A big portion of my fixed income AA is in a Black Rock T-Fund. Its yield varies, and used to pay 2% which would offset inflation, but is now only 0.01%/yr!
It is allowed to count as cash, for the purpose of covering put options. Hence, I have been writing deep out-of-the-money put options against that fund, in order to generate some income.
How much money have I got out of that activity? I know how much income I got from option premiums, but the total also includes the stock-covered call options. It will take me a bit of work to separate out the premiums from calls and from puts, but I would say the puts get me significantly more than the 2% yield from the "cash".
After making the above post, I decided to sit down to figure out for myself how much all that option selling made for me. It took a couple of hours.
Now, I use Quicken to download all financial transactions, and it can quickly tell me how much money I made from option trading. However, there's no way to separate out call and put option trading.
So, I had to download all account activities from my brokerage in a form of a CSV file, then imported it into OpenOffice to massage. It took me some time to fumble around, because I am not a spreadsheet wizard. I finally got the answer: roughly 1/3 of the gain from option trading comes from put options, while 2/3 comes from call options. This makes sense, as I still have more stock than cash.
Now, how do I compute the gain in terms of percentage? I now have the numerator, but what is the denominator? I know how much "cash" I hold in the T-Fund to backup the puts, but never use all of it. My trading activity varies with market condition. I think I have gone as high as 50+%, but it is usually around 25%.
But let's take the whole T-Fund balance as the denominator. Wow, my return on put options on that T-Fund balance is more than 15% YTD. It's better than I thought. In fact, in dollar amount, the put option premium is more than I spend in a year. Son of a gun!
But, but, but it's not that simple! About 90% of the puts expired worthless per my plan, but the other 10% ended up in-the-money, causing me to have to buy the stocks. Now, I rarely ever closed out an option, preferring to let it get exercised, because I only sell put options on stocks that I do not mind owning, and at a lower price than when I started the trade.
What then happened to those shares? Quite often, I lost a bit of money when the options got exercised and I had to buy the shares at a price above then market value and the option premium did not make up for it.
I turned around and sold call options on these new shares. Maybe not right away, but waiting a bit for the market to turn around. And I often make money on both selling these shares, in addition to booking another call premium. Still, right now, I am sitting on a bit of loss from some of these shares, but it's not that much.
So, you can see that accounting for all this is hard. What matters is the growth of the entire portfolio, and here I am doing OK, but not great.
To sum this up, my use of "cash" to cover put option selling is remunerative, and I will keep doing so.