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2021 Week 27 investing and trading report

We are in the second week of July 2021. The stock market was volatile a bit when the investors started freaking about a problem that just about two or three weeks ago was no problem at all. As you will see in this week’s investing and trading report, we took trading this week lightly and we went on preserving cash. We made $1,364.00 trading options last week, we received $133.85 in dividends, and our net-liq grew to $73,988.27, a difference of $513.04 and 0.70% growth this month.
 

Selling strangles rules

 
A few members and investors asked me this question last week. “What are your criteria to choose your put strikes and how do you manage the trade?” In this part of the report, I will try to describe how I construct my trades.

Remember, though, options are a very fluid beast. It is not easy to make rules set in stone and believe you have created a holy grail of trading. It doesn’t work that way. There will be many moving parts you need to take into account and eventually break your rule. But it is not breaking the rule so to speak, it is more like modifying the rule.
 

First

First, you need a list of stocks you will be trading around them. If you go to my trading spreadsheet, all the trades you would see there are against stocks that were pre-selected and I placed them in my watch list before. None of my trade is ad hoc trade. All stocks are screened, evaluated, and I played with them a lot, meaning tried to place simulating trades, and analyzing trades to see how the stock behaves, how it can be rolled, what strikes does it offer, etc. No stocks in my watch list are an accident.
 

Second

What criteria must be met by my stocks? It is easy. You need to know what stocks you want to be investing in. That’s why I advocate that you must be an investor first. Then a trader. As an investor, I can choose stocks I want to own.

What stocks do I want to own? If you follow my blog a bit longer than just reading this post, you already know. I want to own dividend growth stocks. Yes, I also want to own some speculative stocks such as SNOW or TSLA. But primarily, I want to own dividend growth stocks (or also high-yielding dividend stocks). And all my trading revolves around these stocks.

So, the stock must pay a dividend.
The stock must grow the dividend.
The stock must be optionable.
The options chain must offer several available strikes with decent spread and premiums.
 

Here is a snippet comparing bad options and good options:
 
Good options chain - bad options chain
 
Compare the left picture showing multiple strikes available to trade and decent premiums. Not the best options chain, but acceptable. The right side of the picture shows an option chain that offers no strikes and no premiums. I then avoid trading these stocks. I still may buy them, but do not trade options. An exception may be trading a wheel strategy with at the money strikes but even that, the chain on the picture is so bad that I would probably avoid that too.
 

Third

Once I have my list, I start trading options against these stocks. I also accumulate those stocks to reach 100 shares. That way, my call side becomes a covered call. But before I accumulate, I go naked.

I always start selecting first standard deviation (1SD) strikes. That is around delta 10. I like the Tasty Works platform because they show you where the 1 SD is but if you do not have that shown on your platform it can be calculated.
 
Options chain
 

If your platform doesn’t show it, you can calculate it. Take at the money call and put strikes and add them together, then subtract and add that number to the current price and you get your 1 SD for the particular chain.
 
Options chain 2
 

Brokers may calculate the 1 SD differently (they may add IV to their formula) but options usually price it in already. During weekends the chains may also be mispriced so you want to calculate these levels during weekdays and ideally when the market is open so you get the most recent quotes (note the chart above may be showing old strike quotes and the calculated 1 SD can differ from shown).
 
Options chain 3
 
As you can see, the web trading platform doesn’t show deltas, so I had to pull out the desktop platform to get the stock deltas. And the 1 SD is around 10 – 15 delta so if you do not want to calculate where the 1 SD is, just use delta as your guide.
 

The next number I look at is the premium. I want to collect at least 1% of the underlying price. So for example, if a stock is trading at $40 a share, then for 100 shares worth $4000 I want a 1% or $40 premium. So it must be trading for at least 0.40. And this number is for the entire strangle not just one side! This will allow me to be far away from the market and thus safe and still collect a good premium.
 

