Welcome to my first month Review (September). I just want to remind everyone that I do not offer financial advice, this an opinion blog about money. The main emphasis of this site is that you can earn easy income through dividends and safe option strategies. In this past I purchased dividend stocks, Exchange Traded Funds (ETFS) and sold covered calls. I really did not have much of a plan with my trading. This is the first month of putting together a basic plan. My goal is not perfection but to learn each month and improve my investing strategy. For this first month my hope was to earn $1,000 in options premium. Below Is the review on how I did and what I learned this first month.
I decided to pursue two strategies to get started. These included both covered calls and cash secured puts. (Please note, you can find posts on this site that explain how these two strategies work.) In addition, for this first month I decided to focus on strike prices that were 10% out of the money. For instance, if a stock price is $50 then I would look at a strike price around $55 for a covered call. I would do the same but in reverse for a cash secured put. Using the same $50 stock price I would try to sell an option that had a strike price around $45. This is not a hard and fast rule. In some cases, I went over the 10% and in other cases less. However, I tried to stay close to the 10% rule. My thinking was that if the stock was assigned then I at least made a 10% return. Most people are happy with a 10% return for a year. So, for a 30 to 60 day period the return is outstanding. Please keep in mind my goal is not to have the stock assigned for covered calls. However, sometimes it happens so if it did, I was ok with it.
The next rule was to look at options that expired between 30 to 60 days. This was so that I got enough premium and did not take on too much risk. My goal was to get between $50-$100 dollars in premium per trade. Again, this is not a hard and fast rule. Sometimes I went further out to gain a higher than usual premium. Keep in mind that the further out you go the more risk you are taking and in relation the higher premium you get due to the time value of the option. I did not want to take on too much risk since the goal is to make easy money without putting my portfolio at risk.
Finally, I had one additional rule of exiting the option if I earned enough premium. To close a stock option, you buy the same option contract at the same price. So, if you sold an option of a stock at a specific strike price in the future you buy back the same option. This is known as Buying to Close a stock option. As the option gets closer to the expiration date and the stock price changes the premium value will change. My hope is to close the position for a fraction of what I purchased it for. My preference is to have the option expire, but this is riskier since a sudden move in the market could cause the stock to be assigned.
Below is an image of my trades for the month. In short, I did 11 trades that consisted of a total 16 options and made $1,129.05 for September. Of the 11 option trades 7 were covered calls and 4 where cash secured puts. The average for the 11 trades was a little over $100 per trade. The amazing thing is no options were assigned and all expired or were closed. Below you can see all my trades. Below the spreadsheet are some of the things I learned in my first month. Please let me know if you have any questions or comments?
Things Learned:
- Closed several trades. The market went up and did not make sense to hold them with such little premium to be had. One exception was MMM trade. I closed it after just two weeks. This is a good return for just two weeks.
- I did do one long term contract on KO that had a high premium. I am fine with getting 65 for 100 shares in a little over a year.
- Did only a few trades early in the month and only traded 8 stocks. Truly little work for making $1,129.05.
4 thoughts on “Earned $1,100 in one month using covered calls and cash secured puts – September 2020”