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Old 04-04-2022, 08:34 AM   #481
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Thoughts on simultaneously selling out of the money covered calls and puts, no more than a week out? Seems like a reasonable way to reduce the overall number of exercised options, while hedging the timing/quality of purchases, for someone not interested in spending a lot of effort on finding deals.
I do sell OTM calls and puts on the same day, but usually not on the same stocks. I sell calls on stocks that go up big, and puts on stocks that go down a lot. I don't know how this reduces the number of exercised options, because both types could get exercised if my prognosis is wrong.

For the same stock, if I write a call and a few days later see that it looks like it will get assigned, I often write a put without waiting for the call to be assigned. If I still have many shares left of this stock and do not miss it, I set the put strike price lower than the call strike price. If I really want to get this stock back, I will set the strike price the same as the call. I would sell the put for the same expiration, then if that fails to get assigned, for the next week.

With the market as volatile as it has been, the stock often swung back, and the call did not get assigned but the put was. Now, I have more of this stock than I planned.

And that's how I intentionally reduced my stock AA to 60% early in the year, and saw it climb back up to 75%.
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Old 08-03-2022, 03:42 AM   #482
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I reached that milestone that I anticipated to happen this year: the cumulative premium collected from selling covered calls and puts reached the 7-figure mark.

It is currently $1,001,139 to be exact, as tracked by Quicken.

Much of this money was due to me being active in option selling in recent years. As of 1/1/2017, the amount was only around $10K.
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Old 08-03-2022, 05:41 AM   #483
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Congratulations! I'm not yet even up to your $10k of 2017, but I've only been doing cash covered calls for about 5 months as a short-term debt substitute.

I have been happy with the results. I've done 161 different transactions and yielded 4.54% after getting two written calls assigned to me... if it wasn't for those assignments my yield would have been 6.34%. I usually write calls that are about 20% OTM and a 1-2 months. Not a bad use for dry powder.
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Old 08-03-2022, 08:55 AM   #484
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I've done 161 different transactions and yielded 4.54% after getting two written calls assigned to me... if it wasn't for those assignments my yield would have been 6.34%...
Yes, the right way to evaluate the execution of option selling is to include the effects of the ones that get assigned. Compared to doing nothing, covered calls may result in you selling below market price, and puts may result in you buying at higher than market price. Just 2 assigned calls out of 161 trades knocked down your results quite a bit.

And then, it is still not as simple as counting the gain/loss of each trade individually. Here's an example from my actual trades.

Last Friday, I "lost" a lot of CAT (Caterpillar) to a call at 187.5, while the closing price was 198.25. One could say that the call cost me $1075 for the round lot.

Prior to the call expiry, I wrote a put to buy it back at the same price of 187.5. After the call was assigned, CAT reported a disappointing earning yesterday, and it dropped big. The price is currently 182.78, below my put price. If the price stays there, two days from now I will have bought it back at $472 above the market price.

So, does it mean that I lost a total of $1075+$472 for option selling? That's what I "lost" compared to a perfect stock trader who sells at the top and buys at the bottom.

No. The net result will be that I get my CAT shares back, plus the cash premium from the call and the put. Compared to buy/hold, I make a few hundred bucks.

Not all "losing" trades work out like the above, but you can see the complications of the accounting.

Hence, in the end, I only look at the net investment gain, and compare my number to different benchmarks, be it the total market+total bond, or Wellington or some other balanced funds.
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Old 08-03-2022, 10:02 AM   #485
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Gotcha... I agree and focus on net cash flows.

I have a spreadsheet with the dates of each transaction. For cash covered puts for each one written I have an "outflow" of the contracts times strike times 100 less the premium received plus any commission... the net amount of my settlement fund that is encumbered by the transaction. At expiry I have an "inflow" equal to the contracts times strike times 100... the amount of my settlement fund that is released as a result of expiry. If assigned then I have an outflow equal to contracts times strike times 100 and an "inflow" with a date of today with the current value of the shares that I own (as if I sold them at market today). I also schedule out all open sold put as if they expire worthless at expiry since the current value is well over the strike. Do an XIRR for the dates and amounts and voila!

I just realized that I understated the return because I had the interest that I receive on the settlement fund backwards for some reason, so once I fixed that it improved the XIRR with assignments to 5.70%... settlement fund interest had been pathetic until the last month or two but now it is pretty respectable.

My only two "losers" have been DIS and TGT, both companies that I think well of and don't mind owning and once they get assigned to me I just write covered calls on them at the price that I bought them for for extra income.
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Old 08-03-2022, 10:55 AM   #486
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For a conservative investor, which I am not, I don't think it is hard to get a decent return on your cash by selling puts. Decent here means more than 1%/month.

I am not conservative, hence sell more calls than puts. I usually sell puts only to buy back shares that I "lost" via assigned calls. And being a stock lover, I hate losing these winnin' stocks.

This year, I got out of some stocks at a decent price, then sold puts to buy them back. Boom, they crashed, and I would have done much better not selling puts to buy them back.

But then, as I said, if I lose less money than just buy/hold, it's still a gainful activity.
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Old 08-03-2022, 03:06 PM   #487
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I reached that milestone that I anticipated to happen this year: the cumulative premium collected from selling covered calls and puts reached the 7-figure mark.

It is currently $1,001,139 to be exact, as tracked by Quicken.

Much of this money was due to me being active in option selling in recent years. As of 1/1/2017, the amount was only around $10K.
Congrats! That is a result.

What is the average amount you have "on the wheel" at any one time?
How has that changed since 2017?

