Return of an active investor with option selling

[NW-Bound]

NW. Are counting the interest your earning on the cash reserved for the csp?

The interest on the cash adds to the total return of the portfolio, but it is not counted in the option gain calculation.

 

[NW-Bound]

I have found this is like having a part time job once I retired. I probably average about 10 hours per week, much of that is recording trades in my tracking sheet. Since my trades are formulaic and unencumbered from emotion, sentiment and guesswork it is almost like programmed trading.

I spent a lot more than 10 hours/week. Usually it's 3-4 hours/day, and it's spent looking at the stock market to discern sector rotations, and see what of my positions I should sell calls on, and what I should sell puts on.

I don't have a tracking sheet, and used Quicken to download transactions from all my accounts to look at. When Quicken crashed, I flew blind, and simply knew that I made money.

How much of that gain came from stocks, how much from options, I did not know until I downloaded all past transactions to do my own compilation.

 

[NW-Bound]

By the way, my brokerages are Merrill Edge and Schwab. I do not use any fancy stock trading screen like you see on YouTube (and what most of the active traders use).

25 years ago, I used Level II trading screen from Schwab, and found out that I did not need it because I didn't do day trading. My screens for entering option and stock trades are the usual screens like you use at online brokerages like Vanguard for example.

I don't need to enter orders fast. I need to slow down to think.

 

[NW-Bound]

Overall your option trading gained quite a bit edge over sp500. Maybe you can convince Mr ERN that wheel strategy does work.

Why the Wheel Strategy Doesn't Work - Options Series Part 12 - Early Retirement Now

The Wheel Strategy is often sold as a surefire downside risk management tool when selling cash-secured put options. Here are several flaws in this approach.

earlyretirementnow.com

I just glanced through the info. OK, perhaps what I do has nothing to do with the "wheel strategy".

I am what is called a "directional trader", in contrast to a "non-directional" trader. I look at the underlying stocks first, and try to see what stocks are likely to go up, what to go down. Then, I decide whether I want to buy the stock, then to sell covered calls on it to enhance the return. If I think a stock is undeservedly punished, I may sell a put to possibly get assigned to establish a new position, or to add to an existing one. In other words, I trade the stock first, and the option is an add-on.

Non-directional traders are mostly market makers or hedge fund managers. They trade very high volumes, and employ "dynamic hedging". They try to make money whether the underlying stocks go up or down. That's a different league altogether, and I don't know any such manager.

 

[NW-Bound]

You are much more diversified than I am. My average sell is 10 contracts so for SPY that is a big chunk to have in play but SPY is relatively stable except for a few months ago when it ripped in April and I ended up in cash but it came back down to 725 on June 10 so it has been "stable" since the April run up. I'm OK with missing that because the cash is sitting and earning at 3.5%...

I have a different style. I am a stock picker first, and an option trader second. Hence, I buy individual stocks then use options to enhance the return.

I do look at the market, i.e. SPY, in making decision on stock and option trading. When the market is in a bearish mood, a stock that goes upstream will eventually pause or reverse.

There are different styles. A guy does what he's comfortable with, and of course there are many ways to make money (and also many ways to lose it ).

PS. Because I have always been a diversified stock holder, long ago I noticed that stocks in different sectors often moved opposite in the short term, then they reversed. Is there a way to arbitrage it? Later, I found the use of options for a contrarian play to the sector rotation, without having to buy/sell the stocks themselves.

One more reason for writing options on individual stocks instead of the whole market is that individual stocks vary a lot more than the ensemble. Think of making money on the individual ocean waves, instead of the rise/fall of the tide.

 

[Route246]

I have a different style. I am a stock picker first, and an option trader second. Hence, I buy individual stocks then use options to enhance the return.

I do look at the market, i.e. SPY, in making decision on stock and option trading. When the market is in a bearish mood, a stock that goes upstream will eventually pause or reverse.

There are different styles. A guy does what he's comfortable with, and of course there are many ways to make money (and also many ways to lose it ).

PS. Because I have always been a diversified stock holder, long ago I noticed that stocks in different sectors often moved opposite in the short term, then they reversed. Is there a way to arbitrage it? Later, I found the use of options for a contrarian play to the sector rotation, without having to buy/sell the stocks themselves.

One more reason for writing options on individual stocks instead of the whole market is that individual stocks vary a lot more than the ensemble. Think of making money on the individual ocean waves, instead of the rise/fall of the tide.

This explains it well. I am focused on theta harvesting only and always looking at percentage gain (or loss if it is leaning towards assignment). I'm indifferent to the equity but I stay with the four mentioned because I have a good feel for the volatility and can make decisions accordingly. I am the polar opposite of a stock picker, I guess.