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New Trades, rollovers and adjustments (TASR, GG, CG,), speeding to early retirement

As April is heading towards the end I decided to report the trades I made recently which I have failed to report due to my busy schedule at work.

If you follow my blog, you may remember my desire to change the purpose of my accounts to different strategies. Thus my TD account is now dedicated primarily to options trading with dividend growth stocks as a base or core of the portfolio.

I recognized how powerful put selling strategy can be, and as Tom Sosnoff confirms in one of his shows that it is the most outperforming strategy out of all other strategies in Wall Street.

I must admit that I myself am stunned by results of this strategy and somewhat regret that I was stupid enough in the past not learning it earlier.

I have been trading options for three years. It is, though, early to claim that I am a proficient options trader, but I could claim my results so far. I have been making 45% profit in average during these three years.

Yes, you read it correctly. 45% profit may sound like too good to be true, but my trading speaks for itself. Last year I made 65%, this year I am heading towards 45% gain.
 

I plan to use gains from put selling to invest into dividend growth stocks and that would help me to create and grow my dividend growth portfolio faster than what I anticipated before. If I will be able to keep this strike of returns, I will double my investments every 1 and a half year. My small account should then reach 300,000 dollars in about 6 years. If still maintaining 45% average return, I should be making 135,000 dollars annually. Well enough to retire.

I can hear many people now doubting this vision, so this is also a challenge to me, but to all doubters. Will I make it? Or will I lose it all?

Let’s review the trades I made.

Taser Int. (TASR) rollover

First few trades were against Taser Int. (TASR). I had 2 September contracts at 17 strike. One contract was an original trade, the second was a rollover from 18 strike I made earlier due to TASR showing weakness.

A few days ago, TASR again suffered a sell off. I couldn’t find any reason for selling. The company reported better than expected results and also reported a new contract of stun guns worth of millions of dollars. I would assume this to be bullish, yet investors sold of hard. TASR fell by 6% that day.

I decided to roll those two trades lower, but keep the expiration. Thus I bought back two old contracts with 17 strike and sold 4 new contracts still in September, but 15 strike. This is well below TASR’s technical support and this level should hold.

Carlyle Group LP (CG) new trade

Well, I must admit this trade was opened by a mistake. Originally, I wanted to open a trade against Goldcorp Inc. (GG), but I messed up the symbols. However I do not regret this trade. CG pays nice dividend (as it is a limited partnership) and seems to be somewhat stable (the whole 2014 this stock seems to be a range bound; and that is quite well for put selling as the options lose value quite quickly. As of now, since the opening of the trade on April 16 I already see a 26% profit. It may still change till the end of the trade, but I do not expect it. I collected $182 premium with this trade.

Goldcorp Inc. (GG) new trade

This is the trade I wanted to open before I made a profitable mistake with Carlyle Group LP (CG). This trade is losing right now. I am still OTM, but the volatility is eating up my profits. I collected $130 premiums and will keep it if the trade expires worthless in October 2014.

These were the trades I made during the end of April.

Happy trading and good luck.
 





6 Responses to “New Trades, rollovers and adjustments (TASR, GG, CG,), speeding to early retirement”

  1. Scott says:

    Thanks, Martin. Couple more quick questions I’m trying to wrap my mind around, if you don’t mind:

    1) Since it looks like you are doing mostly put selling (cash secured?) and you are bringing in anywhere from $160 to $700 a month in premium, you must have quite a few open trades. Even if you find a stock with high IV able to generate a premium of around $100, that must mean that you must have at least one and maybe up to 3-4 positions open at a time. Doesn’t that really eat into your buying power? For example, I’d only be able to sell a single put with a stock less than $40 using my available $4500,

    2) If the trade become in-the-money, do you close out, roll, or get assigned and then sell covered calls? For some dividend paying stocks I might think about doing the later and try to get both options premium as well as the dividend,

    3) For smaller accounts, what are your thoughts on defined risk trades like vertical credit spreads? These would use substantially less capital, but the premiums are not quite as rich either,

    and

    4) Do you decide on the duration of the options expiration based on POP, amount of premium, or some other measure?

    The friend whom with I started my website is really into options trading so it has been fun to chat with him too. I’m trying to get all the advice I can! Thanks again!

    • Martin says:

      Hey Scott, let me answer those questions:

      1) I do not do cash secured trades, but use margin. It has some risk involved since if you won’t manage your trades and get put stocks, you may have troubles to come up with cash. But that is the reason for me to avoid assignment at all cost, so I always roll down in strike and away in time as much as possible.

      2) Yes, I have a few open trades, currently 11 trades, go to My Holdings page and there you can see all open trades and their expirations, but it wasn’t always like that. When I started trading options and had a small account, I only sold one long term position and then waited. I had no choice, although I didn’t like, but I couldn’t afford more positions of one stock option to collect a decent premium and I always wanted to collect at least $80 or more after commissions, so I rather chose 5 month contract, collected $110 – 150 dollars and waited. I always reinvested profits plus my contributions allowed me, later, opening more and more trades. I also tried to be opening trades in a pattern I call a “time ladder” to have at least one expiration every month. It takes time, but if you do not have at least 100k dollars to trade, I do not see a better way to trade options.

