 
#1362018-01-12:-8×JPM 16 Mar 2018 $110.00 P $    1,864.00 ( $        -10.29 )$    13,620.73 ➤ $      4,072.73 
#1352018-01-12:-3×KSS 16 Mar 2018 $55.00 P $       405.00 ( $          -0.14 )$    11,767.02 ➤ $      2,219.02 
#1342018-01-10:-4×QCOM 17 Jan 2020 $65.00 C $    3,140.00 ( $          -2.05 )$    11,362.16 ➤ $      1,814.16 
#1332018-01-10:-20×F 17 Jan 2020 $12.00 C $    3,720.00 ( $        -15.96 )$      8,224.21 ➤ $      1,816.21 
#1322018-01-10:-2×KO 18 Jan 2019 $47.00 C $       414.00 ( $          -2.58 )$      4,520.17 ➤ $      1,832.17 
#1312018-01-10:-3×TGT 16 Mar 2018 $60.00 P $       144.00 ( $          -1.48 )$      4,108.75 ➤ $      1,834.75 
#1302018-01-10:-3×KBH 20 Apr 2018 $31.00 P $       306.00 ( $   -1,283.91 )→ #174$      3,966.23 ➤ $      1,692.23 
#1292018-01-10:-2×FAST 18 May 2018 $50.00 P $       350.00 ( $            0.00 )$      4,944.14 ➤ $      2,670.14 
#1282018-01-10:-1×AXP 20 Apr 2018 $100.00 P $       330.00 ( $          -0.80 )$      4,594.14 ➤ $      2,670.14 
#1272017-11-30:-2×EEM 19 Jan 2018 $46.00 P $       234.00 ( $          -0.85 )$      4,264.94 ➤ $      2,340.94 
#1262017-11-30:-2×BBT 16 Mar 2018 $50.00 P $       130.00 ( $          -0.98 )$      4,031.79 ➤ $      2,107.79 
#1252017-11-21:-3×X 19 Jan 2018 $26.00 P $       252.00 ( $          -2.09 )$      3,902.77 ➤ $      1,978.77 
#1242017-11-21:-2×RL 19 Jan 2018 $80.00 P $       150.00 ( $          -0.09 )$      3,652.86 ➤ $      1,728.86 
#1232017-11-21:-3×BAC 19 Jan 2018 $25.00 P $       120.00 ( $          -2.23 )$      3,502.95 ➤ $      1,578.95 
#1222017-11-17:-1×VLO 18 Jan 2019 $80.00 C $       892.00 ( $          -0.64 )$      3,385.18 ➤ $      1,461.18 
#1212017-11-17:-3×NKE 20 Apr 2018 $50.00 P $       208.00 ( $        -31.15 )→ #143$      2,493.82 ➤ $      1,461.82 
#1202017-11-17:-2×AAPL 16 Feb 2018 $150.00 P $       376.00 ( $          -1.60 )$      2,316.97 ➤ $      1,284.97 
#1192017-11-17:-2×WBA 15 Dec 2017 $70.00 P $       244.00 ( $          -0.99 )$      1,942.57 ➤ $         910.57 
#1182017-11-17:-2×TXN 16 Mar 2018 $85.00 P $       200.00 ( $          -0.99 )$      1,699.56 ➤ $         667.56 
#1172017-11-17:-2×MO 19 Jan 2018 $62.50 P $       140.00 ( $          -0.99 )$      1,500.55 ➤ $         468.55 
#1162017-10-20:-2×INTC 17 Jan 2020 $40.00 C $    1,032.00 ( $          -1.01 )$      1,361.54 ➤ $         329.54 
#1152017-10-20:-1×D 20 Apr 2018 $80.00 C $       253.00 ( $          -5.69 )$         330.55 ➤ $         330.55 
#1142017-10-20:-1×DIS 15 Dec 2017 $95.00 P $       145.00 ( $        -17.59 )$           83.24 ➤ $           83.24 
#1132017-09-27:-2×VLO 17 Nov 2017 $70.00 P $       162.00 ( $          -0.99 )$          -44.17 ➤ $          -44.17 
#1122017-09-14:-1×WFC 19 Jan 2018 $50.00 P $       166.00 ( $          -1.59 )$        -205.18 ➤ $        -205.18 
#1112017-09-14:-2×AAPL 15 Dec 2017 $135.00 P $       204.00 ( $        -14.17 )→ #120$        -369.59 ➤ $        -369.59 

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:
$ 28,590$     3,923
Last Month:
$ 30,293$    -1,676
Difference:
$  -1,703$     5,599

I started 2018 with $11,420 in secured options income. Adding my 2018 goal of $12,000 in secured options income makes the target $23,420.

Having secured $5,599 in options income in April, I've turned a shortfall into a surplus! But the road ahead remains steep, as I'll have to secure $19,497 throughout the rest of the year to achieve my secured options income goal for 2018!

Unfortunately, I lost some ground on total options income this month, due mainly to the loss sustained from the HD bull put spread.

With many options due to expire in May, I'm hoping to secure a good amount of options income this month. Hopefully, some good trades will present themselves so I can add to my options income tally, too!

Thanks for reading and take care, everybody!

2 comments :

  1. Hi Ferdi,

    very nice Blog. This is a very valuable source for me as a beginner. Thanks for all the effort you have made so far.

    What are your main indicators, for selling short puts? I see you prefer Growth Stocks, but what other factors do you consider? What is your strategy here?

    Greetings from Nürnberg, Germany

    ReplyDelete
    Replies
    1. I sell puts on stocks I would like to own (mostly dividend growth stocks) and usually when those stocks are trading at a premium to fair value. As a rule of thumb, I want to buy stocks at a discount, preferably about 10% below fair value. If volatility is high enough, you can find put options at the right strike price with expiration dates 2-4 months out. If the share price falls enough, I’ll get the shares at my preferred entry price (taking into account the premium received for selling the puts). Otherwise, I get to keep the premium and it is like earning a “dividend” on an investment, in this case the margin collateral I have to put aside for selling the puts.

      I’m not an options expert. I still have lots to learn, especially in choosing the right strike price and expiration date combination.

      Delete

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