Started trading covered calls (actually, “buy-writes”) on Tuesday 3/1. I’ll explain the first trade in some detail, including my thought process, but later trades will be more succinct, unless there’s something interesting or new to talk about.
A buy-write is buying 100 shares of an equity specifically to sell a Covered Call (CC) against it. (As opposed to selling CCs on shares you’re already holding for the long term.) I don’t much care what the stocks or ETFs are, I’m just using them as a vehicle to sell time premium. And my intent is for them to get called away, or “assigned,” so I won’t stress over that. I’m looking for tickers with At-The-Money (ATM) Call option premiums at about 2 to 3% when looking at the weekly options. For example:
These are the near-the-money Calls for FCX. Current price is 51.93, and the Bid for the 52 Call is 1.24, so you could definitely sell it for that. Premium/Spot = % Return = 1.24/51.93 = 0.023, or 2.3%.
Notice the Implied Volatility: 50.3% Higher volatility gives higher premiums.
But higher IV also means more price swings or stronger trends, so you shouldn’t just sell a Call because it has a high premium. What if the stock is currently trending down? You’d likely lose as much on the stock price in a week as you’d make on premium. So do a buy-write on a stock while it’s trending up, or at least solidly flat. You can do fundamental analysis on the company, or technical analysis on the chart, but all I do is look at the 1-month and 5-day charts and see if they’re flat-to-trending up. Like these for FCX, 1-month on the left, 5-day on the right:
I don’t care for that big dip in the middle of the monthly, but the upward trend is strong, over 11% for the month. And the weekly, which I put more emphasis on because I’m only planning to be in these trades for 5 days, is also trending up nicely, 6% for the week.
FIRST TRADE – Fully Explained
One of my trades Tuesday was CLF, a steel producer. CLF was in a strong uptrend since 2/25 due to the Ukraine invasion, and between Friday’s open and Tuesday’s open it was up 15%. In two days. In hindsight there’s a better way to have played that, but here’s what I did:
Bought 100 shares at 23.05, an investment of $2,305. Then I found someone who essentially said, “Hey stranger, I’ll give you $45 now if you’ll let me buy those shares for 23.50 on Friday. How ’bout it?” I thought, “Sure! $45 divided by my $2305 invested is a return of 1.9% in 4 days.” Call that a week and multiply by 52 to get a simple annualized return of almost 100% (much more if compounded by rolling that profit into next week’s trades). So I sold him that right and took his $45. In option terms I sold the March 4th expiration 23.50-strike Call for 0.45. But since each option contract controls 100 shares, I got paid $45.
But it got even better: because CLF was on such a tear, it closed Friday above 23.50, so the person who bought that option said, “I’ll take those 100 shares now, and here’s the $23.50 each I promised you.” Was I sad that I’d “lost” my shares? NO!! Because that was the plan. Besides the 0.45 per share I made from the Call, I also made 0.45/share in price appreciation, so I made $90 on a $2305 investment. That’s a 3.9% gain in 1 week, 200% annualized.
I hear some of you asking, “But Mike@10DeltaTrading, CLF closed at 25.95, so what about all that money you lost by not just buying and holding?” Well first, I didn’t lose any money. All I lost was opportunity cost. Yes, buying at 23.05 and selling at 25.95 would’ve been great, a 12.5% gain. But that wasn’t the point of the trade: I’m looking for trades that offer 2-plus % per week in time value sold. Any stock appreciation on top of that is gravy, as in this case, which doubled my expected return for the week. So buy and hold stocks if you want, but I’ve had enough of that and am now looking for arguably-safer quick 2% hits.
The “better way to play that” I alluded to would’ve been to allow more room for stock appreciation, the percentage profit of which would’ve dwarfed the gain from selling the option. The rate-of-rise of CLF was 16.5% over the 5 trading days prior to the trade. If that momentum continued, then I might’ve extrapolated that it would continue to go up at that rate for the next 4 days: 4/5 * 16.5% = 13.2%. Applying that to Tuesday’s open at 22.59, I might reasonably expect CLF to finish the week at about 25.50. So with that insight I should’ve picked a higher strike to sell the Call at. I could’ve sold it at 24 and allowed room for 0.95 of appreciation, or 24.50 for 1.45, or 25 for 1.95. That last one would’ve let me capture most of the stock’s rise, and given a return of 8% for the week just from appreciation.
