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Friday, March 1, 2019

Options Update: February 2019 (Part 1)

Welcome to another Options Update article!

I write monthly options update articles to summarize options trades and to keep track of my options income. Each update also serves as a status report on open options and the obligations I potentially have.

DivGro's focus continues to be dividend growth investing. Options trading is a sideline activity. I sell puts on stocks I would like to own and covered calls on stocks I already own. The options income allows me to buy more dividend growth stocks, which in turn boosts DivGro's projected annual dividend income.


January was a quiet month for options trading, but February turned out to be quite busy!

I sold several covered calls and put options, and rolled some options forward as well. And, for the first time since I started trading options, I had no fewer than four assignments in a single month!

With so many transactions to cover, I'm presenting the article in two parts. In Part 1, I'll cover the options assignments, expired options, and closed options. I'll also cover options expiring in March and April and given an update of the progress I've made towards my 2019 options income goal.

In Part 2, I'll cover new covered calls, put contracts, and rolled options trades.

Below is a snapshot showing assigned, expired, and closed options this month:

Assigned Options

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

In February, the following call options I sold, got assigned:

#2762018-12-06:-1×SBUX 15 Feb 2019 $70.00 C $ 132.00 ( $ -0.79 )
#2962018-12-28:-1×JPM 15 Feb 2019 $105.00 C $ 154.00 ( $ -1.09 )
#3032019-01-24:-1×WSM 15 Feb 2019 $55.00 C $   42.00 ( $ -1.09 )

In all three cases, the underlying stocks traded near the strike prices going into options expiration day. I decided not to roll these options forward, choosing instead to have them be assigned.

I owned 200 shares of Starbucks (SBUX) and was happy to sell 100 shares at the $70 strike price, for a net gain of 36% inclusive of dividends. This is a short-term gain as I've owned SBUX only since June of 2018. Annualized, the gain is 52% on the amount invested. If I also account for the options income of $131, the annualized gain goes up to 56%.

JP Morgan Chase (JPM) is a recent acquisition. I bought 200 shares in December, so this is another short-term trade that would incur higher capital gains taxes. The net gain is 5% or 22% annualized, including dividends but excluding options. By selling the JPM options, I earned an additional $386 (boosting the annualized gain to 32%).

Finally, my foray into Williams-Sonoma (WSM) ownership since November has been short-lived. I bought 200 shares due to an options assignment in November, sold 100 shares to harvest tax losses in December, and bought back the 100 shares after 31 days in January. The most recent trade resulted in a net loss of 1% (4% annualized). On top of that, the trade to harvest tax losses resulted in a net loss of 17% (58% annualized).

On the other hand, I collected $1,289 by selling puts and calls on WSM, so overall, I came in slightly ahead with a net gain of 2% or 9% annualized.

In February, the following put option I sold, got assigned:

#2912018-12-21:-2×ADM 15 Mar 2019 $45.00 P $ 851.00 ( $ -1.58 )

Founded in 1898 and headquartered in Chicago, Illinois, Archer-Daniels-Midland (ADM) is engaged in the processing of oilseeds, corn, wheat, cocoa, and other agricultural commodities. The company manufactures protein meal, vegetable oil, corn sweeteners, flour, and other value-added food and feed ingredients, as well as biodiesel and ethanol.

On the assignment day (19 February), ADM closed at $41.85 per share. The stock price has recovered somewhat to $42.50 at the close on 28 February. Nevertheless, the assignment handed me an unrealized loss.

Fortunately, I collected $302 by selling the ADM options. Since two options control 200 shares, effectively my cost basis is $45 - (302÷200) = $43.40 per share. Additionally, I sold two $45 covered calls on my ADM shares for $233. That is the equivalent of $1.17 per share, which drops the cost basis to $42.23.

So even my ADM position is in the black overall!

Expired Options

In February, the following options expired:

#2632018-12-06:-2×INTC 15 Feb 2019 $55.00 C $ 106.00 ( $ -2.53 )

On 15 February, Intel (INTC) closed at $51.66 per share, below the $55 strike price of the January calls I'd sold. So the calls expired and I no longer have the obligation to sell 200 INTC shares.

I secured options income of $103 with this trade.

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:

#134c2018-01-11:-1×QCOM 17 Jan 2020 $65.00 C $    785.00 ( $ -125.60 )
#2122018-06-20:-2×SBUX 17 Jan 2020 $50.00 P $    915.00 ( $ -153.55 )
#2432018-10-12:-2×ALK 18 Apr 2019 $62.50 P $ 1,106.00 ( $ -521.75 )
#2672018-12-06:-4×KRG 17 May 2019 $20.00 C $      60.00 ( $   -36.00 )

On 14 February, I decided to close my Qualcomm (QCOM) position. To do so, I had to buy back the $65 covered call I'd sold. Doing so secured 84% of the available options income. The trade netted $659.40.

I also decided to close my position in Kite Realty Group (KRG), given the REITs poor dividend safety score of 19, which, according to Simply Safe Dividends, makes the dividend Very Unsafe.
So I bought back the covered calls on this position, securing $24 of an available $60, or 40% of the available options income.

I don't like the recent volatility in airline stocks, so I decided to bail out of my Alaska Air Group (ALK) put options. The trade secured $584.25 in options income, or about 53% of the available options income.

Finally, with SBUX trading about $70 per share, I see no reason to wait until January 2020 to secure the remaining options income of my $50 puts. Buying back the puts secured $760.45 in options income, or 83% of the available options income with nearly 11 months to spare!

All together, closing these options early secure about $2,028 in options income.

Options Expiring Soon

Below I'm listing options expiring in the next two months. On expiration day, in the money options will result in options assignment, which I'd like to avoid in some cases, if possible.

March 2019:
#2832018-12-06:-1×VLO 14 Mar 2019 $90.00 C $ 165.00 ( $ -0.79 )→ Out of the money with a  9% safety margin  

April 2019:
#3112019-02-22:-1×HSY 18 Apr 2019 $110.00 P $ 250.00 ( $ -0.79 )→ Out of the money with a  1% safety margin 
#2972019-01-16:-1×AAPL 18 Apr 2019 $155.00 P $ 809.00 ( $ -1.10 )→ Out of the money with a  12% safety margin 
2872018-12-06:-1×XOM 18 Apr 2019 $85.00 C $ 126.00 ( $ -1.09 )→ Out of the money with a  7% safety margin 
#2802018-12-06:-1×TRV 18 Apr 2019 $140.00 C $ 100.00 ( $ -0.34 )→ Out of the money with a  5% safety margin 

A few options are out of the money with small margins of safety, so I'll have to monitor these carefully as the options expiration dates approach.

Concluding Remarks

My options goal in 2019 is to collect a total of $21,000, which is a monthly average of $1,750.

Options Income
Options Income
This Month:
$ 46,403
$    21,899
Last Month:
$ 44,030
$    19,387
 $   2,373 
$      2,512

Having collected $2,373 of options income in February, I've made up for the slow start in January and I'm now slightly ahead of pace for 2019! Specifically, year to date I've collected $3,610 in options income, which is $110 ahead of pace ($3,500). 

Please look out for Part 2 of this article, in which I'll cover new covered calls, put contracts, and rolled options trades.

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Feel free to comment on this article — I'll do my best to respond
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  1. You actively sell many options. Do you have to spend a lot of time to track them? How long do you track them every week?

    1. I don't track these options that closely. Mostly just as options expiration approaches, and at the end of each month when I write these updates. Importantly, though, I sell puts on stock I wouldn't mind owning. And covered calls at strike prices that would secure a profit if assigned.


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