Update Feb 21 (week 51)

Review

This is going to be another short and sweet one. 
Doooohhhh, I was supposed to buy 100$ worth of EXG and I did. But that was in the wrong account. I bought them in my 401k. Oh well. What did DJ always say? Read the order out loud and I didn't. Was not the first time, will not be the last time....lol....
No dividend payments this week. The numbers are the same as last week.

Market

I am not going to comment on the market right now. I saw an interesting picture in a trading group I am a member of. If I can get the source for the picture, I will use it and comment on it.

Plan for next week

Buy 200$ worth of EXG. I am trying to bring up the overall yield of the account. Adding to EXG fits the bill.

Covered Strangle: KO-Feb-2022

When I post the trades, I will not post them when I enter them. I am not giving financial advise. I will update the trades here until I get called out.

Acronyms:

BTO = Buy To Open

STO = Sell To Open

BTC = Buy To Close

STC  = Sell To Close

The trade

Date: Feb. 15

BTO 100 shares KO for 61.52

STO 1 call contract March 25, 64 strike for 45c

STO 1 put contract March 25, 57 strike for 40c

Total credit $0.85 or $85 on a $6152 investment for 38 days. This is a 1.38% return for 38 days.

Now it is time to let the trade work. The order to buy back the short options for 2c are in the system. 

Covered Strangle: CSCO-Feb-2022

When I post the trades, I will not post them when I enter them. I am not giving financial advise. I will update the trades here until I get called out.

Acronyms:

BTO = Buy To Open

STO = Sell To Open

BTC = Buy To Close

STC  = Sell To Close

The trade

Date: Feb. 1

BTO 100 shares CSCO for $55.42

STO 1 call contract March 3, 59 Strike for 70c

STO 1 put contract March 3, 49 Strike for 47c

Total credit $1.17 or $117 on a $5,542 investment for 31 days. This is a 2.11% return for 31 days.

Now it is time to let the trade work. The order to buy back the short options for 5c are in the system.

Update Mar 04 (posted date):

On Feb 22, my order filled to buy back the short 49P for 5c and on Feb 23 my order to buy back the 59C for 5 cents. 
This makes realized profits of 1.07 or $107 on a $5,542 investment (no commissions included). This is a realized profit in the bank of 1.93% in less then 30 days. I still own the 100 shares I bought at $55.42.
I noticed that on 2/24 and sold a 57 call and 49 put

STO 1 call contract April 1, 57 strike for 65c

STO 1 put contract April 1, 49 strike for 66c

Now today one can question if selling the 57 call was a good idea. The way I see it, if I do get called out April 1, I still make $1.56 per share and I get to keep the option premium. And I already made 1.93% on this. This works for me. I thrive for consistency and not home runs. I do take home runs though. 

Covered Strangle: BAC-Feb-2022

When I post the trades, I will not post them when I enter them. I am not giving financial advise. I will update the trades here until I get called out.

Acronyms:

BTO = Buy To Open

STO = Sell To Open

BTC = Buy To Close

STC  = Sell To Close

The trade

Date: Feb. 15

BTO 100 shares BAC for $47.98

STO 1 call contract March 25, 51 Strike for 53c

STO 1 put contract March 25, 41 Strike for 29c

Total credit 82cents or $82 on a $4,798 investment for 38 days. This is a 1.71% return for 38 days.

Now it is time to let the trade work. The order to buy back the short call for 2cents and the short put for 5 cents are in the system.

Update Mar-07

I am now ITM on my short put. I decided, it is ok for me to get assigned at 41$ for 100 shares at expiration. This means I will not roll out and down for a credit.

So the cost base is going to be $4,100+$4,798 = $8,898/200 = $44,49 a share. To make a bit of a  profit on the entire position I will have to sell at least a $44.50 call or better to sell a $45.00call. Now those calls must be min 30 days out to not get into wash sales. I add usually choose 31+ days for that.