But there’s a tradeoff: the farther “out of the money (OTM)” you move, the lower the option prices go (of course). Looking at CLF after the fact, the premium 3 strikes further out of the money is worth only 40% of the premium ATM. So instead of a 1.9% return from selling the Call, I might’ve only gotten 0.7%. The stock appreciation would’ve made up for it this time, but that won’t always be the case. What if the stock had gone down? I’d have kept the option premium and the shares, but I’d have had a much higher breakeven point, and maybe a deeper hole to dig myself out of. So it’s a balance between the guaranteed premium of the ATM Call premium and allowing room for stock price appreciation. There’s a whole art/science around picking the “right” strike to sell, which I’ll get into as cases come up.
Seven Other Initial Trades
FSM 3/1, Tuesday: bought @ 3.97, sold the 18MAR 4C (because it only has monthly options) for 0.20, and it ended the week at 4.07. $20 of premium plus $3 of price appreciation is 5.8%. But this trade is at max profit and still has 2 weeks left, so divide by 3 weeks to get 1.9% per week. 3/8, Tuesday: FSM continued to climb, but I was locked in at max profit, so I closed the position by buying back the 4C for 0.49, and then selling the stock for 4.41. Lost 0.29 on the option (0.20 – 0.49), but gained 0.44 (4.41 – 3.97) on the stock’s appreciation, for a net gain of (0.44 – 0.29)/3.97 = 3.7% in 5 trading days (call it a week, but it wasn’t “the” week).
LAZR 3/1: the only loser for this first week: 15.09 / 4Mar15.5C @ 0.50. 3/3, Thursday: BTC the 15.5C for 0.04, STO the 4Mar15C for 0.09. 3/4: BTC that for 0.01, STO the 11Mar15C for 0.21. LAZR closed Friday 3/4 at 13.56, so the trade stood at: (13.56 – 15.09) + ( 0.50 – 0.04) + (0.09 – 0.01) + (0.21) = -1.53 + (0.46 + 0.08 + 0.21) = (-1.53 stock) + ( 0.75 premium) = -0.78/15.09 = -5.1% for the week. But that’s one downside of selling CCs: the stock could go down on you. (The only other downside being that you cap potential gains.) But if I were just holding shares without selling CCs on them, the same thing would happen, and I’m in better shape here because the 0.75 premium lowered my cost basis to 14.34. 3/7, Monday: BTC the open Call for 0.16, STO the 11Mar14C for 0.41. 3/8, Tuesday: in the grip of WEAT mania I just closed the trade, BTC’ing the open Call for 0.22 and selling the stock at 12.87. Total damage: (12.87 – 15.09) + 0.75 + (0.41 – 0.22) = (-2.22 stock) + ( 0.94 premium) = -1.28/15.09 = -8.5% over 5 trading days. Ouch.
RIG 3/1: 3.70, 11MAR4C for 0.11. Don’t remember why I did that, 11 days out, but there probably wasn’t enough premium in the 4Mar Call. Ended the week on 3/4 at 4.24, so nice appreciation on the stock, but I’ll only get to keep the part from 3.70 to 4.00. So for the week this trade stands at (4.00 – 3.70) + 0.11 = 0.41/3.70 = 11.0%, but divide by 2 because it’s a 2-week trade: 5.5% for this week. Monday 3/7: RIG opened at 4.26 and was headed up, so I rolled it up by buying back the 11Mar4C for 1.14 and selling the 11Mar5.5C for 0.30. I hear you asking, “But Mike@10DT, why pay more to buy back the call than you sold it for?” Because I’ll get it back when I sell the stock. RIG was at 5.13 when I did that, which meant my shares bought at 3.70 had 1.43 of appreciation in them, but I was only going to get to keep 30c of that if the 4C was still open at expiration. So 1.43 – 0.30 of that appreciation, 1.13, was lost to me. It seemed to make sense to buy back the 4C for a net cost of 1.03 (1.14 bought – 0.11 sold) to unlock that appreciated value in the shares. (I essentially “paid” 1.03 to “get” 1.13, an ROI of 9.7% in itself.) If RIG hits 5.50 by EOW it will have been worth it, and the trend says it will. It was up 16% just today. Tuesday 3/8: Because of my WEAT-mania, I bought back the Call for 0.37 and sold the shares for 5.27. Profit: (5.27 – 3.70) – (1.14 – 0.11) – (0.37 – 0.30) = 1.57 – 1.03 – 0.07 = 0.47/3.70 = 12.7% over 5 trading days.
