As you all know I am new to options and it’s hard to come out with a decent reporting system that will not create too many headaches to follow, so this new section might change in time.
Right now the strategy that I am following is to trade options of companies that I want to own, that I already own and that pay dividends.
In August I betrayed this path on 2 occasions and ended up loosing quite a bit of money because of that. I guess that’s a good lesson learned on my side.
The first betrayal was on a unknown stock on which I did no research, that was paying no dividends and that tanked immediately after I sold the PUT, which was set to expire 2 days after. The annualised gain was 300++% but the result has been a disaster that almost wiped out 1/4th of my TOTAL option trading activities since I started (-1823% on AR%). I did well closing the trade with the loss, because the stock price continued it’s downward spiral, but this will serve me as a lesson: research, dividends, decent businesses. (XON)
The second trade was somewhat similar, but I wasn’t greedy and closed the deal with a profit before Yellen spoke. Eventually the stock did not reach the strike, but it was so close that I thought that I didn’t want to risk it. In this case the company did pay a dividend, but it’s in biotech and I do not trust that segment all that much, and if I got it assigned it would have taken away a big portion of my cash as the stock price is around 50USD… (TEVA)
Third case this month was GME, on this one I did more research and decided to get the option assigned, so I now have a new stock against which I am going to sell calls aggressively. I’ll try collecting premiums that I can, if I can dispatch it with a modest 10% increase in price I’ll be happy, but in the meantime I can collect premiums and dividends. This was a good play because it goes ex-div next week, a particular that I studied very well to time my trades.
The rest of my positions are not very aggressive, AR% is about 7.5% at the moment, including those major failures that I hit this month, so I am still on track. For the remind of the year I will not set targets to this baby, but from 2017 I’d like to try to hit 10% AR% on option trades. It’s going to be hard though, and I must remember NOT TO BE GREEDY!
Addendum on reporting
It came to my attention that although I get immediately the money of any sale I make on options the trade is far from over. As the few experiences here above underline a trade is not over till is either Closed or Expired. When reporting dividends and premiums I will report them when the “happen”, but in my option posts I will always refer to cash secured and cash unsecured.
As of today I have traded 933 Euro worth of options, but only 425 Euro are “closed deals”.
I am stressing this out because it might seem that it’s easy to get money with options, but it’s much more risky than simply trading stocks. Until the expiry date I will not know if the result that i am posting is going to be met or if it’s going to be MUCH LESS (if not a loss). For sure it cannot be more, unless I trade other option contracts in the meantime.