Thursday, November 1, 2018

Options Update: October 2018 (Part 1)

DivGro's focus is dividend growth investing and most of my articles discuss how I use the strategy of dividend growth investing to manage my portfolio.

I added options trading to leverage the equity in my portfolio and to generate more income. Through monthly options update articles, I report on these options trades and I track the options income so generated.

With lots of trading activity in October, I decided to split this update into two parts. Part 1 provides the usual recap and a snapshot of October's trades. I report on expired, closed, and rolled options, and review a list of options expiring soon. Part 1 concludes with a look at how I'm doing with regards to my secured options income goal.

Part 2 will provide details on new covered call and put contracts, as well as a spread trade I executed last month. I'll also provide the usual snapshot of recent options trades.

Before getting into some of last month's trades, let's do a quick recap.

Recap


My options goals for 2018 is to secure at least $12,000 in options income, a challenging goal representing an increase of about 43% over the amount I secured in 2017. (I consider options income secured if I no longer have any obligations to fulfill).

I started 2018 with secured options income of $11,420, so my target for year's end is $23,420.
After a fantastic month securing options income totaling $6,731, reaching that target no longer seems impossible! We'll see how it goes from here...

The following snapshot shows the trades I executed in October. 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 October, the following options were assigned:

#1742018-04-20:-3×KBH 18 Jan 2019 $30.00 P $ 1,494.00 ( $ -1.46 )

I haven't had an assignment in a while, and this one hurts a lot! KB Home (KBH) tanked with concerns about a decline in building permits. The stock traded just below $21 on 11 October when the $30 put options got assigned. In essence, this means that I have an unrealized loss of about $2,700 on this position. Compensating somewhat is the $1,492.54 I secured in options income on the trade.

This is by no means a disaster, as I believe KBH will recover in the long run. I'll see if I can sell covered calls on these shares to start chipping away at that unrealized loss...

Expired Options


In October, the following options expired:

#2282018-08-28:-2×TGT 19 Oct 2018 $80.00 P $ 123.00 ( $ -0.82 )
#2232018-08-06:-1×UNP 19 Oct 2018 $140.00 P $ 172.00 ( $ -1.59 )
#2192018-08-06:-2×CSCO 19 Oct 2018 $40.00 P $ 124.00 ( $ -2.57 )
#2032018-06-14:-1×TRV 19 Oct 2018 $140.00 C $ 124.00 ( $ -1.09 )
#2012018-06-14:-2×T 19 Oct 2018 $36.00 C $   94.00 ( $ -1.58 )
#1952018-06-14:-2×DIS 19 Oct 2018 $125.00 C $ 116.00 ( $ -1.58 )

On 19 October, Target (TGT) closed at $82.02 per share, about 3% above the $80 strike price of the puts I'd sold. The puts expired and I no longer have the obligation to buy 200 TGT shares.

On 19 October, Union Pacific (UNP) closed at $148.70, some 6% above the October $140 put strike price. The put expired and I collected $170.41 in options income.

Cisco Systems (CSCO) closed at $45.34 on 19 October, about 13% above the October $40 put strike price. The puts expired and I no longer have an obligation to buy 200 CSCO shares.

Travelers (TRV) closed at $126.07 on 19 October, about 10% below the $140 strike price of my covered call. The call expired and I no longer have the obligation to sell 100 TRV shares.

AT&T (T) closed at $32.87 on 19 October, about 9% below the $36 calls I'd sold. The call expired and I no longer have the obligation to sell 200 T shares.

Finally, Disney (DIS) closed at $118.90, about 5% above the October $125 call strike price. The call expired and I no longer have an obligation to sell 200 DIS shares.

I secured options income of $743.77 due to these expirations.