SDC 3/1: 2.03, 4Mar2C @ 0.11. It ended the week at 2.01, so the stock was called away. This one introduces a new concept: selling In The Money (ITM). I’ll explore later why you might sometimes want to do that, but the reason I did it here was because the next Call strike up, 2.50, had very little premium, so I sold this one instead. It works the same, but you have to subtract how much over the strike the stock price is. In other words, 3 cents of the premium was intrinsic value due to the strike being ITM by 3c, which leaves the rest of the premium, 8c, as the extrinsic value I was actually selling. So $8 of gain divided by $200 invested gave a return of 3.9%.
SNDL 3/1: 0.505, 4Mar0.5C @ 0.03. Ended the week at 0.498, so the option expired worthless and I kept the shares. I shouldn’t have messed with this one, the premium being so small. Loss on share price was 0.0074, so take that away from the 0.03 credit to leave 0.0226 / 0.5055 = 4.4% for the week. I’ve been ignoring option commissions because they’re only 65 cents per contract, or 0.0065 in “option money.” And usually that’s negligible, but here the calc should really be: (0.0226 – 0.0065) = 0.0161 / 0.5055 = 3.1% for the week. Monday 3/7: The stock’s general trend has been down (I shouldn’t have entered the trade), but I own it so figured I’d keep playing it. Sold the 0.5C for 0.03. Spot was 0.495 at the time, so yield is 4.7% after commission. Cost basis is now 0.459 after 2 premiums (and minus the tiny option commissions), and SNDL closed Monday 3/7 at 0.472, so the trade is still profitable. Tuesday 3/8: BTC’d the call for 0.02 and sold the stock for 0.46. Lost 0.045 on the stock, but gained 0.06 on the calls, so overall the trade did [6c – (3*0.0065) – 4.5c]/50.5C = -1%. No more tiny stock prices or premiums for me.
IRNT 3/2: 4.78, 4Mar5C @ 0.30. Closed the week at 4.81, so the Call expired worthless and I kept the shares. (0.30 + 0.03)/4.78 = 6.9% for this week. Monday 3/7: Sold the 11Mar4.5C for 0.32. Tuesday 3/8: I got greedy for WEAT (more below) and wanted to free up cash, so I BTC the 4.5C for 0.11, and sold the stock for 4.01. P/L: (4.01 – 4.78) + 0.30 + (0.32 – 0.11) = (-0.77 + 0.30 + 0.21) = -0.26/4.45 = -5.8% for the whole trade.
SOXS 3/2: 4.45, 4Mar4.5C @ 0.20. Closed the week at 4.85, shares called. (0.20 + 0.05)/4.45 = 5.6%.
First Week Scorecard
So what did this first week of trades come out to? Well this is a small account, $3600 margined to ~10k, and not all the trades were the same dollar size, it was just whether I could afford 100 or 200 shares of each ticker, while trying to open 8-10 positions. I didn’t dollar-weight average each return, but marking trade open on Tuesday or Wednesday to trade close on Friday 3/4, the 7 wins and 1 loss look like this:
3.9 + 1.9 – 5.1 + 5.5 + 3.9 + 3.1 + 6.9 + 5.6 = 25.7%. Divide that by 8 positions to get 3.2% net return for the week, which simple-annualizes to about 160%.
Pretty crazy, right? I know that’s pretty simplistic, but note that SPY was down 0.2% this week, so it wasn’t a case of a “rising tide lifting all my boats.” And some of the trades I initiated I shouldn’t have, so I’ll be fine-tuning that.
New Type of CC – Diagonal Call Spread
Instead of buying 100 shares of a stock to sell a CC on, we can buy the OPTION to buy the stock at some price that’s lower than the current spot. In other words, we can buy an ITM Call. A couple of reasons you might do that: 1) If the stock goes up, the Call goes up, so it can be a way of betting on a stock’s performance using less money. 2) If I hold the right to buy a stock at some price, then I can sell the right to buy that stock at a higher strike price. Which is the same idea as a Covered Call, only the collateral isn’t the stock, but the guarantee we hold that we can obtain the stock at a lower price. I did that on Friday 3/4 with the ETF SLV. Let’s see how it played out:
SLV 3/4, Friday: It was in a nice up-trend, 4% in the last 5 days, and spot was 23.65 when I paid 1.38 for the right to buy it at 23 anytime before April 8, 2022, 5 weeks later. Let’s unpack that. Earlier I talked about selling an ITM option; well here I’ve bought one. Because the ETF’s price was 65c higher than the strike price I bought the Call option for, that 65c is intrinsic value: if the ETF stays exactly at 23.65 until expiration, then that 23C will have a real value of 65 cents (I could exercise, buy the shares at 23, then turn around and sell them at the market price of 23.65). So then what’s the other 73c of the premium I paid? It’s extrinsic value, or the time-value the market puts on that option contract. That’s what we’ve been selling all along, time value, which is essentially the underlying hope/expectation that an underlying will go up.
