LOL!'s Market Timing Newsletter

[NW-Bound]

^^^ What I get for selling options on my stocks will not help me to have a positive return, if the stocks drop in value and the drop is more than what I get for the option premium. I would still lose money, but lose less than if I did not sell options.

Last year, my stocks go up in value, but less than the strike prices that I set. I pocketed the option premium, and still had my stocks which went up in value. Very, very nice!

This year, it remains to be seen if it is going to play out the same. So far, so good, but it looks like option buyers are not as gunho. They don't pay as much for options, and I think it is because they don't think the stocks will go up further. Indeed, some stocks that were hot now struggle to go higher.

Oh well, these stocks are what I want to hold long-term. What I make on the options are icing on the cake (but of course I am greedy and want lots of icing ).

 

[NW-Bound]

With the market turning further south today, I counted 49 option contracts expiring worthless at market close today. There are 4 put contracts that are in the money, requiring me to buy some stocks.

Overall, the option selling makes me money, and reduces my losses when the market drops. However, I could have done more. I could have sold 5X more out-of-the-money call options. What kept me from doing it was FOMO. I did not like the idea of my stocks going up and up and my strike prices were too low, and the other side of the trade was going to buy all of my stocks, leaving me holding cash while the market went to the moon.

Yeah right! I was too greedy.

Now, it looks like the market is turning fearful. However, it's not easy for me to be more greedy. My stock AA is still around 75% (had some call options exercised last Friday), and I have been wanting to go down to 60%. If I had set the option prices lower, than would have sold off some shares, and can buy back to drive the stock AA back up.

At this point, I will sit tight, and wait to sell call contracts again when the market turns.

 

[finnski1]

With the market turning further south today, I counted 49 option contracts expiring worthless at market close today. There are 4 put contracts that are in the money, requiring me to buy some stocks.

Overall, the option selling makes me money, and reduces my losses when the market drops. However, I could have done more. I could have sold 5X more out-of-the-money call options. What kept me from doing it was FOMO. I did not like the idea of my stocks going up and up and my strike prices were too low, and the other side of the trade was going to buy all of my stocks, leaving me holding cash while the market went to the moon.

Yeah right! I was too greedy.

Now, it looks like the market is turning fearful. However, it's not easy for me to be more greedy. My stock AA is still around 75% (had some call options exercised last Friday), and I have been wanting to go down to 60%. If I had set the option prices lower, than would have sold off some shares, and can buy back to drive the stock AA back up.

At this point, I will sit tight, and wait to sell call contracts again when the market turns.

Wow. I'm impressed that you write that many contracts. Don't know that I would want to keep track of that many but I suppose it is pretty much automated when they expire worthless. Just keep the other guys money

 

[NW-Bound]

^^^ Last year, I wrote more than 2000 option contracts.

Yes, I prefer short 1-week contracts if available. They expire quickly.

And I'd like to set the price high enough so that they expire worthless, but not too high that the option premium is minuscule and not worthwhile. And that's why it takes time to monitor the market condition, and each of the stocks that I own.

The shares that are $100/share or less are easier to deal with. However, I have a few that are high-priced at $600+/share, such as LRCX ($640), ASML ($700), and each contract of 100 shares involves an amount money that I take seriously. Even Humana at $430/share, and Home Depot at $300 takes some consideration. The ones that are $50/share are easy; each contract involves only $5K.

I wish these companies would be splitting their shares, and not doing it like Berkshire Hathaway with the A-share.

Has anyone here written contracts for 100 BRK-A shares at $412,000/share? That's a cool $42 million per contract. That's many times my net worth.

The B-shares at $280 are more manageable.


PS. Just found out there's no option for BRK-A shares. I have done a few BRK-B options, because I do own the B-shares.

 

[NW-Bound]

The market dropped some more near the close. I just woke up from a nap to find this out.

Counted my positions. There are 55 options, mostly calls, expiring worthless today. On the put side, there are now 7 options that will be exercised (I am forced to buy more stocks).

The options expiring made me about $6500. The 7 puts that end up in-the-money make me buy stocks that are $500 above market close (after accounting for the option premium). Overall, the option selling made me $6K.

The gain of $6K of cash this week eases the pain of losing many times that this week. Just today alone, I lost more than 15x that $6K.

Hopefully, the 700 new shares of various stocks that I have to buy due to put options will make me money next week. Of course they could decline further, and cause me to lose more money.

Overall, this week has not been a good week for the market. We have not had one like this for a while.

 

[LOL!]

Sold the shares of AVUV that I picked up last week for a small profit. I was not helped by the drop that AVUV took on Friday. Also I captured the dividend which helped a little bit that will not be reflected in the share price. 041

 

[NW-Bound]

Sold 14 out-of-the-money covered call option contracts today, making not quite $1000.