Really interesting.
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Old 08-03-2022, 03:51 PM   #488
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^^^ Just a fraction of my portfolio. About $500K to $1M, varying depending on the market condition. The option premium gets me from 0.5% to 1% of the committed principal per week, meaning the shares that I write calls on, or the cash that I write puts on. Many stocks do not have the high volatility for their options to be worthwhile.

On the average, I collect more than $5K/week. Right now, I counted 44 options outstanding, which I sold for $4,582.

How has it changed since 2017? I now sell more options, instead of one once in a while.

To do that, I watch the market more each day to seize the opportunity. One day, semiconductor sector is hot, the next day it's metal mining or fertilizer, etc... When the market goes banana, I sell OTM calls to them. When the market is sulking, I sell OTM puts to them. There are also days when I find nothing worthwhile to sell.
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Old 08-03-2022, 06:13 PM   #489
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Stupid question but what cash/securities do you have to secure it with?

Does it have to be in your settlement account ?

I donít guess individual treasuries count?
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Old 08-03-2022, 07:49 PM   #490
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Stupid question but what cash/securities do you have to secure it with?

Does it have to be in your settlement account ?

I don’t guess individual treasuries count?

Ah, this is not a stupid question at all. There are things I did not know until a few years ago, and even now don't know it all and have not bothered to figure out.

We all know about a sweep fund that's set up within our investment accounts. When we sell stocks, the proceeds go there. When we buy stocks, money is taken from there to pay for the shares. In the brokerages I had, the same default sweep fund they set up for me worked fine to back up the put options that I sold. Not so at Merrill Edge.

I had a lot of cash in the account, and yet when I entered a put sell order, their Web page came back with a message "You have no cash to back this put". What?

I called them and learned that their default sweep fund was not good for backing puts. Yet, it was good to buy stocks with. There's something fishy there, but I have not tracked it down (certainly not by asking them). So, what was my recourse?

I was told that I could move some money from the sweep fund to one of several other money market or short-term Treasury funds, and these could back up my puts. And they even paid better interests to boot!

The only problem is if I want to buy stocks outright instead of writing puts, I must sell some shares of my chosen T-fund (a Black Rock fund) to move money to the sweep fund, which then pays for the shares.

And similarly, if I have a put assignment, I must be sure to have cash in the sweep fund. One time, I got a call from the broker saying I did not have enough cash to pay for the put assignments. It took me a second to remember that the T-fund that covered the puts could not automatically pay for the put assignment, and money must be moved by me.

In short, there's something weird going on there with these funds, and you need to talk to your broker about this.

What I ended up doing was to divide my cash between the sweep fund and the T-fund. This is also good to limit my ability to write puts, and to keep me from going too gunho on put writing and driving my stock AA to a too high level if all the puts get assigned. I always want to have some loose cash in case the sky falls, and stocks get dirt cheap.
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Old 08-04-2022, 07:23 PM   #491
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I reached that milestone that I anticipated to happen this year: the cumulative premium collected from selling covered calls and puts reached the 7-figure mark.

It is currently $1,001,139 to be exact, as tracked by Quicken.

Much of this money was due to me being active in option selling in recent years. As of 1/1/2017, the amount was only around $10K.
Can you run through your strategy? You own underlying? Write covered calls on the underlying a few months out at about 20% OTM? Then you write puts? What are you trying to accomplish with them? Do you write them at the same time as the CC or at a later date?
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Old 08-04-2022, 07:26 PM   #492
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I made quite a few posts earlier in the thread about what I do. You will have to scroll up to find them.

Generally, I do very close-in options, only 1 to 2 weeks out. Eat small, but eat often.
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Old 08-04-2022, 07:49 PM   #493
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Generally, I do very close-in options, only 1 to 2 weeks out. Eat small, but eat often.

Iím trying this myself, using a similar strategy. Not sure if Iíll have as much luck, but so far itís fun and Iím learning the mechanics of how calls/puts are sold and assigned.

For others that are interested, the recommendation I would make is pick a stock and start selling puts and calls. Nothing beats real experience.

So far Iíve made $290 in premiums. Unfortunately if I held the stock, Iíd have about $850 in unrealized gains. On the plus side, it was more yesterday and Iíve only been doing this for a couple of weeks.
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Old 08-05-2022, 06:09 AM   #494
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I spent time a few years ago selling calls and puts on an index ETF in a taxable accounts. I didnít like the bookkeeping involved. Another turn off was the difficulty obtaining quotes through software like Sheets and Quicken. I believe the tickers have been standardized since then but still canít get them.

Now I just sell covered calls occasionally in a Roth. I think of it as receiving an extra dividend but itís no big deal.
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Old 08-05-2022, 12:34 PM   #495
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I spent time a few years ago selling calls and puts on an index ETF in a taxable accounts. I didn’t like the bookkeeping involved.

I definitely would not do this in a taxable account. Not with the several thousand of option sales each year.

Quote:
Another turn off was the difficulty obtaining quotes through software like Sheets and Quicken. I believe the tickers have been standardized since then but still can’t get them.

No, the same option still carries different symbols in Merrill Edge and Schwab. The price of the contracts is not available from a data feed. The price data is downloadable from the brokerages, and only after midnight.

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Now I just sell covered calls occasionally in a Roth. I think of it as receiving an extra dividend but it’s no big deal.

Each contract premium is indeed small, anywhere from $50 to $500+, depending on the stocks. But when you get weekly dividends from many stocks, they add up.

And that's how I get more than $200K each of the past few years. Year to date in 2022, it's $131K.

Imagine if I had the same money in a Roth to generate this tax-free income. It's ridiculous.
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