I then sold the 11Mar 24.5C for 0.24, just like the earlier CC trades. And just like we calculated ROI on those trades as Premium/Stock Price, we can calculate ROI for a Diagonal as Premium Received/Premium Paid = 0.24/1.38 = 17%. “SevenTEEN percent, Mike @10DT?!? That’s a LOT more than the CC trades!” Yes it is, but also more risky. If SLV goes below 23 (as it did 12 days later), then that option we hold has a real value of zero; and it’s time value is constantly decaying as it approaches expiration. With less and less time for SLV to rebound, there’s less and less chance of it getting back to 23, so nobody wants to take that bet.
Monday 3/7 it opened flat and stayed about the same, but then Tuesday it shot up to 24.90. But that fizzled out over the week and it closed Friday at 23.87. Monday 3/14 it opened at 23.37 and stayed in the 23’s all that week, and pretty much the following week of 3/21, until I closed the position on Friday 3/25. But I didn’t just open the trade and forget it, only taking in the initial premium of 24c. I “rolled the option down and out” several times, following the price of the ETF down:
Friday 3/11 I bought back that 11Mar24.5C for 0.02, then sold the 18Mar24C for 0.44 (notice that I went out a week and down a strike). Wednesday 3/16: BTC for 0.05, then STO the 25Mar24C for 0.23 (rolling out). Monday 3/21: BTC for 0.10, STO the 25Mar23.5C for 0.18 (rolling down). Tuesday 3/22: BTC for 0.09, STO the 25Mar23C (rolling down again) for 0.18.
Thursday and Friday 3/25: SLV started going up, and the 23 short call was ITM, so I bought it back for 0.49 (more than I’d paid for it), and rolled out by selling the 31Mar23C for 0.66. 3/28, Monday: BTC that 23C for 0.36, STO 1Apr23.5C for 0.19. 3/29, Tuesday: BTC 0.06, STO 23C 0.12.
So as of Tuesday 3/29 the trade stands like this: premiums are (24c – 2) + (44c – 5) + (23c – 10) + (18c – 49) + (66c – 36) + 19c = 22 + 39 + 13 – 31 + 30 + 19 = 1.54. But the trade isn’t closed yet, and my Long Call is now only worth 0.42, so it’s lost 0.96. Subtract that from the option premiums to leave 0.58, and ROI is 58/1.38 = 42% over 25 days. But it closed today at 22.91, below the strike of my long call, so if SLV doesn’t recover above 23 by 8Apr that Call will be worthless and I’ll have lost more on it than I made on selling premium. Maybe I should’ve spread the Diagonal further out than 5 weeks, or gone deeper ITM so the strike wouldn’t be breached and some residual value would have remained. I’ve got one more week after this to sell another Call, so we’ll see what happens.
Week of March 7th
One thing I’m liking about this strategy is that it really focuses me on finding tickers that are trending up, AND it’s on a short enough timeframe that by default I actively monitor them. I’ve always been a momentum type of investor: find a stock or ETF that’s gone up over the last month or three and buy it, because it’ll probably continue to go up for at least a little while. But then I’d lose track of them, and they’d go up alright, but before I noticed and took action to sell, they’d be heading back down.
So today, Monday March 7th, I was struck by this observation: the S&P500 was down 2.9% today, but most of the tickers I’m trading went UP. Some substantially, like 2, 3, 13, & 16%! Let’s get into the numbers with new trades today, in the order I did them.
WEAT 3/7, Monday in my cash account: ohmygosh, this one was CRAZY! I got lucky on it, but it was also a case of preparation meeting opportunity. I identified it over the weekend as a hot runner, but it only has monthly options, so I’d be in the trade for 2 weeks. But the price trend made the numbers look really good. So before Monday’s open I put in a Market order for the “buy-write” because I REALLY wanted to be in this trade. WEAT closed Friday at 12.28, and my price target for Friday 3/18 two weeks later based on last week’s trend was 17.50, 42% higher.
So I had some choices to make about which strike to sell. WEAT was below 12 in the pre-market, so normally I would’ve gone to the first OTM, the 12C, but I didn’t want to cap all of what I was pretty confident would be a large upside (up to 17 or so). But I also didn’t want to go all the way out to the 17C because there wasn’t a lot of premium there. And the premium is guaranteed, while the appreciation isn’t, so I compromised at 14, 2 strikes OTM.
