Options Update – June 2018

With the markets recent volatility, some readers have asked that I share an update on my options activity.  I continue selling puts against companies I want to own more of and using proceeds to purchase more shares of these companies.

Below are all my trades since July of last year:

The last update on trades had generated $55,334 in revenues. I’m approved for “naked” options trading meaning I can sell puts on companies I don’t own and without having the cash to purchase said security. My collateral is owning shares of companies as equity to cover.  This update shows I’ve now generated $70,212 in revenues. Most of this money has already been used to purchase more dividend paying stocks.  The closeout column is what each call/put will cost to close out today.  Basically if I close out every single open position I’d lose $2,640.  This is an unrealized gain/loss.

I’ve already booked profits of $4,782.50, down from $7,781.50 on closed trades.  The reason this is down is because I “rolled” forward some options position.  What this means is I had an expiration date getting close and the option was still in the money so I bought back the previous option I sold and sold a new option with a longer dated expiration.

Here’s an example of a recent roll forward:

On 03/09/18 I sold 2 08/17/18 dated $75 Strike CVS Puts for $8.55 each, creating net revenue of $1,704.55.
On 06/04/18 I decided to buy back that same Put for $11.66 each, costing me $2,337.45 for a total net loss of $632.90.
I simultaneously sold a new Put on 06/04/18 for CVS with a $75 Strike expiring on 01/18/19 for $12.36 each, creating net revenues of $2,466.55.  So I show a realized loss of $632.90 but I’ve generated revenues of $2,466.55-$632.90 =  $1833.65.  Notice this is more total revenue than the original trade.  I was basically paid $.70 ($12.36-$11.66) x 200 (keep in mind each put/call is 100 shares) = $140 to push out the expiration date.  I hope that makes sense.

My net profits if I closed out all trades today would be $4,782.50 – $2,640.00 = $2,142.50.

Note: These profits won’t include dividends or capital gains which I do receive from investing in other dividend paying stocks with the revenue.

I’ve been very active trading options, I currently have open around 40 options positions.  V is still responsible for a lot of my gains.

I’ve sold a lot of puts on consumer goods companies which have been hammered.  Considering this, I think I’m doing well to be in the black.  As this space continues to recover, I’ll be sitting pretty well, a lot of these gains may not be realized until next year.  However, I’ve gotten a lot of revenue that I’ve already put to work in the market in the meantime.

My V puts continue to be rock solid.  In fact, I used some of these profits to buy additional shares of V in this account more than once.  My MO puts are killing me!  I do expect MO/PM to recover, I don’t know how long that will take but I’m willing to wait it out.  I can always roll forward the puts if necessary.

So what happens in the case that one of these companies is lower near expiration (in the money)? Well, I have a few options.

a. I can do nothing and I’ll be required to purchase 100 shares of said security at the strike price. It’s sort of like I’m buying the company right now at a discount.

b. I can decide to purchase back the put for more money at a loss of approximately (strike – current share value) x 100.

c. Third option is to “roll” the put forward. What this means is that I simultaneously purchase the put back and sell another longer dated put so that I haven’t lost any money.

Any profits will go directly into purchasing more shares of solid dividend-paying companies.

This is just another avenue I’m using to earn additional profits so that I can get this dividend snowball moving faster.  I just broke the $12,000 forward dividends goal around March and I’m already getting near $16,000 in forward dividends.  The extra options income is certainly helping speed up the process.  My forward dividends are currently $15,692.  Just for reference, my forward income was $12,015 on 02/27/18.  I’ve already surpassed my goal for the year so I’m now shooting for $18,000 in forward dividends by year’s end.  I’ll need to put to work $61,546 at a 3.75% yield to do this.

Best long ideas currently are V, BRK.B, MO, PM, CVS, DIS, SBUX to name a few.  I’ll be adding more to these companies throughout the year at these prices.