Selling Covered Calls and Naked Puts

[NW-Bound]

If you want to sell puts, premiums are high today!

Only did one put contract today. I already had to buy more than $300K worth of stock last Friday.

My stock AA is inching up again. As much as I love stocks, I need to watch my AA. Not too different than loving steak, but one still has to watch his diet.

 

[NW-Bound]

Just took a quick look, and I have collected $14K in option premium YTD.

This is actually below my trading level in 2020, and 2021.

In 2020, I collected $318k in option premium. In 2021, it was $271k.

 

[aja8888]

Just took a quick look, and I have collected $14K in option premium YTD.

This is actually below my trading level in 2020, and 2021.

My goal is to do about 1/10 of your volume. But I only sell contracts on a handfull of stocks.

 

[chassis]

Just took a quick look, and I have collected $14K in option premium YTD.

This is actually below my trading level in 2020, and 2021.

In 2020, I collected $318k in option premium. In 2021, it was $271k.

@NW-Bound thanks for posting, I was going to ask you how you did in 2021. For the $271k in premia received, how much capital was at risk and what stock transaction profit/loss did you realize on shares that were put to you?

This is helpful because I am considering wading into options when I have the time to do it. Your posts are here educational and the span of time you have covered gives context and perspective.

 

[NW-Bound]

I provided some details earlier in the thread. See post #289, for example.

Roughly, I wrote covered calls option on about $1.5M worth of stocks, not on all my stock holdings. These are usually the stocks with higher volatility than the entire market, such as semiconductor, energy, and mining stocks. Occasionally, for a lark I would write a call on sleepy stocks such as pharmas (JNJ, PFE, MRK), or Walmart.

Some parts of the equity holdings I cannot write calls on because they are MFs, or have no option, or the options have too low a premium to be worthwhile.

I hold a 7-figure cash position, but do not commit more than $500K to writing puts. Not all my cash can be used for put covering, such as I bond, and 401k Stable Value fund.

As I explained often, it's the total return of the entire portfolio that counts. I mentioned the dollar value to show that my trading activities pay well per the devoted time.

For the last 3 years, a person could have the same total return if he invested 100% in the S&P. However, I am only 60 to 80% in stocks.

 

[NW-Bound]

About the puts that were assigned to me, it's hard to account for the total effect.

By definition, when a put gets assigned, I have to buy the stock at a price higher than the market price. The immediate loss on the stock is partially cancelled out by the put premium that I received. Sometimes, it still results in a net gain, but quite often it results in a significant net loss.

However, we have been in a bull market, and the stocks that I had to buy usually turned around and later resulted in a net gain. This gain is via covered calls that I wrote after the put got assigned, and the eventual sales of the stock.

Again, it's the total return that counts, inclusive of all option trading.

 

[Sunset]

I sold a put on QQQ for Strike price of 344 earlier today. I do want the stock so anticipate it will be assigned.
It's a 4 day option.
I received ~$620 for that.

Certainly makes the day more exciting.

 

[aja8888]

Post #403 - My Ford put expires tomorrow. This market has been bouncing up and down daily like a cork in the ocean.

 

[NW-Bound]

I sold a put on QQQ for Strike price of 344 earlier today. I do want the stock so anticipate it will be assigned.
It's a 4 day option.
I received ~$620 for that.

Certainly makes the day more exciting.

^^^ There ya go! A gain of $620 on a capital of $34,000 in just 4 days is not bad.

The next step is to do that every day.

 

[aja8888]

I sold a put on QQQ for Strike price of 344 earlier today. I do want the stock so anticipate it will be assigned.
It's a 4 day option.
I received ~$620 for that.

Certainly makes the day more exciting.

Explain to me how it's a 4 day put option if you sold it today? Don't all option periods end on Friday?

If you sold it today, it would be either one day or six day expiration? Correct?

 

[finnski1]

Explain to me how it's a 4 day put option if you sold it today? Don't all option periods end on Friday?

If you sold it today, it would be either one day or six day expiration? Correct?

No. they don't always end on Fridays. Thee is one that expires on Monday Jan 31. Hence 4 days away.

 

[Sunset]

No. they don't always end on Fridays. Thee is one that expires on Monday Jan 31. Hence 4 days away.

Thanks, I was starting to wonder if I read it wrong

 

[MRG]

Explain to me how it's a 4 day put option if you sold it today? Don't all option periods end on Friday?

If you sold it today, it would be either one day or six day expiration? Correct?

The Q, Spy and Have different expirations than equities. If someone knows why I love to know the reason.

 

[NW-Bound]

Back around 2000 when I started to dabble in option trading, there were only the traditional monthly options that expired on the 3rd Friday of the month.

Then, at some point which I forgot, they had weekly options with Friday expiry.

Then, they had mid-week options on some index ETFs. Of course, these ETFs have more trading volumes, hence more interest on option trading.