My pre-staged order bought 100 shares at 09:30 Monday 3/7 for 11.40, and sold the 14C for 1.15. That’s 1.15/11.40 = 10% yield just on the time premium (over 2 weeks though). That’s CRAZY, especially since that Call was 2 strikes out of the money. WEAT opened at 11.35, and I got in just 5c higher than that, which was great because it rocketed up 13% over the day, closing at 12.28. So WEAT has already appreciated 0.88, a gain of 7.7% plus the 10% from the premium. But it’s a 2-week trade, so divide that in half. And it’s well on its way to hitting the 14 Call strike, which would make max profit on this trade 32% in 2 weeks. [(14 – 11.40) + 1.15] / 11.40. That’s insane, but let’s see if it does it.
WEAT continued, 3/8: BTC the 18Mar14C for 1.00. Bought 3 more lots of 100 shares at 11.38, 11.38, & 11.36, so cost basis on 400 shares is 11.38. STO (4) 14Apr20C for 0.57. 3/10: BTC those for 0.25. WEAT was collapsing (opened at 10.50, closed at 10.01), so playing around with strike prices and trying to keep my 400 shares from being called away, I did this: STO single 14Apr Calls at 9 for 1.50, 10 for 1.15, 11 for 0.85, & 12 for 0.65. 3/17: BTC the 9C for 1.55 (lost 5c), and the 11C for 0.65 (made 20c), STO (2) 20May12C for 0.70. And then it got too hard to follow because I was selling all the long Calls I’d bought on WEAT. I lost a lot on those, but I suspect this CC trade was working out okay. Especially because it was against stock and not a long Call.
The strong performance of WEAT last week and Monday 3/7 led me to close everything out Tuesday and devote all my dollars to long calls in WEAT. So below are the trades I put on Monday and then closed first thing Tuesday morning without regard to profit or loss.
CLF 3/7, Monday: did well last week and got called away, so I did it again: 27.31, 28.5C @ 0.63. It started out Monday in a nice uptrend, but then gave it all back before EOD. Something I’m going to start doing better on is taking profits: “they” recommend you buy back your Calls if they’ve made a certain amount of profit. Some say 50%, some say 75%, while a few say more than that. I noticed after lunch that the Call I’d sold for 0.63 was worth less than half that, so I BTC’d it for 0.24. That locked in a gain of 0.39, putting my cost basis below 27. And since I didn’t like the price action I dropped down 3 strikes and sold the 27C for 0.56. CLF ended the day at 26.06. Cost basis is 26.51, but CLF should trend back up on a flat or up market day. Tuesday, 3/8: BTC the 27C for 0.30, sold for 25.27, . (25.27 – 27.31) + [(0.63- 0.24) + ( 0.56 – 0.30)] = -2.04 + [0.39 + 0.26] = -1.39/27.31 = -5.1% in 1 day.
RRC 3/7, Monday: Another new one: 26.55, 30C @ 0.27. 3/8, Tuesday: BTC for 0.44, sold for 27.33. (27.35 – 26.55) + (0.27 – 0.44) = 0.80 – 0.17 = 0.63/26.55 = +2.3% in 1 day.
SOXS 3/7, Monday: It returned 5% last week, so I ran it again: 5.11, 5.5C @ 0.26. I should’ve given this one more room to run, because it blasted up 15% today, closing at 5.59, and hitting max profit of 12.7% for the trade. I’ll have to noodle on this one: close tomorrow and do it again, or let it ride? 3/8, Tuesday: BTC for 0.53, sold for 5.52, . (5.52 – 5.11) + (0.26 – 0.53) = (0.41 – 0.27) = 0.14/5.11 = 2.7% in 1 day.
SWN 3/7, Monday: 5.75, 6C @ 0.16. 3/8, Tuesday: missed selling this one somehow. Stock is down 0.14 but Call is up 0.03, and trend is still in place, so I’ll let it run. It’s only using $336 of BP. 3/10, Thursday: BTC for 0.05, STO the 18Mar6C for 0.20. 3/11, Friday: BTC for 0.11, STO the 19Jan2024 7C for 1.52. I think I went so far out because I was in a margin maintenance call on that account and was trying to raise some cash. 3/15, Tuesday: SWN dropped over the weekend so I closed out the trade: BTC for 1.56, sold for 5.06. (5.06 – 5.75) + (0.16 -0.05) + (0.20 – 0.11) + (1.52 – 1.56) = -0.69 + 0.11 + 0.09 – 0.04 = -0.54/5.75 = -9.4% over 8 days.
VALE 3/7, Monday: a new one I found over the weekend. 20.75, 21C @ 0.22. 3/8, Tuesday: BTC for 0.11, sold for 20.20. (20.20 – 20.75) + (0.22 – 0.11) = -0.55 + 0.11 = -0.44/20.75 = -2.1% in 1 day.
