$1,558.70 premiums for December 2020 from covered calls, cash secured puts and rolling stock options

Welcome to my fourth month Review (December).  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.  Below Is the review on how I did and what I learned in December.

December was a good month.  I had 17 trades with 17 contracts and earned $1,558.70 for the month.  I continued to use my plan of finding options that are 10% above the strike price for Calls and 10% below for puts.  Also, continued to use a 20 delta (.20 call/-.20 put) for my trades.  Finally, primarily traded dividend value stocks and ETFs.  The two exceptions to dividend value stocks and etfs are NVIDIA and ARKK.  NVIDIA is a chip growth company and ARKK is an exchange traded fund that specializes on disruptive innovative companies.  Its biggest holding is Tesla.   I am going to discuss each below and how I am mitigating my risk and returns going forward.

I inherited NVIDIA and sold a covered call on it before starting my new plan.  At that time, I did not look at Delta and did not know much about the stock.  I simply picked a strike price that I thought was a good value at that time.  Well, the stock took off like a rocket.  In a matter of weeks, it doubled in value. I was suddenly way in the money.  To not have to sell it for a huge loss I decided to roll the option up and out.  Meaning I both closed existing call contract and sold a new call contract at a higher price further into the future.  I moved the strike up by 5 points from 400 to 405 and pushed the expiration out three months.  I did gain some premium and was able to buy myself more time.  My hope is that the stock will come back down to a more realistic value.  Since this is a covered call, I am ok with the stock being assigned at some point.  Currently, with the strike at $405, I would make a profit of $231 due to my cost basis being $174.  I have owned NVIDIA for a little over a year and this would constitute a 133% increase.

ARKK also majorly increased in value in a short time.  It went from around $90 to nearly $150 in a couple of months.  Like NVIDIA I decided to roll the ARKK contracts up and out.  I have a covered call and a call credit spread.  For both I did a buy to close the current contract and then a sell to open the new contract.  For the spread I also did a sell to close the more out of the money contract.  I was able to again gain some premium in both these trades.  I am worried about the spread.  I do not own the etf shares for it.  Also, to find a profitable trade I increased the size of the spread.  Having the larger spread has put me at a bit more risk.  Again, the hope is that this trade will at some point come back into the money or closer to the money.  Tesla which is ARKK’s largest holding has gone to unbelievable heights.  It went from $88 to over $850 in less than a year.  This is nearly a 1000% increase in value in a year.  It’s PE is currently at over 1200.  I believe it is in a bubble and will come back down to reality.  My goal going forward is to work the contract until the correction occurs.  However, I run the risk of losing a fair amount on this trade.  Another option is to purchase the shares when the value comes down and then change the trade to be a covered call.

In December I had my first assignment.  DVY was assigned at 92 and was originally purchased at 95 via an assignment of a put.  I got $110 for the sale of the put and $65 for sale of call at 92.  Here is the calculation $9500 – $9200 = $-300.  Add in the premiums of $175 and the loss is $125.  Now I did get three dividends of $94.67, $79.96, and $94.63.  If I add dividends of $269.26 to the transaction, then I have a net profit of $144.26.  However, I would have preferred to not have the shares assigned.  The delta was .172 meaning that the option contract had an 82.8% probability of not expiring in the money.  The shares were assigned the week before the expiration.  I would have rolled the shares but since they were assigned a week early, I did not have a chance.   With a little research I realized that the DVY contract was most likely exercised to gain the dividend.  Turns out the ex-dividend date was two days after the shares were assigned.

I also wanted to give a synopsis of the first four months and how the year ended.  For the four months I had a total of 61 trades on 71 contracts and earned a total of $5,891 on option premiums.  I had one contract be assigned and all the trades were profitable.  However, I might have to take a loss on my rolling credit spread ARKK contract.   I primarily traded in about 20 stocks and etfs.

Below you can see all my trades for December.  I also included after the spreadsheet some of the things I learned this month.  Please let me know if you have any questions or comments?

Things Learned:

• Delta is a helpful tool for determining if an option is a good investment. However, it does not protect you if the market experiences a bubble or a correction.
• You can roll options to mitigate losses and you should typically roll if you are able to add premium to the trade.
• For safe option investing do not invest in volatile growth companies and etfs. Best to stick to value companies and etfs with less volatility.

View Next Month’s Results