Fourth

And what time frame? I tend to go for monthly expirations first and 30 to 45 DTE trades. But I am OK to go weekly (as low as 2 to 4 days to expiration) if the conditions are met – I will be beyond 1 SD and collect 10%.
 

Fifth

As I said above, options are flexible, fluid, always moving. The rules above are a basis of design or basis of trade. I am willing to deviate from it. If I trade wheel strategy, I am OK to go closer to the money and trade only one side for example. Or if I feel extremely bullish, I may skew my puts higher (but usually not closer than delta 30). I am also OK to trade 60 DTE trade in lieu of 45 DTE. And also I do not follow the rules above as strictly with rolling trades as I would do with a brand new trade. I also look at the BP requirements, some trades would require $800 buying power at 45 DTE while the same trade at 20 DTE would require $1460 BP. Thus I pick 45 DTE.
 

These are my basic rules when constructing a strangle trade, and now, let’s go and review this week’s investing and trading.

 

Here is our investing and trading report:

 

Account Value: $73,988.27 $513.04 +0.70%
Options trading results
Options Premiums Received: $1,364.00    
01 January 2021 Options: $4,209.00 +16.65%  
02 February 2021 Options: $4,884.00 +15.41%  
03 March 2021 Options: $5,258.00 +12.79%  
04 April 2021 Options: $2,336.00 +4.30%  
05 May 2021 Options: $6,346.00 +9.22%  
05 June 2021 Options: $4,677.00 +6.37%  
06 July 2021 Options: $1,364.00 +1.84%  
Options Premiums YTD: $29,074.00 +39.30%  
Dividend income results
Dividends Received: $133.85    
01 January 2021 Dividends: $53.04    
02 February 2021 Dividends: $63.00    
03 March 2021 Dividends: $30.31    
04 April 2021 Dividends: $139.70    
05 May 2021 Dividends: $167.45    
06 June 2021 Dividends: $168.56    
06 July 2021 Dividends: $133.85    
Dividends YTD: $797.39    
Portfolio metrics
Portfolio Yield: 4.61%    
Portfolio Dividend Growth: 8.47%    
Ann. Div Income & YOC in 10 yrs: $16,700.35 19.16%  
Ann. Div Income & YOC in 20 yrs: $156,925.56 180.04%  
Ann. Div Income & YOC in 25 yrs: $800,540.79 918.45%  
Ann. Div Income & YOC in 30 yrs: $6,838,812.73 7,846.08%  
Portfolio Alpha: 31.77%    
Portfolio Weighted Beta: 0.72    
CAGR: 760.94%    
AROC: 30.11%    
TROC: 23.33%    
Our 2021 Goal
2021 Dividend Goal: $1,071.42 74.42%  
2021 Portfolio Value Goal: $42,344.06 174.73% Accomplished

 

Dividend Investing and Trading Report

 
Last week, we have received a $133.85 dividends income. We feel that the income will be growing faster as more of our holdings mature and become eligible for dividend payouts. According to our holdings currently on our balance sheet, all stocks should generate $3,786.54 annual dividend income. It is not as of yet because many of the stocks were purchased recently and we missed their dividend. But next year, we should be receiving the full amount.

The chart below indicates our current annual dividend payout from our dividend stock holdings.

Last week, our dividend income reached 74.42% of our dividend income goal.

 
Annual Dividend Payout week 27
 

Options Investing and Trading Report

 
Last week we again rolled a few trades to release a stressed buying power in our account. We rolled AAPL strangle as the stock shot up and our call side got in the money. We were also adjusting our BABA trade as the Chinese government kept hammering their own companies. I also rolled Tesla (TSLA) trades as they were near expiration and in the money. I had to roll BA, MU, T, KBE, and ABBV. Now the trades are in good shape and I hope they stay in good shape.

I also opened new trades against FLMN trade. We sold a put option and we are willing to buy 100 shares of this stock so if the put gets in the money, we will let it assign (unless the new option chain offers a good roll).