WOOF 3/7, Monday: 18.27, 18C @ 1.20. I didn’t have a strong conviction on this one, hence the slightly-ITM strike. Last week’s price trend was slightly positive, but choppy. By selling the ITM Call, I let the buyer give me the 27 cents that spot was over the strike, and only sold him 93c worth of time premium. I essentially let him buy me an insurance policy to cover 27c to the down side. These kinds of trades are calculated as time premium divided by strike: 0.93/18.00 = 5.1% yield. That 5% return is why I went with this trade. WOOF closed down 3% Monday (same as the market) at 17.69. But my cost basis is 17.07 so it might work out okay. Tuesday (because of WEAT): BTC for 1.01, sold for 18.25. (18.25 – 18.27) + ( 1.20 – 1.01) = (-0.02 + 0.19) = 0.17/ 18.27 = 0.9% in 1 day.
3/9, Wednesday: Started trading my wife’s ROTH IRA using CCs, so I’ll start including them here with my trades. Balance was $9,379. On 4/6, 28 days later, it was $9,627. That’s up 2.6%, or 0.6% per week. It did really well the first week, 3.x%, the next week a little less, the next week a little less, and the 4th week it actually lost money. I’ll have to study what’s going on there by looking at all the past trades. 4/13, Wednesday: balance 9950, so 6.0% in 5 weeks.
BNO 3/9, Wednesday: 33.75, 18Mar35C for 1.43. BTC’d it 3/9 (same day) for 0.72 (half-profit reached), STO the 18Mar33C for 1.10 (rolled down). 3/17, Thursday: BTC for 0.05, STO the 14Apr33C for 1.35 (rolled out, only monthlies on this one. I’ll probably avoid monthlies in the future.) 4/4, Monday: BTC for 0.45, STO the 32C for 0.65. 4/6, Wednesday: BTC for 0.30, STO the 30C for 0.75. 4/7, Thursday: BTC for 0.35, STO the 29C for 0.70. Nice premiums on this one, but I’ve been having to follow the ETF’s price down, and it’s down to 29.21, or – 4.54. But the premiums add up to 5.55, so overall the trade is up 1.01/33.75 = 3% in 4 weeks. BNO is oil, and with the war and everything it’s bound to turn before long. So as long as premiums keep the trade above water I’ll hold onto it.
GSG 3/9, Wednesday: CC 24.36, 18Mar 24C for 0.80. 3/17, Thursday: BTC for 0.08, STO 14Apr 24C for 0.88 (monthlies on this one too). 4/4, Monday: BTC for 0.35, STO 23C for 0.65. 4/7, Thursday: BTC for 0.32, STO 22C for 0.65. (Note that net premium from 1st sale was 0.80 minus the 36c that the 24C was ITM = 0.44, minus the BTC at 0.08 = 0.36.)
SLV 3/9, Wednesday: CC 23.91, 18Mar 24.5C for 0.42. 3/17, Thursday: BTC for 0.03, STO 25Mar 24C for 0.22. 3/22, Tuesday: BTC 0.05, STO 23.5C 0.08. 3/25, Friday: BTC 0.04, STO 31Mar23.5C for 0.36. 3/29, Tuesday: BTC 0.04, STO 1Apr22.5C 0.20. 4/1, Friday: BTC 0.28 (a debit), STO8Apr22.5C for 0.46. 4/5, Tuesday: BTC 0.22, STO 14Apr22.5C for 0.40. SLV closed today at 22.41, so P/L so far: (22.41-23.91) + [(0.42-0.03)+(0.22-0.05)+(0.08-0.04)+(0.36-0.04)+(0.20-0.28)+(0.46-0.22) + 0.40] = (-1.50 stock) + (1.48 premium) = +0.02, divided by 23.91 is almost 0.1 %, for 26 days of work. Hardly seems worth it, so what am I doing wrong?
WEAT 3/9, Wednesday in my wife’s Roth: 10.70, 18Mar11C for 0.86. 3/17, Wednesday: BTC for 0.09, STO 14Apr11C for 0.60. 3/29, Monday: BTC that call for 0.20, STO the 14Apr10C for 0.38. Spot is 9.90, so the trade stands at: (0.86 – 0.09) + (0.60 – 0.20) + 0.38 – (10.70 – 9.90) = 0.77 + 0.40 + 0.38 – 0.80 = 0.75/10.70 = +7.0% in 20 days
Week of March 14th
Bloodbath in WEAT long calls. Got greedy and thought it would continue to go up, up, up. Don’t do that again. Stick to the plan: Covered Calls on trending underlyings, targeting 2% per week or more.