Covered Strangles Trading Rules

Preamble

I created the  initial rule set in 2015 based on sales pitch I attended. Then we decided in our trading group to trade this as a group project. We traded it for about 18 months, outperformed the market despite having some painful losses. After that the rule set only got updated once, when most brokers decided to go commission free and dropped assignment fees. Back then the assignment fee was generally 15$. Getting to keep this made trading covered strangles even more profitable. This applied to other trading strategies as well.
This version here is a more elaborate and explanatory. 

The Strategy

Buy 100 shares, sell a call and sell a put. This is an intermediate to long term strategy.

What to Trade

Liquid stocks and ETFs with liquid options in a sideways to upwards trend. ONLY TRADE STOCKS AND ETF's THAT ONE IS WILLING TO KEEP FOR THE LONG RUN.

Use fundamental and technical analysis to establish your boundaries. Write down what the exit strategy is going to be and stick to it.

Criteria

10 SMA should be above the 30SMA. During a sideways trading range it does not matter.

Entry

Buy a covered call, then sell a short put. Some brokers allow you to put this in as first triggers sequence order.  In other words the fill of the covered call triggers the sell of the put, which may or may not fill. 

The delta for the short options should be around 30 +/-5. For my short call option I go closer to a 30 delta, and for the short put delta, I go more for a 25 delta. I sell my options between 31-56 days out.

When the trades are are filled, put orders in to close the short option back for 2c or 5c. This is commission free for many brokers and removes the obligation.

Management 

Check the trade 1 or 2 times a week. Put in an alert below your break even price for the short put and don't ignore them

Exits

There are different cases:

• the stock trades above the short call strike price => get called out. This is a home run.
• the stock closes below the short call and above the short put => by then the short options should have closed out for 2 cents (see above). Sell a new call and put, but make sure that the call option is above the stock purchase price. Sometimes it is necessary that the option has to be further out e.g. 56 days. Try to keep the call and the put in the same expiration, but some times it is not possible.
• If the stock starts to drop, review your fundamental view on the stock. Close out the options and sell the stock or roll down and out for a credit the short put and do that early. The short call may become luxury, depending on how much the stock dropped. Unless one knows and has the time to deal with violent snap back move one should not sell a call below the stock purchase price or one may lock in a loss. What is spelled out in red capital layers above should really be taken seriously.

Trading Covered Strangles - Overview

Preamble

It is time to start talking about option trades. I don't plan to do a complete option education. There are plenty of sites that can do that. A good broker also provides free classes to their clients.

I will only provide explanations as to the option trades I use.
I trade trade covered calls and short puts. If this is combined on the same ticker, it is called a covered strangle.
Now in order to trade options the broker needs to give you permissions to trade options. There are different levels of option trading clearance. The level the broker will give you depends on your experience, your knowledge and the amount of liquid funds you have. A good broker asks a few questions to make sure you understand the risks. 

Breaking it down

For a covered call one has to own 100 shares and then one sells a call against it. When selling a call, the seller assumes the obligation to hand over the shares to the agreed price in the call within the period of the duration of the contract + 1 day. An example (all numbers are made up). I buy 100 shares for 50$ each and invest $5,000. I then sell a call for 30 days from now from somebody to get my shares for 52$. I receive 1$ for for it. What does that mean?
From the time of selling to the expiration date +1 day, the other side has the right to call the stock away from you any time they see fit. 

There are 2 scenario's:

• if the stock trades at 51$ it does not make sense for the other side to pay me 52$/share when they can buy it at the open market for 51$/share. However I get to keep the 1$.
• if the stock trades at 53$, the other side can buy the shares from me for 52$/share and they get a discount. Now, I still make money. I bought the shares for $50, sell them for $52 and I get to keep the 1$ from the contract. So I made a profit of 3$/share in 30 days.

