August 28

Selling Options And Earning Income – August 2016 Update


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Another month down and another month making money selling options. I was very successful selling options in 2015, but in the first half of 2016, not so much. Truth is, I wasn’t spending enough time evaluating trades. In June I decided to spend a little more time investigating trades before pulling the trigger. This has made a difference. Easy things like validating if an earnings call or dividends would be paid within an option contract period. Neither action would necessarily stop me from trading, but accounting for them and their potential risk is important.

I’m starting to see my income from selling options head back in the right direction. My options income the past 3-months has gone from $454 in June, to $1,007 in July. August isn’t over yet, but I’m done selling options this month. My August income from selling options is $1,089.

Last month I sold a bunch of stock. This move wasn’t well received by many of the readers of this blog. I was in the process of moving some of my money from 2 brokers over to Interactive Brokers. I could’ve transferred these stocks, but I chose to sell, capture gains, and re-buy most of the same stocks on the next correction.

I sold because markets are really hot and most stocks are overvalued. I wanted to lock in gains and use the money to sell more options. Selling stock when a company’s fundamentals and earnings haven’t changed is a no-no for many investors. I understand their argument, but this was the choice I made and I’m happy with my decision to sell.

My retirement goal is to spend my golden years living on dividends alone. This means I need to have millions of dollars in stock. I see options as a great way to boost my stock ownership and dividend income. I DRIP invest most of my monthly dividends. I hold my options income until it reaches a few thousand dollars. Then I buy more stock or I use the cash as leverage to sell another option. The plan is to reach financial independence sooner.

Dividend stock investing, DRIP reinvestment, and selling options is a trifecta for my portfolio. At least I hope it will be ;-).

Selling Options – Trades And Income

This month I spent time improving my options tracking spreadsheet. I added many new columns, including contract length, stock price DOC (day of contract), current stock price, break even price, and annualized rate of return. The red and green dollar amounts shown in the current stock price column, adjust color automatically to show if an option is in my favor or not.

This spreadsheet is a work in progress. This new version is better than my last one. I’ll continue to add more data to this tracker. If you think there are metrics I should add or if you see any mistakes on this tracker, please let me know. We’re all learning here.

Covered Calls

I didn’t sell any covered calls this month. Many of the stocks in my portfolio are already in options contracts. My stocks that were available to use for options didn’t offer much ROI, so I opted to not sell any covered calls.

Cash Secured Puts

I sold to open 11 cash secured puts:

  1. RAI – $156.00 premium
  2. TGT – $99.00 premium
  3. MO – $84.00 premium
  4. TGT – $355.00 premium
  5. KMI – $100.29 premium
  6. TIF – $89.29 premium
  7. GILD – $93.29 premium
  8. CMI – $117.29 premium
  9. QCOM – $93.29 premium
  10. ABBV – $109.29 premium
  11. AERI – $154.61 premium

I bought to close two cash secured puts:

  1. TGT – $347.00 premium
  2. TIF – $14.71 premium

Total income from my 11 sold options is $1,451.35. Total loss from my 2 bought options is $361.71.

My total income in August from selling options is $1,089.64.

Selling Options – Target Trade

Most of the contracts that I’ve sold this month are looking good. I did sell a 3-day Target put, 2 days before earnings. Target stock dropped $5 per share after earnings were released to $70. I could’ve accepted the 100 shares at $74 per share. I choose instead to close and carry.

I bought my put back at a $347 loss. I then sold a new Target put at a $70 strike price, expiring in January 2017. The new contract paid me $355. This move took a $347 loss and turned it into an $8 gain. There’s no guarantee I will come out on top with this trade. But I have 5 months to close this new contract or carry over to a better positioned contract.

I’m calling this trade out, because it shows how options don’t always go according to plan. It also shows that when plans don’t workout, options traders still have a few tricks to salvage a trade or at least delay a loss.

Selling Options – Thoughts and Takeaways

I only sell covered options. I don’t use margin accounts. This means I either need to own each underlying stock or have cash reserves to cover each options contract. I sold $70k worth of stock at market highs to lock in gains, reload my cash account, and make more money selling options than I could collect with dividends.

Had I held all of my stocks, my options income this month would have been zero dollars. I leveraged the $70k to sell 13 options contracts. These contracts earned me options income of $1,089.64.

If I would’ve held onto these stocks, my August dividend income would’ve totaled just under $500. After the stock selloff, my dividend income this month is $330 dollars. I gave up $180 in dividend income to make $900 in options income. I also locked in monetary gains of $11,680. Most of this money is in Roth and traditional IRAs, which means these transactions are tax-free or tax deferred. Selling my stocks might seem like a bad idea, but it allowed me to do all I’ve done this month with options.

I could miss out on further stock appreciation and some dividends next quarter. But, I still believe markets are heading down in coming months. Because of this, I feel really good about holding cash back and making extra money selling options. When markets correct, I’ll buy back most of the stocks I’ve recently sold. In the meantime, I’m targeting an average of $1,000 a month earned by selling options for the rest of 2016.

Have you tried selling options? What is your options income this month?

Do Me A Favor

I’ve recently started using Pinterest and it’s not as easy to drive visitors from Pinterest to my site. Pinterest users are savvy and enjoy visuals. I’ve posted to my boards and others’ boards, but I’ve not tried creating visually appealing links. For the post you’re reading now, I created my first Pinterest Image.

If you like what you’ve read, or you’re just a really nice person, please share my image below on Pinterest. As always, I’m happy to return the favor.


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