BITO 3/17, Thursday: bought the 14Apr22C/25Mar26.5C Diagonal for 3.62. 3/22, Tuesday: sold it for 3.99. 3.99/3.62 = 10.2% in 3 trading days.
FXI 3/17, Thursday: bought the 22Apr27C/25Mar32C Diagonal for 4.17. 3/21, Monday: sold for 4.41. 4.41/4.17 = 5.7% in 2 trading days.
Week of March 21st
BBBY 3/21, Monday: Diagonal, bought the 14Apr20C for 5.12, sold the 25Mar24.5C for 0.85. 3/23, Wednesday: rolled out & down – BTC for 0.59, STO 1Apr23C for 1.66. 3/28, Monday: in the afternoon BBBY went on a tear (WallStreetBets, maybe?), overrunning my short call, so I rolled out at 15:53: BTC for 3.69 and STO the 9Apr24.5C for 3.71 (a 2c Net Credit). 3/29, Tuesday: still hammering up, so at 9:58 I rolled up and in: BTC 3.85, STO 1Apr32C for 0.73. I don’t think I’ve ever done that before, rolled in, or to a sooner expiration, but it made sense at the time. I went pretty high on the strike, so hopefully I have some breathing room now. BBBY closed today at 27.23. At the time I sold that premium of 0.73, spot was at 26.42, so that represented about a 2.7% ROO. The volatility was jacked up because price was climbing so fast, so I was able to go 10 strikes OTM and still get the 2% I like to see. Wow. 3/30, Wednesday, 10:24: Rolled down to the 27.5C for 0.29 credit. 11:44: closed the position for a credit of 5.12 (sold long Call for 5.52, BTC’d short Call for 0.40). P/L: Premiums (0.85-0.59)+(1.66-3.69)+(3.71-3.85)+(0.73-0.36)+(0.65-0.40) = 0.26-2.03-0.14+0.37+0.25 = -1.29. That doesn’t look good. Let’s see how the long Call fared: 5.12 – 4.27 = 0.85. And finally: -1.29 + 0.85 = -0.44, divide that by the purchase price of the long Call and the trade is: -0.44/5.12 = -8% in 9 days.
All that work and I lost 8%! On a stock that went from 23 to 28 over that time. A couple of learning points: ‘they’ say to never roll out for a DEBIT, but I thought I was smarter than ‘them’. I’m not. And I’ve learned since this trade to only roll Calls late on expiration Friday. That way most of the time value is burned out of it, so you’re mostly just paying for the intrinsic value. If you’re holding stock then it has appreciated that much too, so you’re just giving that appreciation from the sold strike to current spot to the option holder, but you still have the stock. And you still have the Premium. And if you sold an OTM Call then you still have the appreciation from spot at time of sale to the sold strike. If you’re holding a long Call though instead of stock it’s the same idea, but more complicated, and I haven’t fully figured that out yet.
FXI 3/21, Monday: bought the 14Apr28C/25Mar32C Diagonal for 3.47. 3/22, Tuesday: sold for 3.76. 8.3% in 1 day.
BITO 3/22, Tuesday: bought the 8Apr24C/25Mar27C Diagonal for 2.90. 3/23, Wednesday: Rolled out to 31Mar27C for 0.45 Credit. 3/28, Monday: sold for 2.95. P/L: (2.95 + 0.45)/2.90 = 17.2% in 4 trading days.
ZIM 3/22, Tuesday: bought the 22Apr75C/25Mar81C Diagonal for 5.80. 3/23, Wednesday: sold for 6.38. 10% in 1 day.
ACB 3/23, Wednesday: CC at 3.82 / 25Mar4C for 0.08. 3/25, Friday: Rolled out, BTC for 0.34, STO the 1Apr4C for 0.59. 3/28, Monday: Closed by selling the stock for 4.02, BTC for 0.31. P/L: (4.02 – 3.82) + (0.08 – 0.34) + (0.59 – 0.31) = 0.20 – 0.26 + 0.28 = 0.22/3.82 = 5.7% in 3 trading days.
ACB in a different account, 3/23, Wednesday: CC at 3.69 / 25Mar3.5C for 0.26. 3/25, Friday: Rolled out, BTC for 0.99, STO the 1Apr5C for 0.26. 3/28, Monday: Closed by selling the stock for 4.19, BTC for 0.16. P/L: (4.19 – 3.69) + (0.26 – 0.99) + (0.26 – 0.16) = 0.50 – 0.73 + 0.10 = -0.13/3.69 = -3.5% in 3 trading days.