Yesterday, sold only 6 covered call contracts, collecting $745.

Option buyers are not as bullish as before, and don't pay up like they used to. I don't see how I will beat the money I made last year, like I set the goal for myself at the beginning of the year.

Just another "reversion to the mean", I guess. Just ho hum return from now on.


PS. I have been refraining from writing cash-covered put options on stocks that went down. It's tempting, but I keep reminding myself that I should be lightening up my stock AA, which is at 77% now.

 

[NW-Bound]

I sold 14 out-of-the-money covered calls today, collecting $1,136 in option premium. The expiry is next Friday, July 2.

To share a bit more info, I will provide some numbers. The 1,400 shares of assorted stocks that I sold the contracts on are worth $128.5K today. The strike prices when added up together are $135.9K total.

The above numbers mean that if none of the stocks hit their strike price, the premium that I made, the $1136, is 0.9% of the current stock value of $128.5K. That's a "dividend" of 0.9% over 1-1/2 week, or 30%/year.

If my stocks all go up "to the moon", I still get only $135.9K, instead of a zillion dollar. That $135.9K represents a gain of 5.7% over the principal of $128.5K. I would just have to content myself with this 5.7% + 0.9% gain instead of a million percent.

I select the strike price of each contract according to the volatility of each stock. It varies from 2.5% to 10% above the current price. What are these stocks? Among the batch today are Alcoa, Applied Material, Chemours, etc..., down to X (US Steel).

Of course, I occasionally set the strike price too low, and "lost" a stock when the option gets "in the money", and I have to sell the stock. My records show that it happens less than 1 out of 10. And when it does, I usually sell put options to buy the stock back. These are stocks I want to own long-term, and just want to "rent" them out for the options.

And this is typical for each trading day over the course of 1-2 weeks until the options expire. I never run out of stocks to sell options on, because I ladder them. I don't think that I ever had more than 1/4 of my stocks on covered calls.

Why don't I do more than 1/4 of my stocks? Some stocks have such low volatility that the option premium is peanuts and not worthwhile. And I also never want to put all my stocks on contracts. I don't want to see a market surge taking me all to cash. That makes buying them back too difficult.

I found my style of option trading by observing the market, and experimenting over the years. I read no books on option trading, paid nobody any money to be trained, listened to no one. I don't watch CNBC, follow no guru, subscribe to no newsletters or blogs.

 

[LOL!]

@NW-Bound, is this happening in a taxable account or a tax-advantaged account or both? What's the tax situation like? I know that when I sold covered calls more than 20 years ago, all the profits were short-term just like ordinary income and taxed accordingly.

 

[fanmail]

selling short term covered calls in rising markets is great
nw-bound has a phenomenal system it seems
you want to buy this stock from me up 5% in 2 weeks and you want to pay me for that privilege whether it gets there or not, sure.

 

[aja8888]

All my call and put options are done in my IRA account. No tax stuff to deal with.

 

[NW-Bound]

@NW-Bound, is this happening in a taxable account or a tax-advantaged account or both? What's the tax situation like? I know that when I sold covered calls more than 20 years ago, all the profits were short-term just like ordinary income and taxed accordingly.

My wife and I both have IRA Rollover accounts from 401k, each with a 7-figure balance. I do 99% of the option selling there. No tax reporting. Would be a heck of a trouble, as I wrote more than 2,000 contracts last year.

The IRS tax rule is that even gains from LEAP contracts which you may hold for longer than 1 year are treated as ordinary income. If the options are assigned, and you have to buy/sell the underlying stocks, then there are some other considerations regarding the stocks. Again, none of these apply to before-tax accounts.

It would be very nice if I had Roth accounts as big as these IRA rollovers, but our Roths have only 6-figure balances. So, I do all my option trading in the IRA.

 

[NW-Bound]

selling short term covered calls in rising markets is great
nw-bound has a phenomenal system it seems
you want to buy this stock from me up 5% in 2 weeks and you want to pay me for that privilege whether it gets there or not, sure.

Selling short-term covered calls in a falling market is also good. It reduces your loss. But in a falling market, I will also sell cash-covered puts. And that's why I keep beaucoup cash.

However, whether in a rising or falling market, I still try to set the strike prices high enough so that the contracts expire worthless. Remember that I only own stocks I want to hold long-term. In a bear market, a stock may rebound quickly and the option may force you to sell too early and lock in your loss. It's tricky.

It's a wonderful feeling when an option is set at, say $75, and the stock closes on Friday at $74.8. Ka ching!

And quite a few times, the stock may close just a bit higher, say $75.3 and I have to sell at $75. Yabut, I already pocket the option for $0.9, so in effect sell it at $75.9. Ka ching!