The new trades and adjustments delivered $1,364.00 options premiums last week.
 

You can watch all our trades in this spreadsheet and you can also subscribe to our newsletter for our trade alerts.
 

Expected Future Dividend Income

 
As the table at the beginning of this report indicates, our aggressive dividend growth stocks accumulation is starting to show significant progress in our future dividends income. Our portfolio dividend yield and dividend growth will be bringing us almost $156,925.56 in 20 years and $6,838,812.73 in 30 years. I wish, I had that $6 million income now. But that is the fate of dividend growth investing. It is not a quick rich scheme and building an account takes time.

We will keep aggressively accumulating dividend growth stocks to generate liveable income sooner than in 20 years. And the portfolio is starting to show this to be happening. In just 10 years, we will start receiving $16,700.35 in today’s dollars. It is not bad considering that in March 2021 it was only $3,202.52 in projected future dividends.

 
Future Divi on YOC week 27
 

The chart above shows how our future dividend income is based on the future yield on cost and what dividend income we may expect in the future. The expected dividend growth depends on what stocks we are adding to our portfolio and the stocks’ 3 years average dividend growth rate. It is interesting to see what passive income we may enjoy 10, 20, 25, or 30 years from now.

 

Market value of our holdings

 
Our non-adjusted stock holdings market value increased from $92,291.19 to $93,468.90. Last week, we added only a single stock position to our portfolio. We purchased 10 shares of ICSH.

We use ICSH as a savings account and as of today, we are mostly in a preservation mode. We feel like our balance sheet is way aggressive and no cash reserves. Therefore, we are mostly adding money to our cash reserves.

Next 6 months trading rules

With that being said, we are in a preservation mode and trade lightly only. Here are the rules we are following for the rest of the year:
 

  1. We will not be opening new options trades. Only existing trades that expire will be re-opened. No scaling up.
  2. We will only roll existing trades that get in trouble.
  3. Save $600 every week in ICSH.
  4. If no cash available to buy ICSH, roll the purchase requirement over to the next week.
  5. Accumulate $40,000 in the ICSH fund.
  6. After the weekly purchase of ICSH, buy DGI stock using 20% of available buying power if it is above $2,000
  7. If purchasing a DGI stock would result a BP dropping below $2,000, the stock purchase cannot be made.
  8. Raise available BP to $10,000 before scaling the trades up again

 

This way, I hope to raise enough cash for opportunities and also overcome volatility when the market hits the fan.

 
Stock holdings week 27
 

Our goal is to accumulate 100 shares of each stock of our interest and we are getting to that goal.
 

Investing and trading ROI

 

Our options trading delivered a 1.84% monthly ROI in July 2021, totaling a 39.30% ROI YTD. We are getting close to our 45% mark!

Our account grew by 259.65% this year despite very slow growth in June and July. I suggest the growth was suppressed by the market volatility and options trades increasing their maintenance requirements that ate the net-liq value. Once the options expire (hopefully) the net liquidating value will go up faster.
 

Our options trading averaged $4,153.43 per month this year. If this trend continues, we are on track to make $49,841.14 trading options in 2021. With the income of $29,074.00 to date, we are half way to this projected income.
 

Old SPX trades repair

 

This week, we didn’t do anything with our old SPX trades.

 

Accumulating Growth Stocks

 

Last week, we didn’t add any speculative or growth stocks to our portfolio. But, we will be adding SNOW and TSLA to reach 100 shares.

 

Accumulating Dividend Growth Stocks

 

Last week, we added 10 shares of ICSH only. Next week, we may be adding more shares if our new rules allow it.

Our goal is to reach 100 shares of high-quality dividend stocks and build a weekly dividend income as per this calendar, but we have made no changes to this goal last week:
 

Weekly dividends income calendar
 
You can see the entire spreadsheet here.