APPH 3/23, Wednesday: CC at 6.35 / 25Mar6C for 0.48. 3/25, Friday: Rolled out, BTC for 0.04, STO the 1Apr6C for 0.30. 3/28, Monday: Closed by selling the stock for 5.93, BTC for 0.35. P/L: (5.93 – 6.35) + (0.48 – 0.04) + (0.30 – 0.35) = -0.42 + 0.44 – 0.05 = -0.03/6.35 = -0.4% in 3 trading days.
BTBT 3/23, Wednesday: bought the 14Apr3C/25Mar4C Diagonal for 0.85. 52 minutes later: sold for 0.89. 4.7% same day.
BTBT again 3/23, Wednesday: bought the same Diagonal for 0.94 (Long C 1.09, Short C 0.15). 3/25, Friday: rolled out the short Call to 1Apr4C for 0.15 net credit. 3/31, Thursday: rolled out and down to 8Apr3.5C for 0.36 credit. 4/6, Wednesday: rolled out to the 14Apr3.5C for a 0.05 credit.
ATER 3/23, Wednesday: CC at 2.70 / 1Apr3C for 0.12. 3/25, Friday: Rolled down, BTC for 0.03, STO the 1Apr2.5C for 0.18. 3/28, Monday: Closed by selling the stock for 2.35, BTC for 0.09. P/L: (2.35 – 2.70) + (0.12 – 0.03) + (0.18 – 0.09) = -0.35 + 0.09 + 0.09 = -0.17/2.70 = -6.3% in 3 trading days.
CLOV 3/23, Wednesday: CC at 3.80 / 25Mar4C for 0.08. 3/25, Friday: Rolled out, BTC for 0.01, STO the 1Apr4C for 0.08. 3/28, Monday: Closed by selling the stock for 3.40, BTC for 0.05. P/L: (3.40 – 3.80) + (0.08 – 0.01) + (0.08 – 0.05) = -0.40 + 0.07 + 0.03 = -0.30/3.80 = -7.9% in 3 trading days.
HUYA 3/23, Wednesday: bought the 14Apr5C/25Mar6C Diagonal for 0.85 (0.95 & 0.10). 3/25, Friday: rolled short Call to the 1Apr5.5C for a credit of 0.15. 3/30, Wednesday: rolled to 5C for 0.08 credit. 3/31, Thursday: rolled to 8Apr5C for 0.07 credit. 4/1, Friday: HUYA closed at 4.63, so the sold option expired worthless and I kept the whole 7c. Still hold the 14Apr5C that I’ve been selling calls against, and have 1 more week in which to do that. But it’s underwater and only worth 10c now, and I can’t sell the 14Apr5C against it because that would just close it out. Could go up to the 5.5C, but there’s only a few cents premium in that, and it might not even fill Monday. I guess I can sell the ITM 4.5 against it; here over the weekend it’s still got 15c of extrinsic value in it (using Midpoint).
Week of March 28th
REMINDERs: DON’T ROLL UNTIL EXPIRATION DAY! DON’T ROLL FOR A DEBIT!
CTRA 3/28, Monday: Diagonal, bought the 6May25C for 3.83 / sold the 1Apr29C for 0.33. 3/29, Tuesday: BTC 0.15, STO 1Apr27.5C 0.40. 4/1, Friday: BTC for 0.05, STO 1Apr 27C 0.10. Later Friday: BTC for 0.19, STO 8Apr27C 0.71. Don’t remember why I did that. 4/4, Monday: BTC 0.35, STO 8Apr26.5C 0.50. 4/8, Friday: CTRA rallied 7% today, blowing through my short Call, so I rolled that up and out with BTC for 1.27, then STO the 29Apr27.5C for 1.37 (a net credit of 10c on the roll).
USO 3/28, Monday: Diagonal, bought the 20May64C for 14.60 / sold the 1Apr77.5C for 1.81. 3/29, Tuesday: USO trended up to 76.15 today, so BTC for 0.74 and STO 76.5C for 1.14 to get closer to the money. 3/31, Thursday: BTC 0.55, STO 75C 0.69. 4/1, Friday, 10:38: BTC 0.15, STO 74C 0.36. 15:59: BTC 0.25, STO 8Apr74C 2.08. 4/7, Thursday: BTC 0.50, STO 73C for 0.90. 4/8, Friday: BTC 0.40, STO 14Apr73C for 1.83
MNKD, 3/30, Wednesday: CC 3.71 / 14Apr4C for 0.11.