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 closed the following options early:

#2152018-07-26:-1×MKC 21 Dec 2018 $115.00 P $    353.00 ( $      -20.45 )
#1822018-05-11:-1×PG 17 Jan 2020 $72.50 P $    633.00   ( $    -179.71 )
#1562018-02-26:-2×ABBV 17 Jan 2020 $100.00 C $ 5,508.00 ( $    -822.21 )
#134a2018-01-10:-1×QCOM 17 Jan 2020 $65.00 C $    785.00 ( $ -1,101.29 )
McCormick (MKC) closed at $140.65, significantly above the December $115 put strike price. With most of the options income secured, I decided to close the put early and secured $332.55 in options income.

On 25 October, Procter & Gamble (PG) closed at $87.86 per share, some 21% above the 17 January 2020, $72.50 put I had sold. With much of the options income secured, I decided to buy back the put, securing $453.29 in options income.

AbbVie (ABBV) has taken quite a tumble, closing at $82.96 on 23 October. My $100 calls expiring 17 January 2020 were far out of the money, so I decided to secure some of the dividend income by buying back the calls. In all, I secured $4,685.79 in options income with this trade!

Finally, on 8 October I decided to trim my position in Qualcomm (QCOM) by 100 shares. To do so, I had to close one of my covered calls on QCOM. With the stock trading at $70.93, I had to dish out more for this option than I initially received, so this one is a loser. The trade cost me $316.29 in options income. Fortunately, selling the 100 QCOM shares earned me a tidy some of money.

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, or to collect more options income for out of the money options.

Here are the options I rolled forward in October:

#2512018-10-25:-3×GILD 18 Jan 2019 $80.00 C $    304.00 ( $        -1.16 )
#2312018-09-05:-1×GILD 16 Nov 2018 $85.00 C $      44.00 ( $      -12.14 )→ #251
#1962018-06-14:-2×GILD 16 Nov 2018 $85.00 C $    166.00 ( $      -23.68 )→ #251
#2502018-10-24:-10×F 15 Mar 2019 $10.00 C $    190.00 ( $      -10.32 )
#2262018-08-28:-10×F 18 Jan 2019 $11.00 C $    216.00 ( $      -81.06 )→ #250
#2482018-10-19:-2×PG 18 Jan 2019 $85.00 C $    695.00 ( $        -0.83 )
#1992018-06-14:-2×PG 19 Oct 2018 $85.00 C $      74.00 ( $    -233.80 )→ #248
#2472018-10-19:-3×NKE 18 Jan 2019 $70.00 P $    558.00 ( $        -3.84 )
#2272018-08-28:-3×NKE 19 Oct 2018 $75.00 P $    183.00 ( $      -91.65 )→ #247
#2462018-10-19:-10×F 15 Mar 2019 $10.00 C $    160.00 ( $      -12.77 )
#2242018-08-10:-10×F 18 Jan 2019 $11.00 C $    210.00 ( $      -65.61 )→ #246
#2452018-10-12:-2×WBA 18 Jan 2019 $72.50 C $    615.00 ( $        -0.83 )
#2052018-06-14:-2×WBA 19 Oct 2018 $70.00 C $    288.00 ( $    -413.80 )→ #245
#2442018-10-12:-1×JNJ 17 Jan 2020 $150.00 C $    518.00 ( $        -0.64 )
#1972018-06-14:-1×JNJ 21 Dec 2018 $135.00 C $    150.00 ( $    -407.72 )→ #244
#2432018-10-12:-2×ALK 18 Apr 2019 $62.60 P $ 1,106.00 ( $        -1.67 )
#2332018-10-02:-2×ALK 21 Dec 2018 $65.00 P $    570.00 ( $ -1,047.73 )→ #243

On 25 October, Gilead Sciences (GILD) closed at $68.62 per share, so my $85 call options expiring in November were deep out of the money. I decided to roll forward the option to January 2019 and simultaneously to lower the strike price to $80. In the process, I added $174.18 in secured options income and $302.84 to my options income tally.

On 24 October, Ford (F) closed at $8.18 per share, so my $11 call options were deep out of the money. I decided to lower the call strike price to $10. In the process, I secured $134.94 in options income and added $179.68 to my options income tally.