      3) Yes, open positions eat up your buying power, but with margin it is only around 25-30% of the strike * 100 price, so it is manageable and you can open more trades than with cash secured puts. But again, if trading on margin, you must be careful and know what you are doing and also have enough cash reserves aside for rolling the trades. I always try to keep at least 15 – 30% cash in my account. With small account you will however be forced to use more cash and have less reserves, that’s why I would go only with one long trade as it is safer than short trade because with a good quality dividend paying stock the chance that the stock will grow over 6 months is greater than over one month only, so you give the stock more time to grow and make sure the option expires worthless.

      4) If the contract gets ITM I always roll. I am greedy in this and do not agree with some that you should close the trade, take the loss and move on. But this also depends on a situation. If I can roll and make the roll a credit trade, than I do it. Sometimes, I roll at the same month by buying one contract back and selling two contracts in the same month, sometimes I swap the contracts 1 to 1 but longer in time. It depends on situation. I also do not roll immediately as the contract gets ITM. If I still have 5 months to expiration, there is no need to roll. I also look at the dynamic of the stock’s fall, if it is too violent and there is a danger of early assignment, I roll. If there is a danger of stock not recovering or recovering too slowly, I roll, but if there is no need to panic, I wait and let it go as is. If there is no chance of rolling (sometimes options can get so cheap that you won’t be able to roll) then I let it assign. That’s why I trade options only against stocks I do not mind owning.

      5) I abandoned spreads for one reason – they are strongly directional trades. Unlike put selling where you are betting for stock either slightly growing. strongly growing or going sideways or even slightly falling (as long as it stays above strike) you make money. With spreads you must be correct in direction and time. If you are not, it is quite expensive to repair the trade. In my opinion totally unsuitable for small accounts. With put selling I have a full control of the trade and can manage it as needed, with spreads you will be forced with either correct guess and gain or wrong and loss, nothing in between unless you have enough money in your account to move your spreads and leg in and out of the position. I didn’t have enough money and costly spread repairs wiped out my early profits (if you browse into my blog history, you will find out that I doubled my money trading advanced options, but later I almost lost it all (from 4,000 I made $8,000 and then went down to $1,900 to start over). So, spreads are not for me and in my opinion not for you with small account.

      6) When selecting premiums I also look at IV and time and try to get a decent premium (ideally around 1.00) at as short time as possible. I try to chose IV as close to 50% as possible (not always available) and also look at technical analysis to see where the stock has major supports. I also use Bollinger Bands to time entry into a position (be at the lower band, 1 StD, 10 day MA crossover 20 day MA, etc.) In a choppy market like the one we have right now I am more cautious and select strikes two or three strikes below actual price, in strong uptrend I am more aggressive and select the next lower strike or even ITM strike if I am convinced or it is obvious the stock will go up.

      So that’s about it. If I forgot anything, let me know.

      Thanks!

  2. Scott says:

    Thanks for the info! I will have to keep coming back and reading your site more. I’ve recently started to watch the tastytrade videos and opened a dough/TD Ameritrade account solely for options trading. Like you, I intend mostly to have the core of my portfolio be dividends (portfolio can be seen on my site), but will be supplementing this income with selling premium.

    Since I only have about $4500 100% devoted to options, I won’t be able to yet do an “options ladder,” like you have been doing. I’m limited to verticals, iron condors, and puts on lower priced stocks, as well as covered calls on a few of my stocks.

    It looks like you have quite a bit more capital to play with now; how much did you start with when you started trading options? Did you stick to selling covered calls/puts or try any other strategies?

    Thanks a lot and good luck to you!

    • Martin says:

      Hi Scott, First, thanks a lot for stopping by. I appreciate it.
      I started as you. I had some 4,000 dollars available and started with advanced options trading. I made quite a good chunk of money, but then lost it almost all. I doubled my account to almost 8k and then went down to 1,900. So I started again with even less than what I originally had. But kept it small and was using long term options to collect as much premium as possible and give it a time and be patient. At first, it will go slow and it will take ages before the account starts taking some traction. But once it hits the momentum it will start moving faster and faster, like a snowball. I had an eye opener when I started trading some cash for a friend of mine and we originally started with paper money. I could see a huge potential in options. That’s why I decided to focus on options more and have DGI as a core. Good luck and thanks again for stopping by!

  3. Marvin says:

    I believe you will be fine with GG. I think gold and silver are digging in a bottom at the moment. Only time will tell.

    • Martin says:

      I think so too. Since it is an option contract however, I may not have enough time in it to materialize the profit, as you said, time will show. Thanks for stopping by.



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