There must be a drawback. Yes, there is. If  the stock drops like a rock and trades at 45$ at expiration. The 1$ credit from selling the call by far does not cover the 5$ loss per share. So there needs to be a plan and that has to include taking a loss.

In the short put portion as a standalone position: I am selling a put assuming  the obligation to buy 100 shares for the predefined price within a period of time specified in the contract + 1 day to the price specified in the contract. 

An example (all numbers are made up). The stock trades at 50$, I sell a put contract at 48$ 30 days out. I receive 1$ for this. 
From the time of selling to the expiration date +1 day, the other side has the right to sell the stock to me any time they see fit. 

There are 2 scenario's:

• if the stock at expiration trades at $49, it makes no sense to sell it to me for 48$. They get more on the open market. But I get to keep the 1$.
• If the stock at expiration trades at 47$, I have to buy the stock from the other party at 48$. I basically overpay. Now keep in mind I already got 1$ for the contract. So the break even is at 47$.

Here as well the drawback is when the stock drops like a rock and at expiration trades at 37$. So again, there needs to be a plan and that has to include taking a loss.

Summary:

Being short an option creates an obligation, that I have to full fill for as long as I have the short contract.  

Trading CST's in Margin vs Retirement Accounts/Cash Accounts

I trade this in margin accounts. In an retirement account short puts are cash secured. That means, if I sell a put for $50 then  $5,000 are held "hostage" to make sure one has the cash to pay for the 100 shares that are going to show up. Now there are way's to mitigate this, but since I don't use them I will not talk about them.

Update Feb 14 (week 50)

Added

As planed 100$ went into LMT.

Review

This week the dividends came from APD OKE, ABBV, O,BTI,MAIN and UNM for $6.36. This makes $49.35 YTD and since inception $ 105.96.

As of now I have put $5,600 into the account and $610,81 in cash. For now I stick with the 100$/week, so this are 6 weeks worth of money to invest.

As of Jan 31: 

Since inception the account is up 5.34%.  It is hard to compare that against any of the indexes, as I don’t have 1 year worth of data yet.

Market (the way I see it)

The market has  a nice setup for a possible double bottom.

Right now the /ES are up 20 points. When I started typing they were down like 18 points. These days it just does not mean anything anymore.

Plans for next week

The entire 100$ go into the closed end fund EXG. 

The top 10 holdings are pretty much all the big names. This explains the chart.

Source EXG. 

Update Feb 07 (week 49)

Added

As planed 100$ went into ABBV.

Review

This weeks dividends were 40c from ALTY. YTD this are $42.99 and since inception $99.63.

Market (the way I see it)

The point of control has moved up to the closing price area of last Friday $440.46. I added an alert to my chart at $422.66. this is 12% off the highs. 

We lost the 200SMA and the 30SMA starts to develop into a resistance. The situation about Russia and the Ukraine does not  instill a lot of trust into people. 

Other Thoughts

I am discussing with myself to increase the weekly contribution to 150$.

Why?

The yearly contribution would be $7,800. In 10 years the contribution would be $78,000.

The current return in dividends (not including growth or accounting for re-invested dividends) is 4.55% meaning in 10 years it would translate into $3,549 before taxes a year. This does not sound like much, but it is for sure better than what I would get in my checking/savings account, even after taxes.

As of now I have not made my mind up.

Plans for next week

The entire amount goes into LMT.

Disclaimer

All information on this blog is for entertainment, and education information purposes only. Nothing discussed constitutes as financial, investment, trading, tax or any other advice. No decisions should be made based on the information provided. Always do you own independent research and consult a professional broker or financial advisor.

I own everything I discuss or will enter a position within the next 72h. I am not getting paid anything to mention anything.

Update Week Jan 31 (week 48)

Short And Sweet Today

I am pressed for time this weekend. Last week I did go with my backup ticker INTC. The earnings from GILD were not well received. The stock closed on Friday at the low. There is more room to the downside.

This weeks plan: add 100$ to ABBV