Procter & Gamble (PG) closed at $87.30 on 19 October, some 3% above the $85 call strike price. To protect my shares, I rolled forward the $85 calls to January 2019. The trade cost me $159.80 in secured options income, but I added $694.17 to my options income tally.

On 19 October, Nike (NKE) closed at $74.21, so my $75 put option was in the money. I decided to roll forward the option to January 2019 and simultaneously to decrease the strike price to $70. In the process, I secured options income of $91.35 and added $554.16 to my options income tally.

Also on 19 October, Ford (F) closed at $8.35 per share, so my $11 call options were deep out of the money. I decided to lower the call strike price to $10 and roll forward to March 2019. In the process, I secured $144.39 in options income and added $147.23 to my options income tally.

With Walgreens Boots Alliance (WBA) trading at $73.50 on 12 October, my 19 October WBA $70 call options were deep in the money, so I decided to roll forward the options to January 2019 and simultaneously to increase the call strike price to $72.50. The trade cost me $125.80 in options income, but I added $614.17 to my options income tally.

Johnson & Johnson (JNJ) closed at $133.87 on 12 October, so my $135, December 2018 covered call was near the money. I decided to roll forward the call to January 2020 and simultaneously to increase the strike price to $150. The trade cost me $257.72 in secured options income, but I added $517.36 to my options income tally.

Finally, Alaska Air Group (ALK) traded at $61.57 on 12 October, making the $65 puts I sold deep in the money. I decided to roll forward these puts to April 2019, and simultaneously to decrease the strike price to $62.50. The trade cost me $477.73 in secured options income, but I added $1,104.33 to my options income tally.

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:

November:

#2412018-10-12:-1×VZ 16 Nov 2018 $52.50 P $ 115.00 ( $ -0.79 )→ Out of the money with an  9% safety margin  
#2402018-10-12:-2×TSM 16 Nov 2018 $36.00 P $ 100.00 ( $ -1.57 )→ Out of the money with an  6% safety margin  
#2352018-10-02:-5×FLO 16 Nov 2018 $17.50 P $ 150.00 ( $ -0.18 )→ Out of the money with a  10% safety margin  
#2342018-10-02:-2×FL 16 Nov 2018 $50.00 P $ 620.00 ( $ -0.08 )→ In the money by  6% — caution!  
#2252018-08-17:-2×CMCSA 16 Nov 2018 $37.50 C $ 181.00 ( $ -0.82 )→ In the money by  2% — caution!  
#2142018-07-20:-2×WSM 16 Nov 2018 $60.00 P $ 717.00 ( $  0.00 )→ In the money by  1% — caution!  

December:


#2522018-10-29:-1×IP 21 Dec 2018 $42.50 P $ 162.00 ( $ -0.79 )→ Out of the money with an  7% safety margin  
#2422018-10-12:-2×XEL 21 Dec 2018 $45.00 P $ 120.00 ( $  0.00 )→ Out of the money with an  9% safety margin  
#2372018-10-12:-2×HRL 21 Dec 2018 $37.50 P $ 160.00 ( $ -0.07 )→ Out of the money with a  16% safety margin  
#2172018-08-06:-2×ADM 21 Dec 2018 $45.00 P $ 124.00 ( $ -0.73 )→ Out of the money with an  5% safety margin  
#1802018-05-11:-3×GPS 21 Dec 2018 $29.00 P $ 912.00 ( $  1.45 )→ In the money by  6% — caution!  

Several options are in the money. I'll have to monitor these carefully as the options expiration dates approach.

Goals Progress


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


Total
Options Income
Secured
Options Income
This Month:
$ 39,063
$   16,044
Last Month:
$ 36,284
$     9,313
Difference:
$   2,779
$     6,731

October was a great month and I'm back in positive territory for 2018!


I started 2018 with $11,420 in secured options income. Adding my 2018 goal of making $12,000 in secured options income, the year-end target for secured options income is $23,420.

With $16,044 of options income secured, I need to secure another $7,376 in November and December. That averages to $3,688 per month, which no longer seems impossible...

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