And then, on Monday, the market tanks, and the guy who bought the stock from me now owns a $73 stock. I buy it back lower than I sold on Friday. Ka ching again!

You can see how this can be so much fun!

The way I am doing this, I don't try to get rich quick by counting on a stock growing 2x, or 3x in a year. I don't bother with IPO or vaporware promising stocks. I am not looking for the next Google or Amazon. All I need is a few % more than a guy who just buys and holds good solid stocks and does nothing else.

It has been proven that a guy who buys and holds good stocks will win in the long run. And if I beat him by a little bit, I am happy.

 

[NW-Bound]

Sold 10 more contracts today to collect a total premium of $1061. Some are with expiry 7/2, some on 7/16.

Stock market went up nicely today, and recovered all the losses last week. The S&P, and particularly the NASDAQ set new high.

Yet, I have not recovered to my previous high. A closer look shows that the DOW has not recovered last week loss either. As I have some old-style stocks, that explains why I am also trailing behind.

 

[Running_Man]

I sold 14 out-of-the-money covered calls today, collecting $1,136 in option premium. The expiry is next Friday, July 2.

To share a bit more info, I will provide some numbers. The 1,400 shares of assorted stocks that I sold the contracts on are worth $128.5K today. The strike prices when added up together are $135.9K total.

The above numbers mean that if none of the stocks hit their strike price, the premium that I made, the $1136, is 0.9% of the current stock value of $128.5K. That's a "dividend" of 0.9% over 1-1/2 week, or 30%/year.

If my stocks all go up "to the moon", I still get only $135.9K, instead of a zillion dollar. That $135.9K represents a gain of 5.7% over the principal of $128.5K. I would just have to content myself with this 5.7% + 0.9% gain instead of a million percent.

I select the strike price of each contract according to the volatility of each stock. It varies from 2.5% to 10% above the current price. What are these stocks? Among the batch today are Alcoa, Applied Material, Chemours, etc..., down to X (US Steel).

Of course, I occasionally set the strike price too low, and "lost" a stock when the option gets "in the money", and I have to sell the stock. My records show that it happens less than 1 out of 10. And when it does, I usually sell put options to buy the stock back. These are stocks I want to own long-term, and just want to "rent" them out for the options.

And this is typical for each trading day over the course of 1-2 weeks until the options expire. I never run out of stocks to sell options on, because I ladder them. I don't think that I ever had more than 1/4 of my stocks on covered calls.

Why don't I do more than 1/4 of my stocks? Some stocks have such low volatility that the option premium is peanuts and not worthwhile. And I also never want to put all my stocks on contracts. I don't want to see a market surge taking me all to cash. That makes buying them back too difficult.

I found my style of option trading by observing the market, and experimenting over the years. I read no books on option trading, paid nobody any money to be trained, listened to no one. I don't watch CNBC, follow no guru, subscribe to no newsletters or blogs.

Very interesting thanks for sharing so 300K/yr on 1/4 of the stocks yielding 30% means a return of 8.1% on a total stock portfolio of about 3.7 million dollars while only exposing 25% of the portfolio at any one time of being called away. Of course I think a good part of this is looking at a portfolio one designs and selling the most optionable stocks as you said, but that seems a prettty good setup to me. You are nevere going to be forced to pick to sell a stock to live on as the premiums are returning enough to fund quite a large withdrawal rate!

 

[Sniggle]

I have very recently moved a significant portion of my 401K to a Brokerage link account...essentially a brokerage account within the 401K framework. This has allowed me to invest in stocks, and sell covered calls on those stocks (as of today). I had some fun this morning selling covered calls across all the stocks in the account, banking around $17000 on $1.4 million in stocks, with most of the calls expiring at 7/2 or 7/16, all out of the money by at least 5% when written.

I had dabbled in covered calls in the past...but never had enough shares to make real money. I understand the risks, but this seems like a great way to extract a monthly income from 401K savings.

 

[aja8888]

Sold 10 more contracts today to collect a total premium of $1061. Some are with expiry 7/2, some on 7/16.

Stock market went up nicely today, and recovered all the losses last week. The S&P, and particularly the NASDAQ set new high.

Yet, I have not recovered to my previous high. A closer look shows that the DOW has not recovered last week loss either. As I have some old-style stocks, that explains why I am also trailing behind.

I've been selling puts on popular stocks and the premium pickings are now slim unless you go out several weeks. But a few contracts a day with close expiration dates seem to be working. If I can cover 1/3 my RMD pull per year doing this, all is good.

I don't have many stocks to sell covered calls on, but one I had (GM), I have played up and down this year for a very good return. I got called out on it twice and then I wait for it to fall again and buy it back then sell another call.

T is another one that trades in a distinct range and has been a good trade for me. All I sell is puts with T.

