Over the past year I have been on a journey to learn how to trade safe option strategies. In this post and the associated YouTube video below, I will share the results of my journey. I have made 199 trades selling covered calls, cash secured puts and credit spreads and earned an average of $2,000 a month. I was able to do this by trading only a couple hours a week.
I averaged $133 in premium for the entire year and $156 over the past four months. I have used the guidelines below to identify good options contracts.
- 10% Out of the Money.
- 30 – 60 Average Expiration.
- 20 Delta or an 80% probability to expire out of the money.
- Value Dividend Paying Securities like ABBV, INTC, KO, XOM, CSCO, PG, GLW, DVY
- Close contract if good return or if little premium left.
- Earn at least $100 per trade.
During the journey I only had two contracts get assigned and both occurred on or the day before the ex-dividend date. This was one of my biggest lessons learned. It is best to trade a couple days before the ex-dividend date. The two securities that were assigned are DVY and MSFT (Microsoft). DVY was on a covered call, and I did have a profit. The MSFT trade is the only trade where I took a loss.
The loss has not been realized. This is because Schwab allowed me due to the cash in the account to borrow the stock. Schwab did this automatically. The next day the shares showed up as a -100 in my account. The trade was a Call Vertical Credit Spread. I sold a Call contract short that was closer to the money and purchased another contract further out of the money. MSFT went from the low 200s to over 300 in a matter of months. I found myself deep in the money. If you want to learn more about this losing trade, look a post where I discuss it in more detail. (MSFT Loss Link)
During my year journey I only traded two securities and got into trouble on both. The other security was ARKK. I was able to roll myself out of trouble with ARKK but not with MSFT. The lesson learned is that Call Vertical Credit Spreads are too risky for me. I am no longer going to trade these.
Going forward I am going to continue to focus on earning $2,000 a month in my brokerage accounts. However, I have setup one of my retirement accounts to be level 2 at Schwab. This will allow me to trade vertical credit spreads with margin in the account. I am going to see if I can really increase my returns in this account with safe option strategies. However, I will not have to worry about taxes and impacting my subsidies for the Affordable Care Act.
Thanks for joining me on my journey. Please let me know if you have any questions by leaving a comment below.
Jim Adams