 

Market Outlook

 

The stock market continued higher last week as expected with a little hiccup on Thursday that quickly recovered on Friday. Tech stocks appear to be in the spotlight again, AAPL, AMZN, and other tech stocks skyrocketed to new all-time highs. APPL started moving again after several months of dormancy. But this is a typical AAPL behavior.

We are entering into another earnings season and the expectation is 64% growth in earnings vs. last year’s comparable quarter. Remember though, that we are up against a quarter that saw the economy shut down in many areas due to Covid-19 last year. And if the earnings disappoint, we may see some serious selling. However, given that the economy is recovering very strongly, it is highly unlikely that the companies would fail to beat earnings compared to last year when everything was closed.

The stock market (as measured by S&P 500) is still in a good, uninterrupted, long-term uptrend. Even with a few dips on the road, it still is going up with no resistance:

 
SPX July 10 2021 outlook
 

However, the market keeps going higher reaching our target price of $4,400. The target is in fact a 1SD level for July and we are bout to hit that level. What are the implications? Or why we may actually see that level being hit?

 
SPX July 10 2021 outlook
 

Most of the big institutions and hedge funds trade naked options, they sell the options (unlike the retail investors who foolishly buy options). But although they trade options naked, they hedge them. So if they have naked short calls, as the market goes higher, they start buying shares to hedge their positions. And that is propelling the market higher. Unless we see some issues or some black swan event that would change the narrative, expect this market to go higher and reach the mark.

 

Investing and trading report in charts

 

Account Net-Liq

 

TW Account Net-Liq week 25

 

Account Stocks holding

 
TW Account holdings week 27
 

Our stock holdings still do not beat the market. However, I expect it to change over time. S&P 500 grew 51.05% since we opened our portfolio while our portfolio grew 18.39% only. On YTD basis, the S&P 500 grew 21.21% and our portfolio 11.40%.

But the numbers above apply to our stock holdings in our account, not the overall account net-liq growth. Our overall account beats the market growing by 259.65%!
 

Stock holdings Growth YTD

 
TW Account holdings Growth YTD
 

I expect our stock holdings to start outperforming the market as they mature. However, these are just our stock holdings. The entire portfolio beats the market by far thanks to monetizing those positions.

Our goal is to grow this account to $1,000,000.00 value in ten years. We are in year two.

 

Investing and Trading Report – Options Monthly Income

 
TW Options Income week 27
 

Investing and Trading Report – Options Annual Income

 

TW Options Annual Income week 27
 

Our dividend goal and future dividends

 

TW Received vs Projected Dividends week 27
 

We are on track to accomplish our dividend income goal, currently, we are at 74.42% of the goal to reach $1,071 of dividend income this year. Currently, we accumulated enough shares to receive $3,785.54 in annual dividends if we have held through the entire dividend cycle.
 

TW Received vs Future Dividends week 27

The chart above is the corrected chart comparing the projected MONTHLY dividend income vs received dividend income. And again, the projected dividend income is based on the stock holdings up to date. That is the income we would have received if we have held over the entire dividend cycle.

 

Our account cumulative return

 

The chart below indicates our cumulative adjusted return. It shows how the last week’s selloff shook down our returns but we are recovering along with the market.
 

TW cumulative return wk 27
 

As of today, our account cumulative return is 28.94% (since March 13, 2021).

 

Conclusion of our investing and trading report

 

This week our options trading exceeded our expectations. I hope, the rest of the month will be even better.

We will continue accumulating the dividend growth stocks in our portfolio to reach 100 shares. We will also replenish our cash reserves to bring them back to 25% of our current net-liq value.

We will report our next week’s results next Saturday. Until then, good luck and good trading!





2 responses to “2021 Week 27 investing and trading report”

  1. Gabriel says:

    At third point you said you want to collect at least 10% of the underlying price and said if a stock is trading at $40 a share, then for 100 shares worth $400, but 40*100=4000USD, so the 10% isn´t $40 of premium. It is OK?

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