With the high outside temps now here in Texas, I am indoor most of the day so I have time to mess with options.

I did play golf with some friends yesterday and we suffered for it. Nine holes was all we could handle and I got home soaking wet from the humidity.

 

[NW-Bound]

... I had some fun this morning selling covered calls across all the stocks in the account, banking around $17000 on $1.4 million in stocks, with most of the calls expiring at 7/2 or 7/16, all out of the money by at least 5% when written...

Congrats. $17K on $1.4M in 1-1/2 weeks on the average, that's 42%/year. That's not too shabby.

The problem you will eventually run into is the "loss" of hot stocks that run up more than 5% at expiry, and you have to sell them. When that happens to me, I have to see if the bidding up is caused by a change in fundamentals. Perhaps the company has a breakthrough, or a major favorable news. Then, I have to see how I can buy it back via a put option, and how high a price I should set.

And I have also had a stock collapsing back below the price that I bought back, causing me to kick myself that perhaps I should wait or set the strike price of the put lower.

But generally, if I still end up with more money than if I do no option trading and just buy/hold the stock, then this option trading activity brings positive results and it's enough to make me happy.

 

[NW-Bound]

Very interesting thanks for sharing so 300K/yr on 1/4 of the stocks yielding 30% means a return of 8.1% on a total stock portfolio of about 3.7 million dollars while only exposing 25% of the portfolio at any one time of being called away...

The $300K I made last year included $100K I made by selling cash-covered puts, using a 7-figure cash position. And I also never used all of my cash to sell puts. I don't want to, plus it's not possible to pledge I bonds or stable value funds to write puts.

I don't want to share my total investable assets, but want to reiterate that the $300K on option premium I made last year may not be repeatable this year, despite having more assets this year (I made a 7-figure total gain last year).

Option buyers are getting leery of the long bull market. Or perhaps, there are too many option sellers now.

So far this year, I made only $140K. Or maybe I have slacked off, and not getting as busy as last year. When you spend more time to look at travel destinations and opportunities, you don't watch your stocks and options as much. Or perhaps I am falling in love with my stocks, and not as willing to sell contracts on them as I did last year.

 

[NW-Bound]

Another pitfall of call option writing is that in a bull market, the stocks that get called away from you are the hot stocks. Whether the big share price increase is due to technical reasons, genuine improvement of the stock fundamentals, or hype or meme, you still lose the stocks.

You still make money by definition by selling high, but when the gains of your hot stocks are capped by the options you sell, then your portfolio is going to trail the market. That's the price one must be prepared to pay: to give up the remote chance of a large gain, in exchange for a smaller gain but of more certainty.

 

[aja8888]

Another pitfall of call option writing is that in a bull market, the stocks that get called away from you are the hot stocks. Whether the big share price increase is due to technical reasons, genuine improvement of the stock fundamentals, or hype or meme, you still lose the stocks.

You still make money by definition by selling high, but when the gains of your hot stocks are capped by the options you sell, then your portfolio is going to trail the market. That's the price one must be prepared to pay.

For us little option trading guys, we try to make money by collecting premiums. The REAL option players are traders and are not in it to buy or sell the underlying equities. But that's OK.

 

[NW-Bound]

For us little option trading guys, we try to make money by collecting premiums. The REAL option players are traders and are not in it to buy or sell the underlying equities. But that's OK.

Sure. The real option traders trade only options and not the underlying equities.

Do all of them make money, all the time? If they do, then whom do they make money from? From little guys like us who trade conservatively?

This makes me suspect that there are big losers there, and I indeed read about some of them.

 

[aja8888]

Sure. The real option traders trade only options and not the underlying equities.

Do all of them make money, all the time? If they do, then whom do they make money from? From little guys like us who trade conservatively?

This makes me suspect that there are big losers there, and I indeed read about some of them.

Option traders make money on the pool of equities out there. It's like betting the horses. And there are losers and winners.

We are just skimmers.

 

[NW-Bound]

Surely, if I skim enough to add a few % each year to my portfolio, I am happy.

A lower and more reasonable goal can be attained more consistently. And when my WR is less than 1% like last year, heck, I underspend the dividend of my stocks already. I do not need to swing for the fences.

But making some extra money is always fun. As I said, it's a calculated game to me, and not pure gambling like some people tend to think.

 

[aja8888]

Surely, if I skim enough to add a few % each year to my portfolio, I am happy.

A lower and more reasonable goal can be attained more consistently. And when my WR is less than 1% like last year, heck, I underspend the dividend of my stocks already. I do not need to swing for the fences.

But making some extra money is always fun. As I said, it's a calculated game to me, and not pure gambling like some people tend to think.

I read here and there that many retirees are doing what we are with options as sort of a way to pump up income. One of my retired friends has now got the "options" bug after we discussed the methods.