I guess there was a demand for it, and market makers/brokers were glad to oblige.

 

[aja8888]

No. they don't always end on Fridays. Thee is one that expires on Monday Jan 31. Hence 4 days away.

Thanks, I didn't know that!

 

[finnski1]

Thanks, I didn't know that!

 

[NW-Bound]

Forgot to say, there are still stocks with no options available. These don't have enough followers for brokers to offer options on them.

And some stocks still have only monthly options, and not weekly options. It's also because they are not widely followed.

 

[Happyras]

Perhaps not the exact place to post this, but considering we may be entering another lost decade I am looking for an easy way to start using calls. We have SWAN, but it is too deep into bond risk at this point. I read this article https://seekingalpha.com/article/4457415-entering-a-lost-decade-for-the-s-and-p-500-how-to-trade-it
I was wondering if this Eaton Vance EOI fund would be a good lazy way to play covered calls, since picking the 61 stocks and 30 plus calls might be more difficult? Anyone use EOI in lieu of individual calls or is there another fund? EOI has a 7% yield due to calls, and I assume going forward it will not have much equity performance.

 

[Sunset]

I sold a put on QQQ for Strike price of 344 earlier today. I do want the stock so anticipate it will be assigned.
It's a 4 day option.
I received ~$620 for that.

Certainly makes the day more exciting.

I was feeling smart when the price sagged to $342 by avoiding buying it at the $344.

At the end of the 4 days, QQQ got to ~$362 on the Monday, I would have made $1,800 if I had bought and sold the shares instead of doing the option.

 

[NW-Bound]

I was feeling smart when the price sagged to $342 by avoiding buying it at the $344.

At the end of the 4 days, QQQ got to ~$362 on the Monday, I would have made $1,800 if I had bought and sold the shares instead of doing the option.

Eh, that's the name of the game. Risk and reward go together. Writing OTM puts is less risky than buying the stock outright. So, you often make less money. But if things don't go your way, you will lose less.

Hence, I try to never let a single trade bother me, even though this is hard to do even after so many years and many thousand trades. It's the overall long-term performance that counts.

And who knows, the market may slump again next week, and you will be glad you did not buy the shares. Now, you can write another put and make some more money.

Money coming in day in/day out. For me, it adds up to around $250K-300K each year. I don't get rich quick, but it buys a lot of Wagyu beef and imported booze. Too bad I don't eat and drink much anymore, but few hobbies are fun and make you money at the same time.

 

[Running_Man]

The annualized return on the 4 day QQQ was unreal, 166% annualized. Shows how high option premiums have gotten and the volitility of QQQ. I have been timing puts on FNV and GLD and earning around 41% annualized on the put options I have been buying and thinking that was too high.

On the other end of the spectrum 2 year treasury bonds yield $640 for an entire year on $40,000 worth of bonds.

 

[Fermion]

Money coming in day in/day out. For me, it adds up to around $250K-300K each year. I don't get rich quick, but it buys a lot of Wagyu beef and imported booze. Too bad I don't eat and drink much anymore, but few hobbies are fun and make you money at the same time.

Generating $300k a year seems risky unless you are playing with high seven figures?

 

[Running_Man]

Generating $300k a year seems risky unless you are playing with high seven figures?

A return of 300K on a million of capital at risk is easily doable with the returns I have seen, as long as you are selling covered calls and puts. I have several puts I own now, which I would be quite ok with having stock put to me that are returning 40%+ annually. The downside is you must have this as a quite active hobby. The risk is really lower than investing in the stock market, the rewards are lower in upside, but the offset is consistent income.

Had I been interested in TESLA I think you could easily earn 40% of the share price in a year if you are willing to own the stock.

 

[pb4uski]

A return of 300K on a million of capital at risk is easily doable with the returns I have seen, as long as you are selling covered calls and puts. I have several puts I own now, which I would be quite ok with having stock put to me that are returning 40%+ annually. The downside is you must have this as a quite active hobby. The risk is really lower than investing in the stock market, the rewards are lower in upside, but the offset is consistent income.

Had I been interested in TESLA I think you could easily earn 40% of the share price in a year if you are willing to own the stock.

When you sell a put on a stock that you wouldn't mind owning, what is the strike compared to the stock's trading price at the time you write the put option?

 

[Running_Man]

Presently for holding a TSLA 890 put for 10 days at $37 under the present price you would earn $2,100 or 75% of the TSLA price annualized. A covered call 40 points out of the money at 960 would garner $2,100 in premium, which if lost would mean over 6 percent return for 10 days of risk. So easily in one cycle of a month 8,200 of revenue could be generated from $93,000 of risk capital, if you actually wanted TESLA as there is always the stock risk of dropping precipitously in one day, and the potential of the stock running away from the call price. But that risk is actually minimized by the option premiums received.